Trust Fund Issues (Long Post)

HobgoblinBT

The house sale in the early 1990s, should be taken in context.  My view is that properties reached a high point towards the end of 1988 as a result of the Lawson boom following the March 1988 budget that abolished dual mortgage tax relief but gave a notice period (can’t remember how long). Property prices boomed, but saw a steep decline from early 1989 as demand for property fell off a cliff with less tax relief, and base interest rate rising to 15% and I believe higher for a short period.  Savings interest rates were also higher.  Faced with falling property prices within the trust, the asset class that made up the majority value of the trust, one can see why a sale of one of the properties was considered.

sk_45

Malthusian said:

That does not surprise me as the FOS probably applied a time bar (although they have been known to ignore those).

However the courts are no more receptive to claims of investment mismanagement based entirely on hindsight than the FOS, so I still don't see any reason to waste your money on a court case.

Your assumption that Property 2 would have generated £600,000 worth of rent over 38 years starting from £3,075pa in 1983 would require the rent to increase by 7.5% year-on-year. That is not a realistic assumption to say the least. It is believable that capital growth in a house could be 7.5%pa over 38 years but no tenant is going to tolerate rental increases of 7.5% year in year out, and tossing them out to get a new tenant who will means void periods and added maintenance / renovation costs. Going to court and claiming that your mother and the bank mismanaged the trust's assets based on figures like that would be a waste of your money.

Ditto claims that the trust must have been mismanaged because the trustees weren't churning the shares or that your mother didn't receive an income for 13 years, which appears to be based on no evidence.

I based my income assumption on the below.

YEAR                                                      ANNUAL_RENTAL_INC                                                  MONTHLY_RENTAL_INCOME

1985                                                        4,200                                                                                350 Based on 1984

1986                                                        4,200                                                                                350 

1987                                                        4,200                                                                                350 

1988                                                        6,000                                                                                500 

1989                                                        6,000                                                                                500 

1990                                                        6,000                                                                                500 

1991                                                        9,600                                                                                800 

1992                                                        9,600                                                                                800 

1993                                                        9,600                                                                                800 

1994                                                     12,000                                                                            1,000 

1995                                                     12,000                                                                            1,000 

1996                                                     12,000                                                                            1,000 

1997                                                     12,000                                                                            1,000 

1998                                                     12,000                                                                            1,000 

1999                                                     12,000                                                                            1,000 

2000                                                     14,400                                                                            1,200 

2001                                                     14,400                                                                            1,200 

2002                                                     14,400                                                                            1,200 

2003                                                     14,400                                                                            1,200 

2004                                                     14,400                                                                            1,200 

2005                                                     14,400                                                                            1,200 

2006                                                     14,400                                                                            1,200 

2007                                                     14,400                                                                            1,200 

2008                                                     14,400                                                                            1,200 

2009                                                     14,400                                                                            1,200 

2010                                                     16,800                                                                            1,400 

2011                                                     16,800                                                                            1,400 

2012                                                     16,800                                                                            1,400 

2013                                                     16,800                                                                            1,400 

2014                                                     16,800                                                                            1,400 

2015                                                     16,800                                                                            1,400 

2016                                                     16,800                                                                            1,400 

2017                                                     16,800                                                                            1,400 

2018                                                     16,800                                                                            1,400 

2019                                                     16,800                                                                            1,400 

2020                                                     16,800                                                                            1,400 

2021                                                     16,800                                                                            1,400 

securityguy

HobgoblinBT said:

The house sale in the early 1990s, should be taken in context.  My view is that properties reached a high point towards the end of 1988 as a result of the Lawson boom following the March 1988 budget that abolished dual mortgage tax relief but gave a notice period (can’t remember how long). Property prices boomed, but saw a steep decline from early 1989 as demand for property fell off a cliff with less tax relief, and base interest rate rising to 15% and I believe higher for a short period.  Savings interest rates were also higher.  Faced with falling property prices within the trust, the asset class that made up the majority value of the trust, one can see why a sale of one of the properties was considered.

Exactly.  An awful lot of people made property decisions in the early 1990s which, with hindsight, look bad.

But I didn't buy $500 worth of Cisco stock in 1991 because it looked a bit risky.  

securityguy

I can see that my mother had spoken to the bank in 1990 asking for them to provide annual reports and also to provide evidence of fees and commissions.
Also I have letters from early 2000 from the bank stating that my mother was less than impressed with the income produced.
My mother is a layperson therefore would not really have understood the investments, however she knows how to run a house as she looked after PROPERTY_2 for years whilst my farther worked. I feel that the bank took unfair advantage of my mothers innocence.

You are not going to get anywhere.

Your mother was a trustee.  If she asked for reports in 1990, why did she not then pursue the matter for 30-odd years?  If she was less than impressed by the returns, why did she not pursue the matter for 20-odd years?  If she's a "layperson", what was the basis for her concerns?  And why did she not seek to bring on board another trustee (such as, perhaps, yourself) or, if not that, just _ask_ someone for advice?  She was engaged enough to ask questions, but not to do anything with the results.

Anything you do against the bank goes against your mother as well.   The argument that she was a completely helpless actor in the face of the big bad bank is hard to sustain over a period of 40-odd years: why was she appointed, if she was so helpless?  Why did you do nothing to help her?  Why did she not seek help?

Trusts in the 1980s and 1990s were not actively managed, and especially not by banks.  Unit trusts were new and unproven, and the standard process would be to put the money into a mixture of deposits (low risk, interest rates were high, arguably even in real terms) and fixed interest bonds (ditto).  If they were edgy there would be a leavening of "widows and orphans" stocks which, in the era, would have paid a dividend (in order to fulfil the trust's annuity obligations) as happened here.  The idea of investing in shares for capital appreciation barely registers in that era.   

There's a bloody good reason why financial advice forums are full of young people who have discovered Vanguard desperately attempting, and failing, to get their elderly parents to sell their premium bonds and buy FTSE Global All Cap.  "Investing in the stock market" is "reckless gambling" in the eyes of most people born before about 1970.  You are going to get nowhere by trying to claim a trust set up in the 1980s should have been actively managed by the standards of an aggressive financial advisor circa 2021: the best you can ask is that it was managed with the reasonable skill and diligence of the era, which by the sounds of it, it was.  Had your mother wanted them to adopt a riskier approach, she should have asked.   If she didn't understand what she was doing, she should have sought advice, perhaps from her banking-industry child.   Had your father wanted a trustee who wasn't a "layman", he should have appointed one.    And so on.  There are no villains here, but your father set something up your mother didn't understand and couldn't run.

Keep_pedalling

sk_45 said:

Malthusian said:

That does not surprise me as the FOS probably applied a time bar (although they have been known to ignore those).

However the courts are no more receptive to claims of investment mismanagement based entirely on hindsight than the FOS, so I still don't see any reason to waste your money on a court case.

Your assumption that Property 2 would have generated £600,000 worth of rent over 38 years starting from £3,075pa in 1983 would require the rent to increase by 7.5% year-on-year. That is not a realistic assumption to say the least. It is believable that capital growth in a house could be 7.5%pa over 38 years but no tenant is going to tolerate rental increases of 7.5% year in year out, and tossing them out to get a new tenant who will means void periods and added maintenance / renovation costs. Going to court and claiming that your mother and the bank mismanaged the trust's assets based on figures like that would be a waste of your money.

Ditto claims that the trust must have been mismanaged because the trustees weren't churning the shares or that your mother didn't receive an income for 13 years, which appears to be based on no evidence.

I based my income assumption on the below.

YEAR                                                      ANNUAL_RENTAL_INC                                                  MONTHLY_RENTAL_INCOME

1985                                                        4,200                                                                                350 Based on 1984

1986                                                        4,200                                                                                350 

1987                                                        4,200                                                                                350 

1988                                                        6,000                                                                                500 

1989                                                        6,000                                                                                500 

1990                                                        6,000                                                                                500 

1991                                                        9,600                                                                                800 

1992                                                        9,600                                                                                800 

1993                                                        9,600                                                                                800 

1994                                                     12,000                                                                            1,000 

1995                                                     12,000                                                                            1,000 

1996                                                     12,000                                                                            1,000 

1997                                                     12,000                                                                            1,000 

1998                                                     12,000                                                                            1,000 

1999                                                     12,000                                                                            1,000 

2000                                                     14,400                                                                            1,200 

2001                                                     14,400                                                                            1,200 

2002                                                     14,400                                                                            1,200 

2003                                                     14,400                                                                            1,200 

2004                                                     14,400                                                                            1,200 

2005                                                     14,400                                                                            1,200 

2006                                                     14,400                                                                            1,200 

2007                                                     14,400                                                                            1,200 

2008                                                     14,400                                                                            1,200 

2009                                                     14,400                                                                            1,200 

2010                                                     16,800                                                                            1,400 

2011                                                     16,800                                                                            1,400 

2012                                                     16,800                                                                            1,400 

2013                                                     16,800                                                                            1,400 

2014                                                     16,800                                                                            1,400 

2015                                                     16,800                                                                            1,400 

2016                                                     16,800                                                                            1,400 

2017                                                     16,800                                                                            1,400 

2018                                                     16,800                                                                            1,400 

2019                                                     16,800                                                                            1,400 

2020                                                     16,800                                                                            1,400 

2021                                                     16,800                                                                            1,400 

You do not seem to have allowed for tax or for on going maintenance, and tax on what sounds like a discretionary trust is high.

Malthusian

The OP has also assumed that in 1988 the rent was jacked up by 43% and then only three years later they stick the tenants for a 60% rise. I know inflation was higher in the late 80s but this seems to be a different planet.

The positive side of the story is that on their mother's death the OP is more or less guaranteed an inheritance in the high five figures (as their mother is only entitled to the income). Maybe if the OP's father had simply left his money to his wife they could both have had more. Or maybe the whole sum would have gone on care fees, or the mother might spend it all on cruising round the world or lose it in a bank transfer scam.

It's all maybes but "maybe the trust might have made a consistent 7.5%pa year on year increase in rent from renting the property out" is about as valuable now as "maybe the trust could have put all the money in Bitcoin in 2011".

It would be unfair to speculate why the father chose to leave his assets in this way but the #1 rule of trusts is that people only set up trusts when they don't trust the beneficiaries. And the OP says their father was no fool. Most of us are rightly suspicious of this kind of trust, but we also usually tell people not to rely on inheritances from their parents, and the OP is unusual in that some sort of inheritance was secured for them 40 years ago by their father when they left their estate in this way.

sk_45

Malthusian said:

The OP has also assumed that in 1988 the rent was jacked up by 43% and then only three years later they stick the tenants for a 60% rise. I know inflation was higher in the late 80s but this seems to be a different planet.

The positive side of the story is that on their mother's death the OP is more or less guaranteed an inheritance in the high five figures (as their mother is only entitled to the income). Maybe if the OP's father had simply left his money to his wife they could both have had more. Or maybe the whole sum would have gone on care fees, or the mother might spend it all on cruising round the world or lose it in a bank transfer scam.

It's all maybes but "maybe the trust might have made a consistent 7.5%pa year on year increase in rent from renting the property out" is about as valuable now as "maybe the trust could have put all the money in Bitcoin in 2011".

It would be unfair to speculate why the father chose to leave his assets in this way but the #1 rule of trusts is that people only set up trusts when they don't trust the beneficiaries. And the OP says their father was no fool. Most of us are rightly suspicious of this kind of trust, but we also usually tell people not to rely on inheritances from their parents, and the OP is unusual in that some sort of inheritance was secured for them 40 years ago by their father when they left their estate in this way.

Sadly my father had throat cancer at time of writing his will, and of course The Bank was also involved in that! My father had a long relationship with the bank and held investments with them in the 70s. He was a valued customer and on his death the bank had even written to his family to pass on condolences.

What is clear is that the bank did f**k all for a lot of fees over 40 year and have done nothing to continue his legacy.

For the record my poor mother did seek advice from citizens advice, her friends et al. I've been trying to get this sorted with the bank for 3 years and get fobbed off.

  

Daniel54

This is 40 years ago and when financial matters were much less regulated.I can understand why your father might have chosen a bank as a trustee if he believed your mother might otherwise have been persuaded by scammers or chancers to lose the money he was leaving.

These days ,there is much tighter regulation and no one would recommend a bank as trustee.

But your father tied things up pretty tight and you would need legal advice on how to break the trust.

Little doubt her financial affairs could have been handled better ( if only taking the bank charges into account), but are you more  concerned about the income she receives or the inheritance that will come to you ?

To have any claim against the bank you would need to prove negligence,which is barely proved by what you have so far provided.

I'm not seeking to justify the way the bank has worked, but you have a very high hurdle to demonstrate negligence.

sk_45

How about this for negligence or dishonesty:

1. A letter from the bank to mother dated Oct 1984 clearly stating that the portfolio is under regular review. However from the initial record of investments made in 1984 and the next document of investments in 1990 I can see 3 changes bought in 1986 in equity holdings. Remember there were only 10 in the portfolio and 7 of them were bought in 1984. PLEASE NOTE that the investment schedule thankfully has a column date of purchase.

2. One of the investments bought was British and Commonwealth shipping, which went into liquidation. They clearly were not f**king reviewing it were they?

3. A letter from the bank to mother dated Sept 1984 stating the following: "You will see from the schedule of investments in your husband's estate there is £9,500 held on a building society account, it is suggested that some of those monies be invested in British and Commonwealth and Northern Foods to yield 2.7% and 4.8%". The money was earning 8.75% in the building society!

4. The infamous PROPERTY_2, sold for £43k and cost of sales £9,500! And yes I have a breakdown of the costs. 

sk_45

5. Not informing me of my trust fund when I reached the age of 21 is also and example of not complying with their fiduciary duties. Before someone jumps on the my mother was also a trustee, she's not a professional trustee. The bank were taking pretty decent fees for doing f**k all!