Trust Investments

MapleTrees

I’m wondering if somebody expert in Trust investments could answer a couple of questions for me please. Researching this has been difficult as I'm finding a lot of conflicting information.

Many years ago a relative received a personal injury settlement and the solicitors acting for her created a Trust deed for the claim. With a financial adviser in place we opened a main bank account in the name of the Trust from which segments of the Trust monies were placed in investments including a building society two-year bond, NS&I savings, and a small ISA.

The relative is the Settlor and she and I are the Trustees. Due to her failing health I am picking up the reins more and I want to ensure everything is proper.

I've just noticed that the building society bond just mentioned has been in our joint names only and not in the name of the Trust. The NS&I investment is in the name of the Trust. I was under the impression that trust assets had to be named as such? Over the years the financial adviser has been doing the Trust tax returns and would surely have spotted the fact that the BS account was not a ‘trust account’. I therefore concluded that it was not necessary for the building society investment to be in the Trust’s name and was adequate in just the names of the Trustees?

My question then is do Trust assets actually have to be in the name of the Trust or is it enough that Trustees can provide a paper trail demonstrating they have arisen from Trust monies?  I read somewhere that the UK government does not require that money invested from a Trust be held in a Trust account, but other sources say the opposite.

I recently moved the building society account into an accessible high interest account at a local bank, keeping it in our joint names as it had been at the building society. But I’m now thinking it should be in the name of the Trust. Do I just rename the account?

In short, I need to be able to prove the investment is a Trust asset. I hope that makes sense!

 

 

My second question concerns trust registration. My understanding is that a personal injury Trust doesn't need to be registered which is why that wasn’t actioned - but reading around online it appears that some personal injury trusts do need to be registered. I’m finding it all quite complicated to say the least.

I emailed the financial adviser who did the work over the years (we haven’t needed her services since 2018) and I haven’t really had any useful answers from her, hence coming here.

 

xylophone

See

https://www.gov.uk/hmrc-internal-manuals/trust-registration-service-manual/trsm23030

Trusts arising from personal injury payment

Trusts arising from personal injury payment are, subject to certain conditions, excluded from registration as express trusts (Sch3A(18) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

The trust must derive from payments made to a person as a result of a personal injury to them. The term ‘personal injury’ encompasses physical and mental injuries and includes accidental injuries; injuries due to deliberate or criminal acts; injuries due to clinical negligence and injuries due to industrial disease.

The trust of funds must also be disregarded from capital under regulation 46(2) of, and paragraph 12 of Schedule 10 to, the Income Support (General) Regulations 1987.

This exclusion also applies to trusts arising from personal injury payments in Northern Ireland, provided that the trust of funds is disregarded from capital under the equivalent regulations in Northern Ireland (the Income Support (General) Regulations (Northern Ireland) Regulations 1987).

Trust assets should be held in the names of X and Y as Trustees of the A N Other Trust.

Have you tried Skipton Building Society - there is a Trustee specific application form for Trust accounts.

dunstonh

Many years ago a relative received a personal injury settlement and the solicitors acting for her created a Trust deed for the claim. With a financial adviser in place we opened a main bank account in the name of the Trust from which segments of the Trust monies were placed in investments including a building society two-year bond, NS&I savings, and a small ISA.

You cannot hold ISAs in trust.

Over the years the financial adviser has been doing the Trust tax returns and would surely have spotted the fact that the BS account was not a ‘trust account’

Financial advisers do not normally get involved in the setting up of trust accounts with bank and building societies as most banks/bs will not deal with financial advisers.      And if the adviser is helping with the tax return for the trust, then all the adviser needs is the interest paid.    

My question then is do Trust assets actually have to be in the name of the Trust or is it enough that Trustees can provide a paper trail demonstrating they have arisen from Trust monies?  I read somewhere that the UK government does not require that money invested from a Trust be held in a Trust account, but other sources say the opposite.

In a trust, assets are held and managed by the trustee(s) to the benefit of the beneficiary.  Being a trustee means taking on a legal responsibility and the trustee can be sued for mismanagement or suffer possible prosecution for failure of certain duties.      So, they not only need to do the right thing but also have the audit trails that show they are doing the right thing.

As mentioned, ISAs are not suitable for trusts.  ISAs use a personal allowance and the money in an ISA will form part of the estate of the account holder.   Not the beneficiary.    

Outside of an ISA, you shouldn't use personal accounts because of the mess it can create if the account holder dies.  Again, for probate and estate purposes, money in the name of the trustee is seen to be theirs.     And the audit trails can look quite dodgy if the money is in the name of the trustee.      And interest paid on a personal account falls under the taxation of the individual.  It is their NI number that is quoted on the application.   So, it can interfere with the personal savings allowance and taxation on interest.      All these things can be explained away and corrected, but HMRC may reject them, and it may open up disputes.   

For example, a trustee who has money belonging to the trust held in a savings account in their own name dies.   The executor of the estate sees this money in a personal account and arranges distribution of it as per the Will to the beneficiaries of the estate.  The bank provides the probate values and the beneficiaries receive their share of the money despite it originating in the trust.   Effectively, on paper, the trustee appears to have stolen money from the trust, and now the surviving trustees have a potential fight on their hands to get the money back.

There is also the issue of the declarations made when opening the account.  Anti Money Laundering rules would require the account holder to make a false declaration if a personal account is used.  Banks are required to report trust funds and carry out different checks and reporting compared to those of individuals.      In theory, a bank could freeze the account and report it under AML regs.   AML requires the beneficial owner to be known and checked.  A personal account being used sees the account holder declaring that the money in the account is theirs.

If the audit trails are good, it should eventually be ok, but the trustees are creating a range of potential issues that are usually best avoided.     In the past, many would have got away with using personal accounts but others have put themselves in situations that have created a complete mess that usually someone else (the other trustees) has to sort out and can leave the money unavailable to the beneficiary, which in turn puts the trustees at risk of legal action.

I emailed the financial adviser who did the work over the years (we haven’t needed her services since 2018) and I haven’t really had any useful answers from her, hence coming here.

That is understandable as you are not paying them to provide an explanation.    

MapleTrees

xylophone said:

See

Trusts arising from personal injury payment

Trusts arising from personal injury payment are, subject to certain conditions, excluded from registration as express trusts (Sch3A(18) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

The trust must derive from payments made to a person as a result of a personal injury to them. 

Trust assets should be held in the names of X and Y as Trustees of the A N Other Trust.

Have you tried Skipton Building Society - there is a Trustee specific application form for Trust accounts.

Thank you very much - so no requirement to register the Trust.

And thank you for the pointer about the Skipton BS which I will look into. It seems strange as to why the financial advisers didn't set the original building society account up as a Trust account, putting it in the Trustee names instead. 

Albermarle

from which segments of the Trust monies were placed in investments including a building society two-year bond, NS&I savings, and a small ISA.

Be aware that normally when you say 'investments' most people will think of investing in the stock market etc.

BS and NS&I accounts are savings accounts.

I think as a trustee if you say you are investing money from the trust, people may be concerned that you are taking risks with the money. So if the money is in savings accounts, best to use that terminology.

It might not necessarily a bad thing to invest some of the trust money,( if it is allowed , I am not sure )  as in the long term investments should beat inflation, which savings usually do not. However you would have to be careful how you did it and probably only on the advice of an IFA, with recommendations in writing etc.

MapleTrees

Over the years the financial adviser has been doing the Trust tax returns and would surely have spotted the fact that the BS account was not a ‘trust account’

Financial advisers do not normally get involved in the setting up of trust accounts with bank and building societies as most banks/bs will not deal with financial advisers.      And if the adviser is helping with the tax return for the trust, then all the adviser needs is the interest paid.    

And the audit trails can look quite dodgy if the money is in the name of the trustee.      And interest paid on a personal account falls under the taxation of the individual.  It is their NI number that is quoted on the application.   So, it can interfere with the personal savings allowance and taxation on interest.      All these things can be explained away and corrected, but HMRC may reject them, and it may open up disputes.   

Banks are required to report trust funds and carry out different checks and reporting compared to those of individuals.      In theory, a bank could freeze the account and report it under AML regs.   AML requires the beneficial owner to be known and checked.  A personal account being used sees the account holder declaring that the money in the account is theirs.

If the audit trails are good, it should eventually be ok, but the trustees are creating a range of potential issues that are usually best avoided.     In the past, many would have got away with using personal accounts but others have put themselves in situations that have created a complete mess that usually someone else (the other trustees) has to sort out and can leave the money unavailable to the beneficiary, which in turn puts the trustees at risk of legal action.

I emailed the financial adviser who did the work over the years (we haven’t needed her services since 2018) and I haven’t really had any useful answers from her, hence coming here.

That is understandable as you are not paying them to provide an explanation.    

Thank you very much indeed for such a helpful and comprehensive answer, much appreciated. I'm still trying to fathom why the original building society account wasn't named as a Trust account as it appears it should have been. It's easy to provide a coherent paper trail but clearly I need to rectify the status of the account to reflect its position as a Trust asset. All the necessary tax has been paid and I have all of the Trust tax returns.

With respect to the financial advisers, we have paid them an awful lot of money over the years and I would have thought they would have some capacity for one or two brief questions, even if it is just to say that the naming of Trust assets is not their concern (even though they themselves set up the accounts).

The Trust deed itself has probably confused me, as it says "....the Trustees may in their discretion invest such money in their names or under their control on any of the investments authorised by this Deed" and "... The Trustees may allow any investments or other assets to be held in the name or names of any company or other person (whether or not being or including one or more of themselves) on any terms they think fit (and may exercise either power alone or both together)". 

Overall though, having read your answer I would be far happier if I could get the account renamed to identify it as a Trust asset and I'll seek to get that remedied. 

xylophone

https://techzone.abrdn.com/public/iht-est-plan/Technical-guide-disabled-trust

may also be worth a read.

With regard to investment (stocks and shares etc) the Trust Deed should specify the powers of the Trustees in this respect.

MapleTrees

Albermarle said:

from which segments of the Trust monies were placed in investments including a building society two-year bond, NS&I savings, and a small ISA.

Be aware that normally when you say 'investments' most people will think of investing in the stock market etc.

BS and NS&I accounts are savings accounts.

I think as a trustee if you say you are investing money from the trust, people may be concerned that you are taking risks with the money. So if the money is in savings accounts, best to use that terminology.

It might not necessarily a bad thing to invest some of the trust money,( if it is allowed , I am not sure )  as in the long term investments should beat inflation, which savings usually do not. However you would have to be careful how you did it and probably only on the advice of an IFA, with recommendations in writing etc.

Thank you. Yes, the decisions were made based on a written plan from the financial advisers. The money was placed into a building society account which was a bond account, left to keep rolling over and gaining interest. I recently had to transfer the money out of this account before it rolled over for another two years, because the Settlor requires it to be accessible. It is now in a savings account with a high street bank in the names of the Trustees exactly as before (that is me and the Settlor) without the word 'Trust' appearing in the account name, as before - it seems I need to rectify that!

The NS&I saving is in the name of the Trust, so no issue there.

MapleTrees

xylophone said:

may also be worth a read.

With regard to investment (stocks and shares etc) the Trust Deed should specify the powers of the Trustees in this respect.

Thank you. Having read the Trust deed it appears to give wide and flexible powers to the Trustees both individually and separately. That said I am not a legal expert in any way but here is a quote:

"....the Trustees may in their discretion invest such money in their names or under their control on any of the investments authorised by this Deed"   and   "... The Trustees may allow any investments or other assets to be held in the name or names of any company or other person (whether or not being or including one or more of themselves) on any terms they think fit (and may exercise either power alone or both together)". 

This is mostly why I was wondering if accounts or investments would have to be in the name of the Trust, or if they could equally be in the name or names of Trustees given that appears to be permissible.

All that said, I want to make sure the accounts are held as properly as possible.

dunstonh

This is mostly why I was wondering if accounts or investments would have to be in the name of the Trust, or if they could equally be in the name or names of Trustees given that appears to be permissible.

In the past, banks focused on the legal owner (i.e. the account holder).  Now they focus on the beneficial owner.  If the bank is aware that you are not the beneficial owner and is happy to set up the account in the form of your name re trust of xxxx (or any similar style) then that is fine.

Its where you open an account in your name and declare that you are the beneficial owner when you are not, then you are on a sticky wicket.

And as mentioned, ISAs should not be used.   Any interest/return in an ISA is not tax free for a trust.  So, its either wasted use of an ISA or tax evasion (if the interest/return is not declared).        The ISA cannot have trust recognition like a bank account.    Of all the various potential risks of not keeping personal and trust money separate, the use of an ISA is the one most likely to cause trouble.

MapleTrees

dunstonh said:

This is mostly why I was wondering if accounts or investments would have to be in the name of the Trust, or if they could equally be in the name or names of Trustees given that appears to be permissible.

In the past, banks focused on the legal owner (i.e. the account holder).  Now they focus on the beneficial owner.  If the bank is aware that you are not the beneficial owner and is happy to set up the account in the form of your name re trust of xxxx (or any similar style) then that is fine.

Its where you open an account in your name and declare that you are the beneficial owner when you are not, then you are on a sticky wicket.

And as mentioned, ISAs should not be used.   Any interest/return in an ISA is not tax free for a trust.  So, its either wasted use of an ISA or tax evasion (if the interest/return is not declared).        The ISA cannot have trust recognition like a bank account.    Of all the various potential risks of not keeping personal and trust money separate, the use of an ISA is the one most likely to cause trouble.

Thank you again - this is very helpful. It seems the wording of the Trust deed covers your first point (I've quoted the wording in one of my replies above) but I'm going to raise this with the bank to see what, if anything, I need to do for the matter to be proper.

The ISA was one of the recommendations set out by the financial adviser (at a well regarded firm) in their Trust money management report. The ISA was on the Trust tax return because the ISA contained only Trust money, therefore I presumed had to be taxed as such. We relied on the expert advice given at the time so there must be a bona fide reason for it. The person who did all of this originally is no longer at the firm and the person who has handled the Tax returns doesn't seem to be the correct port of call. It's hard to find the right person who can answer my questions and sort everything out for us - I am obviously willing to pay for expert input.