subject: Life Insurance Trustees - Who Would be the Best Choice? [print this page] Life Insurance Trustees - Who Would be the Best Choice?
A life insurance trust is the best option, especially for those looking in the over 50's life insurance market because of the advantages a trust offers in saving tens of thousands in inheritance tax. So now it becomes clear that the choice of trustees is vital and that you are comfortable with your choices. As the settlor, you have the right to be one of the trustees, if you have decided upon a joint life insurance policy, you and your spouse can both be trustees with the same level of power and rights within the trust. The large majority of financial advisors will advise that there should be two trustees at any one time minimum, though you can name as many as you desire in reality. If all the trustees have died, the trust is still valid and exempt from IHT, but the trust would have to go through probate, negating one of the advantages of trusts in the first place, a speedy payout and no probate fees. Therefore one desired quality of trustees is they be no older than you and be in healthy shape.
So what other qualities should your desired trustee have? Right, legal thresholds to being a trustee first, the nominated trustee must not be or recently have been bankrupt, be mentally capable and be older than 18. Character traits to look for are someone who has common sense, is orderly and can spare the time to govern the trust, as it can be a time consuming task even for an uncomplicated trust. Beneficiaries must be kept informed; paperwork on any investments must be kept organised and kept up to date while at the same time keeping in line with the obligations of the trust as written and agreed. As when the trust matures, the trustees need to rationalise any spending to the beneficiaries, so the more complete and structured a person is the better.
Importantly, you should be confident the trustees you pick would make the choices you would make, or at least have no qualms following the guidelines you set down, for this reason, it is important you have a detailed will to reinforce your desired objectives for the trust. As the trustees must abide by the instructions in the will; it will also have the additional bonus of helping the trustee when you have passed away, as they can back up their explanation of your wishes with documented proof if any of the beneficiaries feel hard done by the trust and will target the trustee, when they could not have changed what was arranged in the will. An example, if you have younger children you wish to provide for, within the will you can direct the trustees to release funds to make sure the children are sent to a private school, the trustees have no choice but to follow what amounts to a directive.Who should I decide on to be a Trustee? The standard picks to be trustees will obviously be family members or close friends; however there can be pitfalls in choosing one of these. The advantages are obvious, they'll know what you would want when you pass away and you will probably already have a good idea if they are qualified for the task. In contrast, the negatives could result in bias towards particular family members/beneficiaries which could lead to challenges on the trustees' authority. The trustee could also be a beneficiary, leading to a conflict of interest in the rendering of the trust, lack of prejudice is key to being a trustee as they can be a lightning rod for any grievances beneficiaries might have, it's something your probable trustee must be prepared for. You must remember that the trustees you choose will be handling large sums of money, so it can be risky if you choose trustees who won't have experience of handling such large sums, maybe even investment if that's what you plan for your trust, odds are your family members won't have this experience. It will be advised in some cases that you have one nonaligned trustee who can be seen as not holding a bias towards any of the beneficiaries; this could be the family solicitor.
It's possible to ask a professional to be a trustee who is also a mere acquaintance such as a Doctor, Priest or Teacher etc, i.e. someone who could be classed as "Upstanding in the community". It is possible to hire a professional trustee, the advantages of this route are they will be experienced in financial investment (if that's your aspiration for the trust), principally if you have set up a discretionary trust. The trust you establish will no doubt span decades, during that time the friends or family you place as trustees can't be expected to keep up with any change in trust law, a professional trustee's job is to know about these changes and what impact it will have on the trustee. Professional trustees, and your solicitor if you choose them, will command a fee for their services, while you may think it's cheaper having a friend or family member be a trustee, these savings could turn into losses, as if your trustees are inexperienced they might need to pay for an accountant or a financial adviser to help with the trust. If you decide to look for a professional trustee, search for one with a TEP qualification (Trust and Estate Practitioner), as it is a recognised qualification worldwide, your financial advisor can point you in the right direction if you would like to search for one. It does not need to be repeated it's wise to have a candid discussion before hand with your selected trustee, even to treat it as an interview to make sure you are making the best choice. If you and your partner are also sorting out guardianship for children, it's best not to have the same person as guardian and a trustee as long and short term priorities will become muddled, it also acts as a vigorous checks and balances system, ensuring you children's welfare would be secure and that of the trust.
Different trustees for different trusts? If you still cannot decide on whom to pick as a trustee, what type of trust you want to establish could help narrow down the field for you. For example, you might just want your life insurance to be paid out in a lump sum or have payments on your death (Term or Mortgage Protection Life Insurance) and if it's clear who the beneficiaries are, the job as trustee is easier than being trustee of a Discretionary Trust (DT). Under a DT, the trustees have "Power of Appointment" and therefore have more freedom on how to dole out the trusts finances. Ideally a trustee will personally manage the investments, if they can't or don't wish to, they have the power to delegate to someone else while retaining the veto on how to distribute the finances to the beneficiaries.
While the trustee must use the finances for the good of the trust, there is no official oversight to what the trustees can do with the possessions. For all trusts not just DT's, a trustee is not personally liable for losses as long as they don't exceed the total amount within the trust; they are accountable though for losses over the trusts total amount. For example, if the trust loses 120,000 and the trust only had 100,000, the trustees are liable for 20,000. Trustees have no legal right to be paid (though professional trustees will have a written deal to be paid), so if you have chosen a friend or family member, it's usually good form to leave a sum of money for them in the trust as a goodwill gesture. It also has the additional bonus of making them more watchful with investments for the trust. It's recommended that trustees don't make any rash and unsafe investments, instead going for moderate and secure growth.
If you're speculating why a DT has been explained, it shows what would be required from your trustees and help you in your decision of picking trustees. It can be hard work and depending on your requirements, knowledge in certain areas may be needed. So as you can see, choosing a trustee is not about just choosing your best friend, brother or partner, you have to make a calculated long term decision to create the secure future for your loved ones.
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