Managing Trusts for vulnerable beneficiaries

Managing a Trust for a vulnerable beneficiary is a significant responsibility, requiring careful planning and diligent oversight.

A person putting in place a Trust whose intended beneficiary or primary beneficiary is vulnerable will normally have given consideration to whom they wish to appoint to act as trustees (those responsible for managing the Trust), and whether they are to be lay or professional trustees either as individuals or a Trust Corporation.

Here, we’ll look at what you can expect when managing Trusts for vulnerable individuals, and how we can potentially assist.

Duties of a trustee

Trustees are responsible for the general management of the Trust. There is usually a need for two or more trustees to act at all times. It is a fiduciary role and one which can give rise to personal liability. Broadly speaking, the trustees have a responsibility to ensure a Trust is managed for the benefit of the beneficiaries. Where there are multiple beneficiaries, or distinct capital and income beneficiaries, it is the responsibility of the trustees to manage their respective interests.

The trustees will need to make sure they consider the merits of investing the Trust Fund and if so, put in place and maintain suitable investment products, ensure the relevant tax elections are made and tax liabilities of the trust are settled, that records of decisions are kept, trust accounts are maintained, and assets are adequately protected by insurance and generally preserved. They must act fairly and without personal conflict.

They should consider the beneficiary’s wellbeing and may need to liaise with social/health services to tailor funds to changing needs, whilst also ensuring funds are used for the purpose specified in the trust deed and not, for example, to substitute for statutory funding or provision of support.

Unless the deed states otherwise, trustees must act jointly and unanimously. There are often powers to delegate and to authorise agents but it such delegation or agency does not absolve the Trustee of potential liability if such delegation or agency was improper.

Trustees will also need to liaise with solicitors to prepare deeds and other documents for them.

What does managing a Trust on behalf of a beneficiary involve in practice?

Effective management of a beneficiary’s funds means ensuring that all Trust finances are used appropriately and sustainably on a day-to-day basis according to their needs.

This typically involves such tasks as:

• Setting up a dedicated bank account – a separate account should be used for Trust transactions to maintain clear financial records
• Establishing a budget – Trustees should create a financial plan that covers both regular and unexpected expenses, ensuring the Trust fund remains sustainable
• Managing bills and payments – this means ensuring costs being met from Trust funds held such as utilities, rent or other fees are paid on time to prevent financial difficulties
• Tracking spending – Trustees should keep a record of all expenses and income to maintain accountability and transparency
• Applying for benefits and grants – where appropriate, Trustees should ensure the beneficiary receives all financial support entitled to them, factoring in assistance like disability benefits or local authority grants
• Handling any unexpected financial needs – Trustees should maintain a contingency plan for emergency expenses, such as medical costs or urgent home adaptations

In addition, you’ll also need to keep one eye on the future in terms of meeting the beneficiary’s changing needs, which includes budgeting for future changing costs and unforeseen expenses.

With so many considerations at play, it’s advisable to seek help from a qualified financial adviser, who will be able to assist in making informed investment decisions – as well as ensuring you’re remaining compliant with Trust-specific tax rules and HMRC reporting guidelines.

What types of Trusts are available for vulnerable beneficiaries?

There are several types of Trusts that can be used to manage the financial interests of a vulnerable person more effectively. These include:

• Discretionary Trusts – this type of Trust gives trustees control over how funds are distributed, ensuring enough flexibility to meet the beneficiary’s evolving needs whilst protecting assets
• Disabled Person’s Trusts – these Trusts are designed specifically for individuals with disabilities and are intended to provide financial support without forfeiting the beneficiary’s entitlement to means-tested benefits
• Bare Trusts – this Trust arrangement enables assets to be held in the beneficiary’s name, but offers protection to them by ensuring the involvement of trustees in respect of management of the funds within the Trust, but may not offer other forms of protection

It’s also important to note that many vulnerable beneficiaries rely on state benefits, which can be affected by Trust assets in certain situations. Consequently, settlors of Trusts need to give careful consideration to:

• Structuring the Trust to prevent direct ownership of assets by the beneficiary
• Potentially using discretionary trust distributions to cover essential expenses without affecting eligibility for benefits
• Seeking legal advice to ensure compliance with benefit regulations

Choosing the appropriate Trust structure is crucial in safeguarding P’s interests while optimising the level of financial support for their individual needs – which is why we always advise enlisting the help of an experienced solicitor when putting in place Trusts for vulnerable beneficiaries.

Pros and cons of having lay trustees

A lay trustee is a trustee who takes on the role in a voluntary capacity; typically a family member or close friend entrusted with managing funds and/or other assets held in Trust.

A lay trustee is likely to have greater knowledge of the personal background of the trust – and indeed, the vulnerable beneficiary’s circumstances – and this can be a real benefit to the decision-making process. However, they will unlikely have the experience and technical know-how of a professional and this can lead to fundamental and often expensive mistakes or errors in judgement.

Additionally, it is common for lay trustees to have full-time jobs and therefore asking them to take on the responsibility can place great strain on them. Tensions between lay trustees can also impact on the success of their management, as well as what can be quite fraught relationships with the vulnerable beneficiary themselves. It is almost inevitable that during the course of the Trust’s lifetime, there will be a need to refuse the request of a beneficiary placing the lay trustee directly in a difficult position.

It is crucial for the success of the Trust that the lay trustee understands there will likely be many aspects of Trust Law and general practice of which they know very little and that they should seek regular guidance from appropriate professionals.

Efficient and effective lay trustees can add significant value (given their acting is gratuitous); the challenge is making sure they are efficient and effective when the role can be exceptionally emotionally charged and their time is limited.

It is not uncommon for the change in relationship dynamic between relative or friend turned trustee and beneficiary to be very difficult to manage.

Pros and cons of having professional trustees

There is no point hiding from the fact that professional trustees will charge the Trust for acting. Therefore, if you have effective and efficient lay trustees in your life, who are happy to take on the role and will be able to do it for a long time then logic dictates that you should choose them as your Trustees.

However, where the efficient and effective lay trustees are not available to you, or where the circumstances of the Trust are particularly complex or high value, then having professional trustees should be seen as an investment. Greater experience, efficient systems and developed infrastructure can make the decision-making process faster and more effective.

Whilst good professional trustees will care deeply about their clients, they will be less vulnerable to emotional manipulation, thus allowing for clearer and generally better decision-making. They will consult all the relevant in the vulnerable beneficiary’s life (including the vulnerable beneficiary where appropriate) and closely follow any instructions you gave them when setting up the Trust.

Perhaps the greatest benefit a professional trustee can offer though is keeping the would-be lay trustee out of firing line, allowing their relationship with the vulnerable beneficiary to continue as it was.

Pros and cons of having both lay and professional trustees

It is possible to have a mix of lay and professional trustees. However, what may be seen as ‘the best of both worlds’ it often doesn’t work that way. When a professional trustee is acting alongside a lay trustee, they have an additional responsibility to monitor and advise the lay trustee. This can make the decision-making process slower and more expensive as the professional trustee has to spend more time discussing decisions they could have made by themselves.

If the right people are involved however, and they are all signing from the same hymn sheet, a mixture of lay and professional trustees can work well, and tends to offer the person setting up the trust the peace of mind that the professional trustees will be supported by someone with greater knowledge of and affection for the vulnerable beneficiary.

How we can help

If you’re looking for professional support on setting up a Trust for a vulnerable loved one, or managing an existing fund in their best interests, our experienced solicitors are here to provide personalised guidance on the best path forward for your individual needs.

Contact our Wealth Protection or Court of Protection teams today at [email protected] or [email protected], or call 03333 058 375, to get in touch with one of our specialists to discuss your requirements. We’re here to help.