The following comments relate generally to independent trustees in relation to discretionary trusts. They are intended as general comments only. Any person considering trusteeship, or any trust reviewing its trusteeship, should seek specific, tailored legal advice.
WHAT IS A TRUSTEE?
A trustee is a person who holds property on behalf of another or others (the beneficiaries).
WHAT IS AN INDEPENDENT TRUSTEE?
An independent trustee is a trustee who is not a beneficiary of the trust.
WHY IS AN INDEPENDENT TRUSTEE RECOMMENDED?
Keam Standen Limited recommends trusts should always have an independent trustee. Having an independent trustee assists in preventing the trust being regarded as a ‘sham’ (not really a trust) and therefore losing any protection the trust was intended to provide. This is because there is a trustee involved in the trustee decision making process who is completely neutral and does not stand to benefit from the trust no matter the decision made. Having an independent trustee means trust will have more credibility and is less likely to be susceptible to any successful legal challenge in the future. Many trust deeds also specify that trustees who are also beneficiaries of the trust are unable to act in their own interests or for their own benefit. Having an independent trustee is one step towards ensuring your trust provides the protections intended. Despite having an independent trustee, it is still vital that trusts are run properly on a day-to-day basis also.
WHO CAN ACT AS AN INDEPENDENT TRUSTEE?
Many professional advisors such as lawyers or accountants offer professional trustee services. This is usually done thorough use of a trustee company. One advantage of using a trustee company is that there are usually a number of Directors for the trustee company who can approve trust business on behalf of the trustee company, whereas if an individual is appointed as an independent trustee, they may not always be available to deal with trust matters in a timely fashion such as if they are aware on holiday. Another benefit of using trustee companies is that if the management of the professional advisor’s business changes, the Directors and shareholders of the trustee company can be changed ‘behind the scenes’ without having to attend to a formal change of trustees for your trust which would incur costs.
Individuals may also choose to accept appointment as an independent trustee in their personal capacity, however, there are many liability issues to consider if taking this approach and specific advice should be sought.
Last updated: May 2021