TRUSTS were once the preserve of wealthy Victorian fathers who wanted to protect assets from their daughters’ money-grabbing suitors. They were generally regarded as inflexible, complicated and expensive to set up.
In recent years, trusts have shaken off their stuffy image. They have gained broader appeal as more homeowners face inheritance tax liabilities on their estates and use them to shelter assets. But the belief that they are more hassle than they are worth prevails, and with some justification, as Times reader Ian Bray, right, discovered.
Anyone considering setting up a trust to avoid paying tax should bear in mind that from April new rules could mean that assets held in trust will be taxed in the same way as non-trust assets. If you aim to put assets such as property into a trust for other purposes, it is essential to pay close attention when the deed is drawn up to prevent disputes between beneficiaries and trustees.
The point of a trust is to allow the owner of the asset to hold and use that asset for the benefit of someone else. It allows trustees to gift assets to others, such as children or grandchildren, but to retain some control. Trustees have both powers and duties. For example, they may be required to maintain a property. Professional trustees are often appointed to help with the management of the trust in return for a fee.
But giving over partial control of the asset to a company is rarely a good idea. Peter Legg, inheritance tax specialist at Vantis Tax, says. “There are some advantages to using a professional trustee. They offer prudence, experience, impartiality and accountability if anything goes wrong. But the disadvantages are greater. Professional trustees are more remote. They do not know the family personally, they can be expensive and they can be too cautious and reactionary with the management of the asset.”
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Ian Bray found this out to his cost. In 1980 his mother and HSBC Trust Company (then Midland Bank) became joint trustees of a property previously owned by Mrs Bray’s mother. Both Mr Bray and his mother believed at the time that HSBC had a greater duty to ensure the property was well maintained, according to the deed, because the trust company is located close to the property in Surrey, while the Brays live in Scotland.
But in 1996 the Brays discovered that the property had fallen into disrepair, which brought down its value by an estimated £60,000. Mr Bray complained to HSBC on behalf of his mother, then to the Financial Ombudsman Service. But the ombudsman ruled in favour of HSBC, saying that it “could have done more” after the property’s condition became an issue in 1996, but that he did not believe it “should have done more”. HSBC offered a settlement figure of £9,000 minus charges of £2,441 to Mrs Bray, which she accepted.
Mr Bray has launched a new complaint because he is not satisfied with the decision. He claims: “HSBC did not fully discharge its obligations as set out in the trust deeds and the final settlement figure was unacceptable. My mother accepted it only because she was worried that she would not receive anything if she did not.” HSBC says it will not reinvestigate the complaint.