Do professional advisors have a duty of care?

If you are a trustee of any Trust, whether Discretionary Trust, Life Interest Trust, Charitable Trust, Bare Trust or Vulnerable Persons Trust you have a duty of care to each other and to the beneficiaries.

This means that once the trust is established, trustees should review the terms of the trust at least once but in most cases more than once a year, depending on the nature of the assets, the nature of the trust, the needs of the beneficiaries and the change of circumstances – of the beneficiaries, of the law and of the trustees.

This involves speaking to financial advisors, checking with your lawyers that any plans for the future of the assets, distributions, investments and so on are firstly done in accordance with the terms of the trust and within the legal remits as well as the tax implications and potentially also considering the implications for the beneficiaries.

So yes, you can run the trust without having solicitors holding your hand along the way always, but major decisions do require assistance to make sure you get them right, not only because they are in accordance with the terms of the trust to avoid a breach of trust but also in accordance with the constant changes in the law and in particular in relation to tax reporting and compliance.

We don’t all love tax, not the intricate laws of how it works but also paying for it… but not getting it right has massive consequences, some can be life changing, like in this case that is only one recent example that unfortunately made the papers because of the person involved, but it is not uncommon if the right advice is not sought and applied.

Do legal advisors have a duty of care?

As legal advisors, when the trust is set up, we need to make sure that our clients understand that there will be legal and tax consequences that will affect the trust for the future and that the trustees have a constant duty to of care and they need to understand that they need to be vigilant and well informed when making decisions on behalf of the trust.

Establishing a trust or understanding when a trust crystalises and comes into being is only the first piece of a puzzle, the start of a journey that in itself may have tax consequences from inception or that will develop and change with time.

Legal advisors have a duty to explain to the clients that they need to consider taking ongoing legal advice on the running of the trust for the future, of their own role as trustees and on all the transactions that the trust will undertake during its lifetime. Whether it is buying and selling assets, transferring them out of the trust, even just keeping the status quo, requires always a review of the position to make informed decision as to how to proceed for the future.

Whether trustees decide to take independent legal advice or not, it is up to them, and this comes with a risk and of course a price tag. However, the need to understand that their duty is constant and ongoing and as legal advisors we might still be required in the future and are there to assist them along the way.

In my position of legal advisor of trustees or settlors that wish to set up a trust of for the future is to help them make informed decisions, understand that there will be tax consequences that they will need to consider when making those decisions, that HMRC will need to be informed of many of those decisions and that tax may be suffered or deferred depending on the circumstances and other bits and pieces along the way.

Legal advice to the beneficiaries on their entitlement, rights, tax consequences and reporting is something beneficiaries should also consider.

Trusts are legal entities that, like an individual, exist and have their own life and place in the world of tax. They are very good vehicles to hold assets, protect assets, pass wealth, establish and support great causes but they are quite special and different creatures that need to be handled with care.

How DMH Stallard can help?

At DMH Stallard, our private client solicitors advise on the creation, implementation, taxation and ongoing administration of trusts for the future.

Whether it is a one off query, such as changing the constitutional document of the trust, advising the Trustees on distributions out of the Trust, drafting deeds of appointment out of the trust or into a trust, creating a trust, winding up of a Trust, advising on retirement or appointment of trusts, or tax reporting, your rights as beneficiary, how you will be tax on receipt of funds or whether you can reclaim some of tax suffered by the trust and this is not an exhaustive list; we are here to help on as little or as much as  you may require on this interesting journey of trusts.

For more information, get in touch with one of our tax specialists today.