As all Trust assets are registered in the joint names of the trustees how does an outsider know that he is dealing with a Trust? This is important and more so if the only trustees are the two spouses or partners.
If anything ever goes wrong financially, taxwise or a dispute with beneficiaries occurs then lawyers will consider if the Trust is real or just a “sham”.
A sham is where it appears to be a Trust but in reality it is just operated as if it was just personally owned.
An independent trustee is important to avoid this risk but also to provide impartial counsel, accountability and protection in governance and decision-making. Independence means that he or she is not related in any way to the people in the Trust and has no financial interest in the Trust assets.
Usually decisions need to be unanimous which is best even though sometimes an impasse can occur. A suitable provision in the Trust Deed can cover this.
The independent trustee needs to have the following qualities:-
- Be trusted by the other trustees.
- Be competent to carry out the wishes of the settlors once they have died, and
- Be impartial among beneficiaries.
- Be willing to accept professional advice, and
- Be readily available for signing documents.
A qualification they do not need is to be a lawyer, accountant or investment expert. This is because legal, accounting and investment advice can be purchased by the Trust.
A lawyer, accountant or investment expert can of course be a Trustee although this is becoming less common because of professional financial risk.
An independent trustee should be paid. They are expected to devote time to the role, and they carry potential risk by taking on the role. The level of payment should reflect the:-
- size of the Trust,
- financial risk,
- time required.
Financial arrangements with third parties e.g. Banks should always specifically protect the independent trustee in any documents.
Choosing the Independent Trustee is important as it is a crucial part of your financial structuring for the future.