To trustee or not to trustee? Chris Belcher weighs up the odds

As private client practitioners we’ve all been there... that moment in the meeting when the client looks you in the eye and asks “Will you please act as my trustee?”

And in return, that is when the adviser’s eyes often light up. A trusteeship, a long-standing client relationship, a regular fee income, an old-fashioned retainer!

Without wanting to seem too keen (well, that would be impolite) the reply is uttered: “Why, yes of course.”

Careful consideration

But next time you find yourself in that situation, before you reply in that way, I would urge you to take a moment to consider your response just a bit more carefully. Here are a few thoughts which I hope will also be going through your head.

You must consider whether acting as trustee, as well as advising the trustees as a body, puts you in a position of conflict. I would not go as far as to say there is any inherent conflict in this situation, but there is certainly potential for future conflict which should be considered.

Solicitors must not forget the SRA principles, and the duties imposed under chapter 3 of the SRA’s Code of Conduct.

A trustee’s liability is of course a personal one. Are you really happy to take on that risk, mixing your personal and professional lives in the knowledge that we (and our beneficiaries and their spouses) live in an increasingly litigious age? While you may have a right to financial reimbursement from the trust fund, in my experience, being in the firing line from a disgruntled beneficiary once is usually enough to put most professionals off taking on another trusteeship.

Naturally there are ways of reducing the risk to a trustee. Most modern trust deeds contain exculpation clauses (but do check) and most professionals expect (though do not always get) an indemnity on retirement. And making sure that your actions as a trustee are always ‘trustee-like’ is always a good way of reducing risk.

It also helps to reduce the personal risk element if a corporate body such as a trust corporation takes on the trustee role, rather than an individual being named.

Trust company

Many firms will have their own trust corporation, which is a limited company incorporated in such a way as to comply with section 68(18) of the Trustee Act 1925. These companies are typically owned by the partners in the firm and are used when a personal appointment is inappropriate. They must have £250,000 of share capital of which £100,000 must be paid up, so there is a significant investment cost in setting them up.

However, there are benefits both to adviser and client in using a trust corporation. The client has a trustee who will never retire from practice or move to another firm or walk under a bus. The adviser is typically a director of the company rather than a trustee, with the protection of limited liability status.

This sounds like the ideal solution, but again, beware. The conflict issues still exist, and some may say are even greater where the trust corporation is actually owned by the firm. And, more importantly, governance issues are all too easily overlooked when the trust corporation is simply a vehicle owned and run by the partners.

Are board meetings really taking place? Are minutes prepared? Does the board review the trusts of which the trust corporation is a trustee? How does the trust corporation charge for being a trustee (if at all)?

Alternatively, is the law firm actually charging for carrying out a trustee role? And have the restrictions on charging which apply to private charitable trusts been considered? Do the directors have adequate, or any, directors’ and officers’ cover?

All of these issues can be addressed and are dealt with in properly run trust corporations. Where the set-up is right, the trust corporation can then in principle be used in all kinds of other circumstances - as an attorney, as a nominee, or to hold shares in a corporate structure.

Taking on a trusteeship, as with many things in today’s world, is a matter of risk. And so, unless that risk has been properly assessed, when the question next comes up in the client meeting, take your time before answering, and be prepared to say “no”.

Chris Belcher is a partner at Mills & Reeve LLP. Contact Chris on chris.belcher@mills-reeve.com; follow Chris on Twitter at @PC_Lawyer