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Administration of trust and company assets (Chattels (A trustee should…
Administration of trust and company assets
Trustees have a statutory duty to ensure that they have legal ownership and control over any assets settled or to be settled by the settlor into the trust
The trustee must ensure that the assets are properly vested (transferred) into the name of the trustee and that the assets and liabilities can be properly ascertained at any point. This one reason why, whenever funds are deposited into or withdrawn from a trust or company, the bookkeeping records and any registers maintained by the OSP in relation to its assets are properly maintained
Cash and bank deposits
The trustee has a fundamental duty to protect and preserve and as far as possible, enhance the trust fund.
It is not acceptable to simply place funds in a bank account without having given proper consideration as to the impact that inflation may have on the value of the cash in real terms and whether or not the interest rate is the best that the trustee could obtain in relation to the cash or whether the cash should be invested, for example in an investment portfolio
The trustee should ensure that capital and income is kept separately in order to ensure that both income and capital is taxed appropriately and in the most efficient manner when it is distributed to the beneficiaries and to ensure that beneficiaries with specific entitlements receive only what they are entitled to
The trustee should ensure that they manage any cash balances effectively and that
The bank mandate is completed and in accordance with the authorised signatory list of the trustee
The type of accounts to be opened is appropriate, eg should it be interest bearing, fixed term deposit etc
The maximum amount to be maintained in any deposit taking institution is considered, taking into account the risk of a banking collapse and any deposits protection legislation available
Regular bank statements are obtained and reconciled in a timely manner to the bookkeeping records of the trustee
Full details of the source of any new and additional funds received are obtained and acceptable to the trustee
Property
Properly as an asset of a trust or company is becoming common
So OSPs reduce any issues relating to risk, they should ensure that
They hold the title deeds of the property or if the original title deeds are held by a lawyer or a bank (in the case of a mortgage being arranged), have written confirmation that they are holding the title deeds to the order of the OSP
The insurance cover is adequate, the premium is paid and a copy of the current insurance certificate is held
If the settlor and/or beneficiary is living in the property, whether or not rent is paid, that an agreement to occupy or similar document is in place and a copy held
If the property is rented out, the OSP should consider appointing an agent to assist in the collection of rent and to ensure that the OSP receives regular receipts of this rent
They consider appointing a property manager to ensure the maintenance of the property
They consider a periodic valuation of the property
They consider any future tax implications of holding property
Stocks and shares
When holding or managing investments, professionals such as brokers, custodians and investment advisers may be appointed
Regular portfolio valuations relating to the investments should be received and performance reviews should also be undertaken
The frequency of any review will depend on the type and complexity of the underlying investments, the type of trust and its overarching purpose
Chattels
Tangible moveable assets such as jewellery, works of art, fine wines, rare books, race horses, private jets, yachts, vintage cars, antiques or precious gemstones. These assets are sometimes referred to as 'special assets'
May be used or enjoyed by the beneficials and this may pose additional risk and potential liability
The assets will need to be stored in an appropriate manner and appropriately insured
Trustees will not usually be enthusiastic about accepting special assets as an asset of a trust as they are often wasting assets or pose additional risk in terms of their safekeeping an maintenance to the trustee
Some trustees may only accept such assets from their most valued and established clients and only where the asset is not the primary asset of either the structure or the client
A trustee should consider the following principles if accepting special assets
legal advice and reporting procedures
any report held on its provenance (work of art, antique etc)
to obtain full details of the asset and its valuation
the insurance of the special asset would normally be placed with specialist brokers
the monitoring of the asset
If special assets are to be held in a trust, the trustee must ensure that the terms of the trust deed allow this type of investment to be held
An OSP usually prefers that such assets are held in a separate underlying company. The main reason being the need for the OSP is to 'ring fence' these special assets away from the other assets of the trust and company structure
The costs of the incorporation and the future administration of the additional underlying company and the cost of obtaining advice from specialised lawyers and third party agents will need to be taken into consideration when calculating fees to be charged
Depending on the nature of the special asset, the trustee may require a service level agreement to be entered into with specialised agents or managers. Taxation advice should be sought to mitigate any potential tax effects of the acquisition of the special assets or of any income arising following their purchase and future use
Beneficiaries using any special assets should be advised to obtain independent tax advice and to consider other legal and rgualotry issues as appropriate as the use of a special asset by a beneficiary may create a taxable benefit in some jurisdictions
The ongoing requirements and/or issues faced by a trustee following the purchase of a special asset are
A regular professional valuation, which may be costly
The title deeds or other satisfactory proof of ownership to be held in safe custody
If the title documents are held elsewhere, a certified copy should be obtained and held
Confirmation from the external depository who is holding the title documents should be obtained
Suitable and adequate insurance arrangements should be made to cover loss, damage and where appropriate, public liability
The retention and use of the special asset may usually be subject to periodic reviews to consider any amendments needed with regard to insurance and value
Unquoted investments / non managed asset holding companies
Most trustees have significant procedures in place in respect of holding unquoted investments or non managed assets holding companies in trust structures
A trustee should carry out full due diligence an sufficient monitoring on these types of assets and ensure that they are appropriately reviewed and sufficient information is obtained from the directors of these companies about underlying assets
The usual requirements of a trustee before accepting these types of investments include
Obtaining certified copies of the certificates of incorporation and the constitution documentation of the company
Obtaining copies of register of directors, shareholders and secretary and updated ones if changes are made in the future
Obtaining copies of the financial statements of the companies
Ascertaining whether there are any requirements for regulatory approval for the activities being undertaken by the companies
Obtaining full due diligence on all the directors and maybe beneficial owners of the companies
Ascertaining whether there are any tax related issues
Arrangements should also be made to ensure that the trustee is informed as to the company's progress, results and prospects. It may be appropriate that a director of the trustee should regularly meet with ted directors of these types of companies
Sometimes these types of companies are kept at the request of the settlor and/or beneficiaries for sentimental reasons