Accepting appointment as a trustee of an existing trust (Additional…
Accepting appointment as a trustee of an existing trust
There is always more risk for a TSP when taking over and acting for an existing trust than there is if the TSP has always acted in relation to the trust
On appointment as a new trustee for an existing trust, a TSP should check the existing trust documentation to understand and/or acquaint themselves with all previous administration matters and to ascertain and obtain details of all the assets of the trust
A TSP who does not review the documentation could find themselves liable for a potential breach of trust committed by a previous TSP or there may be pending future litigation involving the trust or the parties to it
TSPs should seek to understand why a new TSP is being sought. It should seek to understand whether it is the existing TSPs decision to resign or whether the client has instigated the change
There may be a number of reasons that a TSP may wish to reign for example
The TSP may have made a commercial decision eg perhaps the fee that the TSP is able to charge is not commercial or the reward is too little compared to the risk that the TSP believes the client poses to them
The TSP may have found it difficult to obtain its fees perhaps due to complaints by the client
The structure may no longer be acceptable to the TSP, for example if there is money laundering concerns relating to the tax treatment
The TSP may be in possession of adverse information about the client and wishes to exist the business relationship
The relationship between the client and the existing TSP has broken down
There are lots of reasons why a relationship between a client and a TSP may break down, for example there may be a dispute. It is important that TSPs fully understand the nature of the breakdown as this can offer valuable insight into issues that they themselves may be exposed to in the future. It is possible that the settlor or beneficiary does not accept that it is the trustee that controls the trust fund or that they cannot make investment decisions
There may be good reasons why a new TSP is sought for example there is legal or taxation benefits of the trust assets being managed from an alternative jurisdiction or there are genuine service issues with the existing TSP that the client is dissatisfied with
When the new TSP is ready to be appointed, both the retiring and the new TSPs would then execute of Deed of Retirement and Appointment of new TSP, the assets would be transferred from the retiring trustee to the new TSP and the new TSP will ensure that the trust documentation and other important documentation are placed in safe custody.
Additional consideration for the TSP as taking on existing trusts presents additional risk
Is the reason why the present TSP is resigning understood and does this reason cause concern to the TSP?
Does the person purporting to appoint the new TSP have the power to make the appointment under the terms of the new trust deed?
Has a Deed of Retirement and Appointment of New Trustee been signed by all parties?
Have all the terms of the trust been reviewed and are they fully understood?
Have details of all of the assets of the trust been established including their value (supported by recent valuations)?
Have details of all of the liabilities of the trust been established and is the new TSP fully aware of all of the terms?
Have details of all the liabilities of the trust been established and is the new TSP fully aware of all of the terms?
Has a copy of the up to date financial statements of the trust been received by the new TSP and do the assets and liabilities detailed therein agree with the new information that the TSP has been given?
Have all trust records and files been transferred from the existing trustee to the new TSP including the original trusted and any supplemental deeds?
Have the files been reviewed to ensure that the previous trustee had not committed a potential breach of trust?
Has the legal title of all of the assets been transferred from the existing trustee to the new TSP?
Have assets (where necessary) been insured?
Are the usual activities of the trust understood?
Have the details of bankers, investment managers and other agents of the trust been established?
Have all necessary diaries been created (eg diaries to make trust distributions, diaries to monitor receipt of assets form the existing trustee, receipt of income, diaries to ensure that all assets are insured and to ensure that all loan repayments will be made etc)?
Has the trust documentation and any assets/other important documents been placed in safe custody?
Have all bankers, investment managers and other agents of the trust been informed of the change of trustee?
Has a new signatory list/mandate and any other due diligence required been sent to the existing bankers, investment managers and other agents of the trust?