It is possible to run businesses through trusts, but generally, it's not advisable. Thie main reasons for trusts are to protect assets and to provide flexibility in distributing income.
Unlike a company, a trust is not a separate legal entity. A settlor transfers assets to trustees and then has no further claim on them. The trustees have the responsibility of administering the assets for the benefit of beneficiaries. This raises issues when a trustee resigns - assets have to be transferred to new trustees, will have effects on business assets and one real estate.
The Trusts Act 2019 replaces Trustee Act 1956 and Perpetuities Act 1964 from 30 January 2021. Many key aspects of trust rules apply alongside the Trusts Act except where the Act clearly provides otherwise. The Act does not codify all trust law – there's too much, too complex common law. Not all trusts are covered – but most “express” trusts are. There is still a fiduciary relationship between trustees and beneficiaries and trustees are accountable for their actions. The trust is still governed by its trust deed. A sole trustee cannot also be a sole beneficiary. Trust information must be kept for the life of trust (not 7 years as per tax).
The maximum duration (unless otherwise specified) is now 125 years.
Trustees must keep core trust documents (s45) and advise beneficiaries of “basic trust information (s51). Documents kept for former trustees must be passed on to a current trustee. Each trustee must hold the trust deed and any variation and be satisfied that at least one other trustee holds all other core documents. Core documents are:
- Trust deed and variations
- Assets & liabilities, income & expenses appropriate to value & complexity of trust and appropriate financial statements
- Records of trustees decisions
- Written contracts entered
- Accounting records & financial statements
- Appointment and removal of trustee documents
- Memorandum / letter of wishes
- Any other documents necessary for the administration of the trust
Beneficiary includes those who haven't yet received a benefit, including discretionary beneficiaries. Trust information is to be provided to a beneficiary within a reasonable time if requested (s49). This regards the terms and administration of trust or property. It does not include reasons for trustees' decisions. At reasonable intervals, trustees must consider whether basic trust information is provided to a beneficiary (s51). This includes changes in beneficiary circumstances, including reaching adulthood.
Basic trust information for every beneficiary:
- they are a beneficiary
- name and contact details of trustees
- the advice of each appointment, removal & retirement of the trustee as it occurs
- right to request a copy of trust deed or “trust information”
The big issue is to give information or not - s53-13 is almost a "get out of jail free" card. Trustees are not required to document the factors considered and their reasoning, but it is prudent to document the rationale for not providing information.
Trustees' duties are not to be confused with trustee powers. Mandatory duties are:
- know terms of the trust
- act in accordance with terms of the trust
- act honestly and in good faith
- act for the benefit of beneficiaries
- exercise trustee powers for a proper purpose
Trustee actions guided by terms of the trust. Default duties:
- General duty of care
- Not to exercise power for their own benefit
- Avoid conflict of interest between trustees' and beneficiaries' interests
- Be impartial. Not treat all beneficiaries equally but as per terms of the trust
- Duty to act unanimously unless modified or excluded in the trust deed
- Trustee resolutions
- Trust Minute book
- Trustee decisions and reasons re beneficiary disclosure