Trustee role & responsibility
This page is written for those asked to act as a trustee for a personal injury trust. The trust talked about here is a BARE TRUST.
What is a bare trust?
The internet could easily scare you into thinking you are taking on a troublesome burden, but let us explain the simplicity of being a trustee of a bare trust.
A bare trust is the simplest form of trust. It is an arrangement in which one person asks others to look after their money.
When someone is setting up a bare trust, I suggest the trustees must obviously be trusted, as the name suggests. The trustees should accept the money belongs to the compensated person and will work with that person for their benefit.
The compensated person always owns the money or assets held in trust. The trustees are holding the compensate person’s money in the arrangement, called a bare trust.
The trust is necessary, as benefit regulations allow personal injury compensation held in a trust to be ignored.
The trust fund is not treated as belonging to the trustees for tax or benefit purposes.
How many trustees are required?
There should be a minimum of two trustees.
The compensated person can be a trustee. There should be at least two other trustees acting with the compensated person as trustees. This is intended to avoid the compensated person ever being the only trustee.
The trustees will sign the trust deed which appoints them as trustees.
The trustees will then open a joint bank account for the trust fund. A minimum of two signatures or approvals are necessary to operate the trust bank account.
The trustees are not limited to holding all funds in a current account. The trustees can invest in any way in which the compensated person could invest personally. The vital point is, that the trust must hold the investment, not the compensated person in their own right.
Do I complete an annual tax return?
A bare trust is not treated as a taxpayer, so there is no need for trustees to complete an annual tax return. If any tax is due on trust fund income, this is included in the personal tax return of the compensated person.
A bare trust which holds personal injury compensation does not have to be registered with HMRC.
The trustees of a bare trust do not have to report to any organisation.
What are my responsibilities?
Your responsibility is to be honest and hold and use the trust fund for the benefit of the compensated person.
The word “benefit” has a wide meaning. The trust can be used for anything the compensated person wants or needs.
The only person who can complain about you as trustee, is the compensated person. If you are working with the compensated person for their benefit, is an issue likely to arise?
Investments
You are not limited to holding the compensation in a current account which pays no interest.
Bare trusts written by Mark Thompson Law allow trustees to invest in any way in which the compensated person can invest personally. That allows freedom, the vital proviso being, the trust must hold the investment.
This is not a licence to take risks and independent financial advice should be obtained.
Tax
It is worth repeating that a bare trust is not taxed in its own right. There is no need for the trustees to prepare a tax return.
If the trust receives income, interest or makes a capital gain, these are included in the personal tax return of the compensated person. Their personal tax allowances will apply.
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