Managing trusts

Once a family decides to set up a trust, it has to select service providers to help set up the trust and also to help manage the trust. The ongoing management is done by the trustee, protector and administration provider. Families can appoint family members or friends as individual trustees, or a corporate trustee – both come with pros and cons.

The role of trustee is the most important in the management of a trust. The settlor essentially places his trust in the trustee to manage the trust assets for the benefit of the beneficiaries. Hence, the the trustee has a fiduciary role to play and is legally bound to act in the best interests of the beneficiaries.

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Responsibility of trustee

A trustee is responsible for the custody and management of the trust assets, as well as the administration and management of the trust. The responsibilities include –

Custody and management of trust assets

• Managing trust assets safely and productively;
• Identifying, securing and preparing and inventory of the assets of the estate;
• Maintaining a record of the assets that are held in the trust or have been conveyed to the trustee, as well as details of all income and disbursements;
• Appointing financial advisors, investment bankers, real estate consultants for achieving the most efficient management of assets;
• Custody of all securities and title documents for various properties of the individual.

Administration and management of the trust

• Administering the trust according to its terms and carrying out the trust objectives;
• Making distributions to the beneficiaries of the trust as may be required and providing detailed reporting to the beneficiaries;
• Accounting and record keeping, taking care of the tax liability, filing returns where necessary;
• Management of all financial affairs of the trust;
• Compliance with the intentions of the creator of the trust and current trust and current trust another trust and other laws;
• Arranging payment of all debts and liabilities outstanding.

A trustee acts as the common point of contact between the client and service providers.

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There might be an investment expert who has enough knowledge of managing wealth. “It’s  always  better  to  have different set of experts – one party who is taking  care of pure investments of the trust which could be a relationship manager  or  someone  else, whereas the trustee being the other party would look  after the entire administration, for example how the succession would happen  and  get  passed  on, how the family members would be taken care of especially  minors  or  people with special needs, the well being of senior citizens,   day   to  day  welfare,  other  requirements,  maintenance  and management of the family etc, while the trust is on”, says Tariq Aboobaker of Amicorp.

The important consideration here is that, “the client has one number to call and the client’s family members know that one number which needs to be called,”  adds Shailesh Haribhakti.

Qualities of a trustee

Most families choose family members or a family friend as trustee. When deciding on an executor to a will or a trustee to a trust, 95% of the clients think or come with the understanding that they should appoint a close friend or a relative, which in most cases is not the best thing to do. “It’s  always  advisable  to appoint a corporate trustee who is equipped and qualified to manage your trust in a professional and unbiased manner versus a  family  member  who could get biased or may wish to act in a manner that avoids hard  feelings within  the  family,  rather than carrying out your instruction,” adds Aboobaker.

“The role of a trustee is purely fiduciary in nature. The trustees have an obligation towards the beneficiaries of the trust”, says Dr Angelos Verandos.

According to Sonali Pradhan of RBS, “The trustee, be it an individual or professional, should diligently follow the instructions provided in the trust deed. Trustees should always work in the best interest of the beneficiaries and protect their interest at all times. Personal biases towards the beneficiaries, especially in case of an individual trustee, should be highly avoided. Additionally the trustee should also be aware and avoid a conflict of interest while managing the trust.”

According to Shefali Goradia of BMR, “generally families prefer not to go with sole corporate trustees, they like to have joint trustees that might be their friends and family.”

However, families must consider that one of the principal reasons for establishing a trust is to provide for the future. A corporate trustee will ensure continuity for the full term of the trust, whereas an individual will not be able to fulfil his or her duties in case of an illness or incapacity, or demise of course. As the family situations change and time takes its toll, trustees need the ability to serve beneficiaries over many years, sometimes generations

One of the responsibilities of a trustee generally is taking care of the preservation, management and accumulation of the trust assets. The trustee must have the experience and expertise in choosing and monitoring and investment manager, weighing and evaluating request for distributions and making potentially difficult decisions. A professional corporate trustee should have the necessary experience and expertise to take on such onerous responsibilities or be able to call upon and utilize the necessary expertise required to undertake certain complex tasks.

The most essential requirement of a trust, whether an asset protection trust, an investment trust or a succession planning trust, is the skill-set of the trustees and their capability to manage the trust. These are specialised people coming on board with specialised expertise to help the entire process flow in a much smoother manner. If you are appointing an individual you are expecting that individual to know everything, which is technically not possible.

When it comes to the delicate and personal issue of how, when, and to whom you want your assets distributed, prudence is likely to be a top consideration. When you name the right corporate trustee, you can feel assured that your privacyis respected and that your financial matters are treated with the utmost respect.

Understandably, even though there are very few risks associated with assets held in trust – as they are protected by law in the event of a trustee’s bankruptcy – clients still want the peace of mind that their assets will be secure and looked after by a qualified, reliable and experienced trustee: a safe pair of hands.

Navita Yadav of IL&FS cites an examples of a brother suing the other, or the beneficiary not being happy with the structure which the settlers of the first generation had set up and they just want to take the legal route. “At that time the role of trustee becomes very critical because the trustee is actually the fiduciary owner of those assets for distribution to the beneficiary but if beneficiaries are fighting amongst themselves or the asset has come under surveillance or for that matter tax issues arise anywhere in the world on those assets or income from those assets it’s the trustee which has to take the lead and that is a good amount of risk that needs management,” she says.

The administration and compliance requirements encompass significant record keeping responsibilities, including accounting for the receipt and disbursement of income and principal from the trust assets and preparation and filling of any annual trust income tax returns that are required.  Add to this the importance of keeping records of all transaction and investments and its easy to see that  a friend or family member may be burdened by these responsibilities. 

Adrish Ghosh of Barclays cited a firm’s back office as a significant criteria clients should consider – “The key criteria would be the strength of the team and the back office resources to ensure that the structure is well managed and the seriousness of the firm with the business. In India, in any case given the limited number of players, there are not too many options to consider.”

“A corporate trustee is just like an administrator, who ensures that your wealth is passed down as per your wishes” adds Yadav.

“In the last five years we have also seen professionals coming in and asking us to set up structures. So for example, a husband and wife who are always travelling, always mobile and they have one child, they don’t trust anybody in the family they would like to come to us,” adds Yadav

Aboobaker cites an example of why someone might choose a corporate trustee over an individual – “When NRIs come down to India for week, they end up spending it in meetings bankers, chasing  statements  and odd jobs. They depend on the real estate broker  or  someone within the family to put any real estate on rent…at the end of the day, they are dealing with the individual, sometimes asking for favours.  For  such  situations, it’s  better to have everything in trust, where  the  trustee  manages  the  asset  and  would  be  your one point of contact.”

Gokul Das of Warmond says, “trustees (individual  or corporate) are expected to exercise same degree of care and attention as any other person will reasonably exercise as a man of prudence.  Integrity, impartiality, confidentiality, compliances – legal and secretarial including proper book keeping and tax compliances, ability to foresee / identify possible risks and dangers to the trust property, access to good professionals, addressing conflicts, vigilant and duty of care is attributed to any good trustee for efficient management of trust. In addition, the professional team engaged by the trustee, the systems to address risks involved on investments (hardware and software), a proactive approach to mitigate risks to the trust assets are very critical for any trustee.”

Even in the most loving families, relations can sometimes become difficult and emotionally charged. And while a carefully drafted trust document explains your intent and provides directions, it can be difficult for a trustee who is a parent, sibling, relative, or friend to act objectively. A corporate trustee, on the other hand, benefits from being an outsider who can maintain objectivity, make decisions free from bias and considerations of family dynamics and is less likely to get

However, overall, it comes down to one thing. Khaitan summed it up: “trust by the word means you need to have trust; there is an issue about trusting a corporate.”

Ashvini Chopra of Universal Trustees points out that there are no regulatory requirements for trustees in India currently.  He says “Say, as a trustee I’ve invested in some systems. Ten years down the line, if your beneficiary is questioned as to why the decision was taken I’ll have full records available.  There is hardly any appreciation but which to my mind should be one of the first criteria which the families should be asking their trustees.”

“They should not allow growth of assets in a very sporadic or unplanned fashion. It should not be that when the client wants to buy a third house the banker advises him to register it under the child’s name. They should actively advice the clients to do proper planning of their assets because tomorrow the same people will come back and say that I want consolidation, I want to create a structure and then people like us are brought in,” adds Yadav.

Trust companies – independent vs bank-owned

When asked if clients prefer independent or bank-owned trust providers, Ghosh highlighted the role of the individual, “the experience with Indian clients has been mixed. In fact many a times, clients have been indifferent and the deciding factor is the comfort of the person they are dealing with. However, a global Indian family prefers a larger institution as they would like to have one party across their global needs, whether in India or abroad.”

In his view, pricing also plays a role but it’s not that clients always go for the lowest quote. “They often use the lowest quote to negotiate with the provider who they wish to go with to bring their quote down as far as possible.”

Private trustee companies

One way to counter the concerns about losing control when appointing institutional trustees is through the concept of a private trust company (PTC).  A PTC is a special purpose vehicle established specifically to be appointed as the trustee of a family trust or a number of related family trusts.

As put by Vernandos, “Foundations and PTCs are the new generation tools for estate planning as these vehicles are more flexible that trust structures.”