Being a trustee is often an important way to help a friend or family member. It means you take responsibility for money that’s been set aside in a trust for someone else. You’ll manage the money for them, only use it in their best interest and obey the rules of the trust.
- What is a trust?
- What is a trustee?
- Trustees and tax
- What is a trustee responsible for if something goes wrong?
- If you’re asked to be a trustee
- Not sure if you want to be a trustee?
- Get advice before you become a trustee
What is a trust?
A trust is a way to manage money or other assets for someone else.
There are three key people involved in any trust:
- The settlor – the person who puts the assets or money into the trust.
- The beneficiary – the person who benefits from the trust.
- The trustee – the person who manages the trust.
There may be more than one settlor, beneficiary or trustee involved in a trust.
Someone might set up a trust for a beneficiary because the beneficiary:
- Is too young to manage their own affairs, typically under 18.
- Is an older person who needs to pay for long-term care.
- Has a permanent disability which means they can’t manage their own affairs.
Types of trust
There are many different types of trusts. Find out more about different types of trust on the GOV.UK website.
What is a trustee?
Think it through
It’s natural to want to help, but you should only become a trustee if you’re sure you can take on the responsibility.
A trustee is a person who takes responsibility for managing money or assets that have been set aside in a trust for the benefit of someone else.
As a trustee, you must use the money or assets in the trust only for the beneficiary’s benefit.
Everything you do as a trustee must be done in the beneficiary’s best interests. Exactly what you can and can’t do as a trustee might be set out in detail in the trust agreement.
For example, the trust agreement might say the trust is to pay for an older person’s care fees. If that’s the case, you can’t use the money for anything else.
You won’t be able to benefit from the trust yourself (unless the trust agreement says you can).
If the trust is a ‘discretionary trust’, the trustees will have more freedom to make decisions.
For example, if the trust is set up to benefit a number of young children, you and any other trustees can use it for anything you agree is for the benefit of any one of the children, like paying for a school trip.
What is a charity trustee?
If you’re being asked to be a charity trustee, there are additional duties. Visit GOV.UK to find out what’s involved.
Trustees and tax
Trustees often have to pay tax on behalf of a trust. Depending on the type of trust, it might have to pay:
- Income Tax.
- Inheritance Tax.
- Capital Gains Tax.
As a trustee, you have to report details of the trust to HM Revenue & Customs and make sure the tax is paid.
Find out more about trustee tax responsibilities on the GOV.UK website.
Get help with trusts and tax
Call HM Revenue and Customs for help with questions about how trusts are taxed.
Telephone: 0300 123 1072
Lines are open Monday to Friday, 9am to 5pm. Call charges apply, find out more on GOV.UK.
What is a trustee responsible for if something goes wrong?
Being a trustee is a legal responsibility, and you might be worried about what happens if you do something wrong.
All you have to do is act in the best interests of the person the trust is for. This is called your ‘fiduciary duty’.
If you don’t, you can be taken to court, and the penalties can be severe.
However, if the trust can’t pay its debts or if you don’t take reasonable care in making a decision that loses money for the trust, you can be liable as a trustee.
If you’re asked to be a trustee
If you’re asked to be a trustee, think carefully about whether it’s right for you. Here are some things to consider.
- Being a trustee can really help someone important to you. If someone asks you to be a trustee, it usually means they trust you to do the right thing for them and the people who benefit from the trust.
- It’s a lot of work and responsibility, and you might end up being liable for losses made by the trust if you don’t carry out your duties properly. Some trusts can take a lot of your time to manage properly. As a trustee you usually won’t be paid, or get any benefit yourself. You’ll be carrying out your duties as a trustee for the benefit of others.
- Being a trustee is a long-term commitment. Some trusts have a set end point – for example, when a child turns 18 – but others can go on for up to 125 years! You could be a trustee for decades in some cases.
- You must agree with all of the other trustees when making trust decisions. So it’s worth understanding who they are and deciding if you think the relationship will work.
Not sure if you want to be a trustee?
If you’re not sure what to do, have a chat with the person setting up the trust.
You’ll get a better idea of how much work it’ll take, and whether it’s really important that you’re the one to do it.
They might have other people in mind if you say no.
Get advice before you become a trustee
Before you agree to become a trustee you should seek professional advice from a financial adviser or a solicitor – to make sure you understand everything that’s involved.
Read our guide Getting financial help and advice.
The Law Societies keep searchable databases to help you find a qualified solicitor near you.
Find a solicitor in:
- England and Wales: The Law Society.
- Scotland: The Law Society of Scotland.
- Northern Ireland: Law Society of Northern Ireland.
This article is provided by the Money Advice Service.