Protecting Assets, Enhancing Value and Mitigating Risk
Trusts are a cornerstone of asset protection and succession planning, providing a versatile tool for the security and growth of assets. In many international financial centres (IFCs), trustees play a pivotal role in ensuring that trusts serve their intended purpose. They are entrusted with a set of fiduciary duties that revolve around safeguarding assets and enhancing their value for the benefit of trust beneficiaries.
IFCs provide a robust legal framework and a well-regulated financial services sector, making them a preferred jurisdiction for the establishment and administration of trusts. A trust typically involves three key roles: the settlor, who creates the trust; the trustee, who manages and administers the trust assets; and the beneficiaries, who are entitled to the benefits of the trust.
Trustees are bound by a range of fiduciary duties, which include the following:
Duty of Loyalty: Trustees must act solely in the best interests of the beneficiaries. They should avoid conflicts of interest and act impartially among multiple beneficiaries, ensuring that no one party is favoured over others.
Duty of Prudent Management: Trustees are expected to exercise skill, care, and diligence in managing the trust fund. They should make informed decisions, considering the specific circumstances and objectives of the trust, as well as applicable laws and regulations.
Duty of Good Faith: Trustees must act honestly and in good faith when dealing with trust matters. They should not abuse their position for personal gain or advantage.
Duty to Preserve and Enhance Value: One of the primary duties of trustees is to protect the trust assets and, where appropriate, enhance their value. This involves careful investment management and a responsibility to reduce risks where possible.
Duty to Keep Adequate Records: Trustees must maintain accurate records of all trust transactions, including financial statements, to provide transparency and accountability to beneficiaries.
Considerations for Trustees
As noted earlier, trustees must exercise skill, care, and diligence in managing the trust fund. This duty encompasses both assets and liabilities, and therefore extends to mortgages and other credit arrangements entered into by trustees.
Traditionally, trustees have favoured less volatile assets when investing trust capital. Those assets often include discretionary managed investment portfolios and various types of real estate. When considering these investments, trustees seek professional advice to ensure that the trust’s objectives are met whilst at the same time preserving and enhancing the value of capital invested.
As part of a transaction to acquire assets, trustees may consider utilising debt to top up a shortfall or maintain liquidity. Prior to sourcing such debt, expert advice should be sought to ensure the terms negotiated do not contravene the objectives of the trust and any specific terms set out in the trust documents.
Furthermore, as part of their duty to protect trust assets and enhance their value, trustees must ensure that any debt arrangement is made on competitive terms when compared to other products available for similar transactions in a comparable market. For example, an overpriced mortgage will materially affect the net revenue achieved from an investment property.
Trustees generally approach their existing banking partner when it comes to securing finance. Whilst that banking partner will be grateful for the opportunity, they may not be the institution best placed to provide competitive finance secured on the subject asset. A financial institution in London is unlikely to know the residential market in Jersey or Guernsey and vice versa. A specialist debt expert can pair borrowers and lenders for specific transactions.
Our Service Offering
Having extensive backgrounds in fiduciary services, our team is uniquely placed to assist trustees in meeting their obligations when it comes to sourcing and negotiating debt products that comply with and compliment the terms and objectives of the trust.
We will meet your team, listen and learn about the proposed transaction, ask questions to understand desired outcomes and collect only the information and documentation required to secure competitive terms that meet the aforementioned outcomes.
We will prepare a written proposal that sets out our research and findings. The proposal will highlight the various avenues available to the trustee and provide a detailed recommendation based on prevailing market conditions and the specifics of the subject transaction.
We will lighten the administration burden by completing any documentation required in association with the credit application and account opening process.
Finally, we will attend any trustee or board meetings required to approve the transaction and explain our recommendation at such meeting.
In providing these services, we aim assist trustees in meeting their fiduciary duties and protect them from breaches or future claims, whilst at the same time ensuring the trust fund is administered to its full potential and in the harmony of all stakeholders.