In my last blog, I focused on who to entrust with the important trustee role. In this article, I shall focus on the trustee role itself in relation to land.
What does it mean to be a property trustee?
This is a very broad term, so it can apply to lots of different situations. Here, I’m just outlining a few examples and the key legal points for each.
English land law
A basic understanding of English property law provides helpful context. The law recognises two distinct types or ‘layers’ of ownership:
- Legal ownership – who is named on the title deeds as the legal owner.
- Beneficial ownership – who enjoys the benefit of the property whether that is through occupation or income.
Note: the legal and beneficial owners may or may not be the same people.
Additionally, where there are several legal owners, they may own the property either as:
- Joint tenants – where the ‘rule of survivorship’ means that when one owner dies, the remaining survivor(s) automatically continues to own the property.
- Tenants in common – where each owner has a designated share, which they can govern separately, whether within their Will or possibly another trust structure.
In the latter case, ownership on death passes in accordance with the deceased’s Will or intestacy rules that decide who inherits someone’s estate if they die without a valid Will.
The bare trustee
This applies to the most basic of trusts. It might arise where, for example, the beneficial owners are minors and cannot be registered as the legal owners. Therefore, the parents may be registered as the legal owners, holding the asset for the benefit of their children. Tax and administrative requirements are important, but usually relatively straightforward, although registration with HMRC’s Trust Registration Service (TRS) may still be required. A trust document or deed may not exist for this, as a bare trust could arise automatically under the law. A bare trustee holds the asset solely for the beneficiary or beneficiaries. If all beneficiaries are adults with full capacity, they can require the trustee to transfer the asset to them. As a result, a bare trust offers little in the way of protection.
The Will trustee
A trustee named in a Will may have an ongoing and longer-term role if the Will sets up a trust. A very common scenario is a lifetime interest trust for a partner from a second marriage or civil partnership. The trustee holds the legal title for the benefit and on the terms of the Will trust for that partner. Confusion can arise here because I am often asked by clients where they can find the trust document. The Will itself, which sets out the terms of the trust, is the trust deed. This type of trust will very likely need to go through the Trust Registration Service (TRS) process, unless it is wound up within two years of the testator’s death. Independent trustees are usually vital as a balancing act between potentially conflicting parties.
The discretionary trustee
One of the most complex and trickiest roles to find yourself in is that of the discretionary trustee. The trust itself may have been created during lifetime or within a Will, but the terms are such that there is no identifiable beneficiary who is guaranteed a beneficial interest (income or capital) in the trust property.
The trust document would usually list either individuals and/or categories of potential beneficiaries, and trustees are given powers to exercise their discretion to decide who, how and to what extent (if any), one or more of those may benefit from the trust property. TRS is almost certainly required in this scenario and, depending on the value of the land, tax returns would also be necessary. This is not a role to be taken on lightly and – if you do – it is important to seek professional advice. If you are very lucky, hopefully the settlor has provided a supported letter of wishes with some rationale on the arrangements and guidance for you to consider!
The trust asset
In all cases above, the trustee should hold the legal title to the trust property. Their trustee role is to safeguard the trust asset, and the title register at HM Land Registry should be updated to reflect their ownership. Depending on the terms of the trust deed, their duties may include a requirement to insure the property, carry out inspections, or use other trust funds (i.e. cash) to repair the property. In practice, such things can raise practical and financial questions, as the trustees may only own a share of a property, without access to liquid trust funds. If a property is in disrepair and the beneficial owner of the property cannot afford repairs, what should be done?
So you can see why a trustee role is not be taken on lightly. Something which may provide some reassurance is to understand that you are wearing a trustee hat when dealing with the trust property. This means that it does not affect your own personal tax position. For example, some trustees are concerned that owning a second property may mean they personally have a capital gains tax liability on disposal or a stamp duty land tax surcharge. This is not the case and again emphasises that your trustee role is to be thought of as a separate legal person, with responsibilities which may not be intuitive and needing to be aware of potential limitation on your trustee powers. It is therefore always best to seek advice before taking significant actions – or possible inaction – as a trustee.
How can we help?
Pippa Bavington is a Partner in the Wills, Life Planning & Probate team, based at our Sudbury Office.
Fisher Jones Greenwood LLP, a member of Lawfront since 2021, is a prominent law firm offering a comprehensive range of legal services to corporate, public and private clients.
Our Sudbury office is home to a team of specialists providing both business and personal legal services. Whether you need support with Family Law, Conveyancing, Wills, Life Planning & Probate, or Dispute Resolution, we’re here to help. If you’d like to discuss the role of a property trustee in more detail, or need advice for a similar situation, call us on 0845 543 5700 email [email protected].