The COVID 19 pandemic has created challenges across all industries. While the long-term nature of trust management is less impacted by movement restrictions and lockdowns than other sectors, it has nevertheless created new challenges for trustees and their advisors.
With rules varying between jurisdictions and an ever-changing set of limitations guiding travel, meetings and office accessibility, the diligent trustee would be well-advised to sense check their trusteeships to gauge any potential risk created by the pandemic.
The key challenges to trustees fall into two categories. Firstly, there are challenges to the way a trustee can protect the assets of a trust. Secondly, looking after a family’s wealth – often a core part of a trustee’s role - has become more difficult.
Looking after assets
What a trustee needs to do to protect assets is entirely contingent upon what those assets are.
Tangible fixed assets are generally easier, but there are still factors to consider. Take vehicles for example. Are they being properly maintained? Are maintenance requirements being met? Is there any risk they might become unserviceable as a result of a lockdown for example? Active engagement with suitable professionals can pre-empt a problem and manage it.
Artwork and luxury goods can easily become stuck in an unexpected location, where, perhaps they were originally temporarily loaned to. It is important to ensure documentation has been completed to account for the extended period. Failure to do so might invalidate insurance in the event of theft, fire or any other damage.
When considering underlying companies, care needs to be taken to understand whether travel restrictions could negatively impact upon a trustee’s ability to take an active role in the management of said company. Trustees regularly form part of a mixed board, and, under normal circumstances, travel to a board meeting in a specific jurisdiction for tax planning purposes. Given the rising popularity of video conferencing, it is important to ensure that a company’s articles actually provide for this. Memorandum & Articles can remain silent on the ability to hold board meetings through electronic means. A simple amendment to the Articles can easily put this beyond challenge. However, failure to do so could potentially lead to questions regarding the legitimacy of board meetings and, in a worst case scenario, personal liability to directors as a result of decisions being made in improperly held board meetings.
It is important to consider the location of a video conference meeting which, unless the Articles suggest otherwise, generally falls to the jurisdiction in which the Chair of the meeting sits. There is a risk that a company that is used to meeting on a quarterly basis in say Jersey, could quickly find itself UK resident. An even more stringent approach would be to call a physical meeting in Jersey, by appointing alternate directors in Jersey representing each family member in light of their inability to attend the meeting in person.
Looking after relationships
Trustees need to review each trust on a case by case basis and discuss with families whether any changes to the governance structure is necessary.
Have the circumstances of the year forced an unusual financial need among beneficiaries? Have the offspring who are normally self-sufficient from their own business interests hit an extended period without income? Are they likely to need financial support in the next three months? It would be better to know in advance of a reasonable change arising that required the liquidation of trust assets. Again, the proper course of action is actively engaging with the family and understanding in significant depth if there is a risk of any of these factors occurring.
The unusual circumstances of 2020 may well be having an impact on the tax status of beneficiaries and trustees. For example, someone may have attracted tax residence in an unexpected location by virtue of being forced to remain there for an unexpected number of days. It is worth noting that some jurisdictions have temporarily altered resident requirements in response to the unusual circumstances of the pandemic. HMRC in the UK has noted that its count of days in the UK already holds a caveat allowing for occurrences where an individual cannot leave the UK due to circumstances beyond their control. Any individual seeking to avail themselves of this exemption should seek bespoke tax advice.
Our industry looks forward to progressing to ‘new normal’ and once again holding face to face meetings with clients. However, in the meantime, a short sense-check review is recommended. Trustees can continue to manage their clients’ assets and ensure they discharge their proper duties in respect of the beneficiaries. In a perfect world, by the time this article goes to press, it will be unnecessary, but in the meantime, the industry shall continue to do what it does best – diligently managing clients’ assets.
If you require further information or advice about this topic please contact Graham Marsh.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.