Does trust money need to be invested?

[Mamma1355]

Google says trustees have a duty to invest trust money for the beneficiaries. But trying to find the sources is a little harder. Does anyone have a source that says this explicitly? And what the consequences are for trustees that don’t invest?

Basically I know potential trustees who don’t want to invest, they want to leave the funds in a low interest bank account until it can be handed to the beneficiary. If there are consequences I need credible sources to show them. They don’t want to seek financial advice.

Secondly can the settlors also write into the trust document that the money must not be invested? Or is that not possible because it defeats the point of a trust?

Thanks for any advice.

This article is correct and gives some relevant case law:

Trustees’ duty to invest

I will defer to prh47bridge who is much more knowledgeable than me.

However, just to say I have chosen to keep money for which I hold Power of Attorney in an instant access account (interest-bearing) because there is a likely scenario by which the donor would need to be able to prove that they can pay large bills promptly, and because they are extremely elderly so it makes sense to avoid any risk of share fluctuations. If it were for a younger person the situation would be different I think. Also of course the legal picture is different for PoA.

Thank you very much for the article.

It was explained to me that it is difficult to find a trustee bank account and this is because most trustee bank accounts don’t hold money because the money is invested.

But Metrobank have a trustee bank account - what is the expectation from Metrobank if not to hold the money? (at a very low interest rate.)

Thanks. The beneficiary is a child and possibly a vulnerable person.

Premium Bonds?

Do not use premium bonds. That’s gambling really.

If the beneficiary is a child, there are child isas which you can use. Pretty easy to get a decent one. Then agree when money is going to young person. 21, 25? Hopefully the government won’t tax them!

Most high street banks will manage investments for you, and will have a range of portfolios you can put the money into.

Thanks. I don’t think ISAs would be the right vehicle for a vulnerable person. A vulnerable persons trust is what is being looked at as well as other types of trusts.

Can beneficiaries realistically sue the trustees if they allow the funds to sit in a low interest bank account for many years rather than investing it so it can grow?

Premium bonds are a bad way of investing money. Average return is 3.6% and of course you may get less.

I’m a trustee, one of three which includes a solicitor.
The vast bulk of the Trust is invested through an investment management company. We have taken the decision that the investments shoukd be medium risk so the investment management co don’t invest in certain stuff. A large percentage is in bonds.
Agreed amounts are transferred to the Trust bank account which is held at Lloyd’s. Of that money, the beneficiary receives a monthly allowance. Can also discuss larger one-off payments such as holidays, work to his home, large purchases. Very unlikely that he would be refused the money but this is a failsafe as although he has capacity he could be considered vulnerable. He takes part in deciding the ethos of his Trust’s investment, for example he likes ethical investments.
very much depends on what the Trust money is needed for (future care vs fun money for example), and whether the beneficiary will ever take control of that money themselves.

Yes, the beneficiaries could potentially sue the trustees if they have mismanaged the trust.

If the beneficiary is a child with a normal life expectancy, then the majority of the money should be invested alongside following a 'cashflow ladder' principle for required income/expenses over the next few years, so cash is withdrawn, to reduce/minimise investment risk.

Because even with ups and downs in the stock market, over the medium to long term, it is very likely to grow far better than cash.

If the amount of money is large, eg above around £100k, then they'd almost certainly benefit from taking advice from a chartered financial planner, who can help them make the best use of the money.

How much is in the trust?
The majority of trustees will also have a bank account as well as an investment account - they’re just harder to get because they’re a bit complicated.

The trustees have a duty to maximise returns for the beneficiaries in the context - investment won’t always be the right answer.

And no one has mentioned ISAs because the trust can’t invest in an ISA, because it’s an Individual Savings Account and the trust isn’t an Individual.

We have a substantial portfolio managed by an investment company (Shroders but previously Lloyds Private Banking) and it’s nearly all in ISAs . Why is that an issue? Yes, some risk but it’s a long term investment. We have medium/high risk but that’s our choice. Depends on the amount of money you are talking about of course and how much day to day management you want. You set it up according to needs and to minimise tax! We have an investment adviser and we are now at nearly 30 years into our relationship.

It really depends how much legwork you want to do. You could keep investing in short term bonds but you have to keep managing every investment. High street bank returns are generally poor but if you don’t have a very decent sum, you don’t want the fees of Shroders but you do get a portfolio suited to the needs of the fund and the trustees.