Does money in a trust 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. I want to convince them otherwise but 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.

Trustees have a legal duty to do the best for the trust and the interests of the beneficiaries. Leaving it in a low interest account is safe, but the funds won't be earning as much as they should. Perhaps take advice from the solicitor who handled the paperwork.

Thank you.

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.)

You are meant to act in the best interest of the beneficiary. Depending on how much money there is, who the beneficiary is and the expectation of what the money is for will determine what you should do.

For example if there is £100,000 in trust for a baby which is meant to be for them to buy a house when they are an adult you really need to be investing it as you have a lot of years for that money to grow and it won't go far enough if left in a low interest account.

If there is £500,000 in trust for a 16 year old that is meant to be for them to buy a house when they turn 18 then you don't want to be putting it in anything risky as it won't have time to recover if there is an initial dip in the investment.

If this isn't something you feel you can make decisions about by yourself then as a trustee you should be consulting a FA.

The trust deed should specify that trust funds can be invested. Not the other way round.

Thank you. The baby example is closest to the situation I’m in.

The trust deed does say that the trustees have the power to invest the funds.

Can the 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?

I think you need to get them to understand that cash is not the safe option as the holdings will be eroded significantly by inflation over time so far from being the safe option it’s actually an irresponsible one

I don’t think you need to worry about that, what figure would you put on the potential loss? Something invested in a low level of risk may actually not do much better than cash and could still be worth less than what was put in especially after fees and charges.
Not saying that you shouldn’t invest though.

I had to manage a big sum as a trustee for my two sons when they inherited from grandparents when still young children. It's a bit of a minefield and the trustees need to make sure they are following the rules.
Are they officially trustees, created by a will for example?

Trusts need to be registered with HMRC, and pay tax on dividends etc. If the trustee is feeling out of their depth and just wants to default to low interest savings accounts then they may need to get professional help/ advice.

It also depends how much money we're talking about. Not worth getting advice for under £50k in my opinion.

And yes, ultimately the beneficiaries could sue the trustees later if they felt the funds had been mismanaged (but that's obviously a last resort).

Thanks all.

As I understand Metro bank are one of the only banks that still offers a low interest trustee savings account and many people are using them for this purpose. Is it the reality that many people will leave trust money in this type of account without investing?

The value of the trust in question is in the hundreds of thousands and the trust doesn’t vest for at least 10 years, so I absolutely see that investment is a better option. I can’t see how to convince my financially conservative family though - they would rather the money depreciate in value than risk investing.

I think they need to speak to an IFA - how do you go about choosing one?

The reason why most banks have stopped offering this service is because most trusts do not keep larger funds in cash.
Most trusts will need a bank account even if you invest the money.

Technically speaking putting the money in a low interest account is investing the money, even if not very productive - leaving it in a current account is not investing it. The wording about trustees investing for the beneficiaries can be ambiguous - either means the funds must only be used for the benefit of the beneficiaries ( not borrowed against or used by the trustees for other purposes, short or long term) or it can be taken as the money must be invested, with no specifics, and not left to lie fallow. Words and phraseology matter. The first interpretation could be assumed as a function of trusteeship but spelling it out removes any doubt. The second also needs clarification.

Presumably the cost of the financial advice and the costs of the investments will need to be deducted and it is the trustees who will be accountable. When you mention the trust doesn’t vest for at least a decade, what age would the child be then? I have heard those aged 18 and judged competent can often get access to their inheritance rather than waiting longer. I would tread carefully with talk of suing, if you would sue for not investing they will be scared you will sue about the investment choices.

As an Executor/ trustee, I looked into what to do with some money released from the estate to the Trust after Probate but before settlement of the estate. I could either create a full trust (but with only a % of the final trust value and set up costs it made sense to wait) or put the money elsewhere to earn interest. The Metro bank was suggested, but from memory both had fees, low interest and were of set duration. In the end I set up a National Savings fixed term bond account as a Trustee without set up costs, with the idea that when it matured it would be invested into the full trust. The National savings Trustee option isn’t very obvious on the web site, but was the only other alternative I could see.