Yesterday, the BBC reported on the sad case of Katherine and Gerald Hill, two trustees who have been found guilty of fraud for withdrawing funds from the trust fund they were managing. 

Background
Mrs Margaret Hill died, leaving £50,000 in a trust for her granddaughters until they turned 25. The trustees responsible for managing that money were Margaret’s daughter, Katherine and her husband, Gerald. However, Katherine reportedly withdrew money from the trust herself (reportedly due to her anger at the girls receiving such a large share of the estate), ultimately resulting in her and Gerald being found guilty of fraud.

Lessons learned

Among the many important lessons from this case, there are two that stood out to me.

Firstly, many people set up trusts in their wills or are appointed as trustees in someone else’s will without fully understanding what a trust means. A trust is its own entity, separate from the people who run it (the trustees) and the people who will benefit from it (the beneficiaries). Just as a company exists separate from the people who run it, so does a trust. 

When someone leaves money in their will to a trust, they are leaving it to the trust itself, not to the people who run the trust, nor to the people who benefit from the trust. In other words, it is not for the trustees to withdraw money from the trust simply because they are in charge of it. The money belongs to the trust, not the trustees; the trustees are just the people currently responsible for running the trust. The job of trustees is fundamentally to properly look after trust money and pay it out to the beneficiaries at the relevant times.

Also, just like people who run a company, the trustees running the trust have legal responsibilities as to how they manage the trust money. The details of those responsibilities are set out in law, but also depend on the terms of the trust that has been set up.

Secondly, the case emphasises the importance of the decision about who you choose as your trustees. The law is full of jargon, but thankfully, the name ‘trust’ gives a really good indication of what the focus is. You need to make sure that the people you choose as trustees are people whom you trust. Trustees are responsible for managing the money when you are no longer there, so you need to make sure that they are people who will understand what they need to do and will do it honestly.

It is also important to think about relationships when you choose trustees. You need to think about whether your trustees get along with each other and with the beneficiaries. It is also important to think not just about whether they get along now, but whether they will also get along after you have died, and they have seen what is in your will. If you are choosing more than one trustee, it is also important to think about what each trustee is ‘bringing to the table’ – e.g. will one of them keep a check on the other or contribute some extra knowledge to help with managing the trust?

The decision to set up a trust in your will is a big decision and not one to be taken lightly. It is important to think carefully about who you appoint as your trustees to avoid issues later down the line, when you will not be around to resolve them.

For more information

For further information about wills and trusts, please contact me.