Trusts are a popular estate planning tool used to hold and protect all kinds of possessions, from property to life insurance and even cash - but like any position looking after money, a good deal of responsibility is involved. The unfortunate case of Nicola Mackay, who was recently told she would still be largely liable for a £1.6m tax bill as a result of a tax avoidance scheme, highlights just how badly things can go wrong without proper advice.
The responsibilities of taking on the running of a trust are usually varied, and can be difficult. In the case of Nicola Mackay, she accepted a position as trustee of a family trust and then agreed to a complex tax planning scheme in order to mitigate a substantial capital gains tax liability. Unfortunately HMRC challenged the scheme, deeming it to be tax avoidant, and it failed; as the trust no longer has any assets, Nicola now faces a £1.6m personal tax liability.
She tried to have her appointment rescinded by the court on the grounds that she didn't understand what she was signing and that she was under undue pressure from her father. Unfortunately, the court didn't agree and her appointment stands.
As consumers' financial affairs become more complex, trusts are being offered as a solution by financial advisors, accountants and lawyers alike. A lot of time is spent in the planning process to explain to clients the pros and cons of the trust's structure and the legal and tax effects making one will have. However, often very little time is spent discussing the appointment of the people who will responsible for managing the trust: the trustees.
There's a lot to learn here if you're looking to take on a first-time trustee role, but the basics can be distilled to this: before accepting a trustee appointment, be certain that you understand the legal and fiscal requirements of the role and if in any doubt, take professional advice or simply decline.
Court declines to rescind appointment of trustee landed with GBP 1million CGT bill