Choosing investments

By Tolley in association with Mary Fraser

The following Trusts and Inheritance Tax guidance note by Tolley in association with Mary Fraser provides comprehensive and up to date tax information covering:

  • Choosing investments
  • Investment strategy
  • Cash
  • Special assets
  • Investment bonds
  • Quoted investments
  • Title

Trustees have a duty to act in the best interests of the beneficiaries. This can cause difficulties when the beneficiaries’ interests conflict. For example, in a life interest trust, the life tenant will need income-producing assets and the remainderman will need growth investments and it is for the trustees to balance these interests so as not to unduly prejudice either party. See Example 1.

Investment strategy

As mentioned above, the trustees must have an investment strategy in order to balance the needs of the various beneficiaries. In doing this, they will have regard to such matters as the life of the trust, the beneficiaries’ other means and the terms of the trust. See Example 2.

Trustees in a discretionary trust may prefer to invest for capital appreciation to avoid the income tax rate applicable to trusts, if they do not propose to distribute the trust income in the near future.

On the other hand, the needs of the beneficiaries may be for income and, if they are not higher rate taxpayers, the rate applicable to trusts may not be a problem. The beneficiaries would probably be able to reclaim the tax. Here the purpose of the trust must be considered; if the trust were a grandparents’ trust to provide for school fees, then the trustees would be acting within their powers to distribute for the benefit of the grandchildren.

Trustee Act 2000, s 4 imposes an obligation to regularly review the suitability of the trust portfolio and consider whether the investments should be varied. In the case of a portfolio consisting mainly of shares in a family company, the settlor may have provided that the t

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