Trusts and Inheritance Tax

Requirement for trust accounts

Produced by Tolley
  • 23 Mar 2022 10:31

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Requirement for trust accounts
  • Duty to prepare trust accounts
  • Purpose of trust accounts
  • Essential split of capital and income
  • Beneficiaries
  • Tax

Requirement for trust accounts

Duty to prepare trust accounts

Under the laws of England and Wales, trustees have a duty to account to the beneficiaries for their financial administration of the trust fund. This duty is established by a substantial body of case law. In the case of Armitage v Nurse, Millett LJ stated:

“Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not”

However, there is no statutory duty to prepare accounts as there is with companies, which means that trustees enjoy a considerable degree of flexibility in how their duty is to be fulfilled. Where professional trustees are acting they will be required by the regulations of their professional bodies to provide adequate accounts of their transactions, but again there is no mandatory format laid down by any of the accounting bodies.

The Society of Trust and Estate Practitioners (STEP) has published STEP Accounting guidelines for trusts and estates, which cover best practice and sample presentations.

Purpose of trust accounts

Essentially, trust accounts are required to monitor the performance and application of the trust fund. The information provided will vary according to the assets held by the trustees, but in general terms, the accounts should show what has happened to the investments, what funds have been received, and how the resources have been used.

Applying these basic principles to a fairly typical trust fund invested in stocks and shares, the accounts would ideally show:

  1. the value of the trust fund at the start of the accounting period

  2. how

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