Transfer of a Trust to a New Trustee

Switch to Fairway: Transfer of a Trust to a New Trustee

By Mark Andrews, Managing Director Private Client.

There are many different reasons why a trust might be transferred to a new trustee and a new administrator. Regardless of the reason, what’s most critical is ensuring that the transfer is seamless and that the end result is a new relationship that delivers on, or indeed, exceeds the expectations of the settlor and/or beneficiaries.

Why transfer?
There are several reasons why transferring a trust to a new trustee is a sensible and positive decision to make. There might be a conflict of interest with the current trustee or administrator, or the service levels provided may not meet expectations. It might be that the fee structure doesn’t align with the expectations of the beneficiaries or settlor, or there could simply be a change in circumstances that warrants a transfer, such as M&A activity or a change in risk appetite of the existing trustee.

Issues for transfer
When considering a transfer of trustee, there are several key issues to be aware of. Firstly, is the trust still viable given the costs of the trustee, compliance and general administration? Does the structure still work from a tax and personal perspective?

Another very important consideration, and one that’s often forgotten, is who has the actual power to remove and replace the trustee? The terms of the trust will likely provide for the settlor, protector or others to appoint and remove trustees. There have been situations in which the beneficiaries have indeed challenged the removal and appointment of a new trustee.

Another issue to consider is the exit fees which will certainly be charged by the retiring trustee. These fees can sometimes be ad valorem or fixed, and may not necessarily reflect the amount of work needed for the transfer! It’s important to agree these fees at an early stage. Before the transfer can proceed smoothly, any outstanding accounts and administration work, especially statutory work for the trust or any companies it owns, must be addressed.

The incoming trustee will typically conduct a due diligence exercise. This can sometimes reveal problems or concerns that weren’t identified previously. Moreover, the source of the original funds settled into the trust, especially if it's an older trust established before certain regulations, can play a significant role in the transfer process. The trust deed should also be examined closely for any unusual terms that might pose challenges for the new trustees - these can include reserved powers or specific rights held by a Protector.

Securing up-to-date tax advice is crucial. Before any transfer takes place, you should understand both the tax implications of the trust structure itself and any potential tax liabilities for beneficiaries based on trust assets or distributions.

The current trustee or administrator might be providing other services, such as banking or lending facilities, which might not be accessible if the trust is transferred.

Incoming trustees or administrators might also impose their own set of fees for taking on the new responsibility.

Finally, understanding the broader context is essential. Before making any changes, it's crucial for the new trustee to get a clear understanding of why the relationship with the current trustee or administrator has deteriorated in the first place. It’s important that the person who has instigated the change of trustee is honest with the new trustee about the reasons for the transfer. This holistic perspective can help ensure a smoother transfer process and prevent similar issues occurring in the future.

Once the decision has been made to transfer, a Deed of Retirement & Appointment (“DORA”) will need to be arranged. Whilst this will require legal input, the Society of Trust and Estate Practitioners (STEP) have produced a standard which is widely used by the industry.

• This legal document outlines the terms under which the current trustee is stepping down and the new trustee is taking over.
• The DORA will detail all the parties to the agreement and set out the appropriate terms of the trust deed and ensure that necessary consents have been obtained from any protectors or enforcers.
• The DORA will also include various indemnities on behalf of the retiring trustee in respect of liabilities for which the retiring trustee would have been able to seek reimbursement whilst it was trustee.

The role of the regulator
Transferring trusteeship can be a complex and sensitive process. While many transfers are handled with utmost professionalism, not all meet the expectations associated with professional trustees. Particularly, conflicts can arise due to personality clashes between the current trustee and the settlor or beneficiaries, or because of perceived issues with the service provided.

All Jersey regulated trustees have to abide by the Codes of Practice issued by the Jersey Financial Services Commission (JFSC), amongst which is an expectation that they should act in the best interests of the client, and with integrity and honesty. If a client feels there is any issue in respect of this, they can complain to the Compliance Officer at the existing service provider, or directly to the JFSC. Both the Compliance Officer and the JFSC should take any such complaint very seriously, since there is an over-arching responsibility to protect the reputation of Jersey, and any service issues may of course have an impact to the island’s reputation generally.

FAIRWAY'S COMPREHENSIVE APPROACH TO TRUST/ADMINISTRATOR TRANSFER

Before Initiating the Transfer:

Fairway believes in being thoroughly prepared before initiating any trust transfer. This includes:

1. Acquiring a complete understanding of the trust's structure, settlor, beneficiaries, protector, and more.
2. Grasping the entirety of the trust's activities and any emerging issues, ensuring that the necessary skills are available to address foreseeable concerns.
3. Fully comprehending the tax status of all relevant parties involved.
4. Typically, we complete our onboarding processes, which involve gathering all necessary information like KYC/CDD and tax advice, even before informing the current trustees about the intended transfer.

The Onboarding Process:
Our primary aim during the transfer is to ensure a seamless transition. These steps include:

1. Collaborating with the outgoing trustees to the greatest extent possible. Most trustees prefer concluding the process swiftly.
2. Clarifying responsibilities relating to any unresolved accounts and administrative tasks. It's essential to understand that anything left for outgoing administrators might be perceived as an opportunity for additional billing.
3. Confirming any exit fees, ensuring they're articulated clearly with the outgoing trustee's agreement.
4. Coordinating the drafting and approval of the DORA between the old and new trustees.
5. After signing the DORA, the practical details, such as transferring files and modifying bank mandates, are finalised

It should be noted that a change in trustee will be seen as a compliance trigger event by any bank who provide banking services to the structure and they will require fresh due diligence being provided.

Duration of the Process
The timeframe for a transfer largely depends on the trust's intricacies. Factors like the number of companies under the trust, the jurisdiction of any companies, the complexity of its activities, and its value can influence the duration. However, for straightforward transfers, the process shouldn't exceed six to eight weeks. At Fairway, our vast experience with trust transfers allows us to foresee potential issues and ensure a smooth transition.

Cost Implications:
When it comes to cost, Fairway stands out in its client-friendly approach:

1. We will agree with the client at the onset of fees to be charged for transferring a trust and its associated entities. It should be noted that we don't have exit fee terms and any exit from Fairway will be charged on a time spent basis.
2. Legal fees associated with the Deed of Retirement & Appointment are typically around £1,500 and Fairway will only charge the disbursement for lawyer charges related to the deed's preparation or review.
3. Concerning outgoing trustees, given their professional responsibility to keep records up-to-date, there shouldn't be any unexpected fees during the transfer. It's crucial for clients, whether they're settlors, beneficiaries, or others, to pre-agree on the probable expenses.

If you’re considering transferring a trust, or would like to hear more about our private client services, please get in touch and speak to a member of our team.