Trust Investments

Trusts Discussion
1

I wonder what forum members think of this situation.

Suppose there is a trust, and its investment manager (a large and well-known financial institution) invests a large part of the assets in some of their own branded collective investment funds.

Later, the trust is to be terminated and the funds divided among the beneficiaries. After this division:

  • The investment managers are not willing to continue to manage the investments for the beneficiaries (even if the beneficiaries wanted that, which they may not) because each individual fund is smaller than the institution’s minimum investment.
  • Neither can the fund be transferred in specie to the beneficiaries’ own investment managers (holding-over the CGT upon the termination of the trust) because those managers will not accept the collective investments of another financial institution into their portfolios.

So there seems little choice but to liquidate these investments - which gives rise to (let’s say) tens of thousands of pounds in CGT.

My questions about this scenario are:

  • Are there circumstances in which trustees should avoid own-brand collective investments as trust assets?
  • Were the investments mis-sold in my scenario? That is, could it not have been predicted that the termination of the trust would lead to a situation where CGT would be incurred when it could have been managed or deferred if the investment had instead been in a widely traded collective investment?

(I’d add that my colleague’s real-life case which prompted this question doesn’t have quite those facts, but made me realise this could happen.)

2

Can the whole portfolio be kept as one and run as a bare trust? Easy enough if say always equal amounts withdrawn for each beneficiary and benies can agree to keep invested under one mandate (as it was when in the trust proper).

Otherwise, if different amounts withdrawn by each, keep proper trust accounts with a split of the capital / income in the appropriate proportions, so you all know who owns what percentage of the portfolio.

Good luck

Sara

Sara Spencer ATII TEP | Trust Manager

www.trustandestate.co.uk

Sara Spencer Ltd, 8 Kingsway, Harrogate, HG1 5NQ

07952 651881 | 01423 524114

Sara.spencer@trustandestate.co.uk

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3

What does the contract say?

Jack Harper

4

@jack my question is hypothetical so there’s not a real answer. However if you don’t mind me throwing your question back at you, what kind of thing ought I to look for in the contract that would affect your answer?

5

I cant see how “own branded collective investment funds” (which are simply a fund of funds) would be prevented from transfering InS.

Richard C. Bishop