Beneficiaries missing out on investment opportunities

Trust beneficiaries are missing out on more entrepreneurial investment opportunities, according to Marc Farror, Private Client and Family Office Director of Vistra Jersey Limited.

“Being entrepreneurial in the current environment is relatively easy for an individual if they control assets directly. If assets are held in trust and are not controlled directly by the beneficiaries, then the beneficiaries need to request that the trustee consider making such investments. This requires the trustee to consider risks and be more adventurous than they ordinarily might. As a result, trustees may refuse these types of requests,” explains Farror.

The answer, according to Farror, is to establish a process whereby the trustee can take a degree of risk within the trust, without abdicating his responsibility as a ‘prudent man’.

He points to the Bartlett case where the decision offered some potential for the trustee to make commercial choices, by making clear that liability will not be attributed to a trustee who has committed no more than an error of judgment from which no business man, however prudent can expect to be immune.

The court went out of its way to say that a trustee is not 'bound to avoid all risk and in effect act as an insurer of the trust fund’.

Farror explains that if a settlor is aware of a need for entrepreneurial decision making within the trust prior to a structure being created, it is possible to create a structure that keeps the settlor, beneficiaries and trustee aligned with this objective.

Key to this is the selection of a jurisdiction and structure that allows the trustee, and in certain circumstances the settlor, more flexibility in how they manage the trusts assets.

“Drafting options exist to accommodate a more aggressive investment approach and appropriate advisors and specialists can always be retained to help shape an investment strategy that can take maximum advantage of commercial opportunities,” comments Farror, who adds standard trust structures are unlikely to be suitable.