Who Pays For Trust Registration?
As firms gear up to register non-taxable trusts in large numbers the question on many practitioners’ lips will be who is going to pay the firm’s fees for acting as agent for the trust in undertaking the registration.
Of course, the responsibility to register a trust on the TRS and therefore to engage an agent to do so if they are not going to do it themselves, lies with the trustees. In many cases, this may be the partners in your firm. The general rule is that trustees are entitled to be reimbursed for expenses properly incurred on behalf of the trust from trust funds. The only problem is that in some cases, the trust assets comprise no liquid funds e.g. an interest in possession trust of the family home.
What are the options open to the trustees to be reimbursed for the costs of registration?
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Money gifted by a beneficiary
This is a poor option because money paid in defraying trust expenses by anyone is adding property to the trust and therefore in respect of that sum the donor becomes a settlor of the funds gifted. If the donor is a beneficiary this could in some cases cause problems with gifts with reservation of benefit or incur income tax and CGT charges on the donor under the Settlements legislation in the Income Tax (Taxation of Other Income) Act 2005.
Informal loan to the trust instead
Money lent to the trust by a beneficiary or a trustee is not a gift. It is debt due to the lender and for a modest amount in connection with the meeting of the legal costs for registering a trust will surely be something which the beneficiary or trustee concerned would be prepared to risk to avoid the trust facing penalties for missing deadlines; or, potentially worse penalties for non-compliance with the law.
Borrowing for a limited purpose is permissible under the general law if according to Lewin on Trusts (20th Edition paragraph 36-121) ‘such payments are proper’. It could certainly be argued, could it not, that meeting a legal obligation is a proper reason for borrowing a small amount of money to meet the cost of ensuring that the obligation is met.
Trustees have a general lien over trust property for any liabilities they discharge personally on behalf of the trust which are incurred properly. There is no similar lien for a beneficiary, but it might be recorded in the trust records that there would need to be recompense to that beneficiary when assets are realized or on any distribution.
Trustees have no unrestricted power to borrow money under the general law – Re Suenson-Taylor’s Settlement Trusts  1 WLR 1280.
Because of the lack of such a general power, it is common to see wide express powers to borrow included in trust instruments. A Will or trust incorporating the STEP standard provisions 1st Edition will have the relevant power – e.g. in clause 3(9) of the 1st Edition it says: “The Trustees may borrow money for investment or any other purpose. Money borrowed shall be treated as Trust Property.” In the 2nd Edition the power to borrow is a special provision which would have to have been selected. Clause 14 repeats what clause 3(9) of the 1st Edition said.
Court applications under s.57 Trustee Act 1925
The power to borrow could be sought via court order but this seems an unnecessary expense for what would be a small sum. The cost of applying to court would far outweigh the costs of registering the trust!
However, if there is a valuable trust with out of date powers in general it may well be worthwhile considering a court application for a comprehensive update – see Cotterell v Allendale  EWHC 2234.
Point to remember
The power to borrow is a worthwhile administrative power to include in Wills and trusts so that issues like this which may easily arise during the life of a trust can be addressed without the trustees breaching the trust.
A clause which permits the trustees to add administrative powers might be useful as an alternative.
Asking the key beneficiaries to authorize the payment would be helpful. This would not prevent a breach of trust in the absence of a power to borrow, even if they were all adult and competent and approved of it; given most trusts have unborn beneficiaries included in the beneficial class.
When reviewing the trusts you administer, with a view to attending to the registration of the trust or when asked to register a trust you have not hitherto administered, remember to consider the question of the payment of costs and decide with the trustees whether or not borrowing is going to be necessary.
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