Holding Financial Investment in Trusts

When we hear the word ‘investments’ our thoughts go to stocks and shares which may produce gains or losses.  We tend to stop at this basic level of understanding without delving any deeper, so as not to get lost in the increased complexities that surround the subject of financial investment. These complexities together with the possibility of losing money, can make one feel intimidated.

The truth is that an investment is simply a way of trying to ensure that one’s savings do not lose value over time, whilst at the same time trying to make a gain or generate some form of income throughout the years.  To reach these objectives however, is no simple task, and expertise help is often not only recommended but indeed essential.

Why would it be beneficial to hold an investment in Trust?

Investments are typically made up of one’s savings. The aim for investing our savings is to safeguard, as far as possible, our own financial future and that of our heirs, both during our lifetime and beyond, or to create a form of safety-net for when one’s income is not sufficient to sustain one’s needs and requirements. It is when seeking ways in which to achieve these aims that the way such investments are held can make a difference. Holding an investment in Trust ensures that these savings are held and managed by professionals in accordance with your needs even when one is precluded from doing so himself , e.g. due to old age or a sudden illness.  The Trustees would make sure the investment is managed in accordance to the wishes laid out by the settlor and distributions are made in accordance with the settlor’s  requirements.  Such an arrangement would provide the assistance and care needed at one’s most vulnerable point in his/her lifetime.

The longevity of the Trust, which can be a of a maximum of 125 years, allows the investment to continue through multiple generations.  Such a feature allows for the creation of a ‘piggy bank’ for the family which goes down through the generations, whilst keeping a level of growth in accordance to economic climates.  Investments held through trusts also avoids the unnecessary dissipation of the accumulated savings as these continue to be managed by a professional trustee. .

Would one lose control over the investment?

Once the investment is held in trust, it is the trustee who holds and owns the investment for the benefit of the beneficiaries in accordance with the terms of the trust instrument.  Such terms  can be tailored made in accordance to one’s wishes.

Who would choose the investments?

The Trust Deed, which will be drafted in accordance with one’s requirements, will also provide for  the process which is to be  followed when the trustee exercises investment powers. A settlor may choose an investment manager himself, with whom the trustee will then enter into a relationship. Alternatively this can be left entirely to the trustees discretion who may then get in touch with an investment manager of his choice.  A Professional Trustee would probably have worked with most of the local providers and would be able to identify the most suitable provider on a case by case basis.

Since a Trust is set-up to meet the specific needs of the settlor; any investments made are in accordance with the settlor’s intentions and are designed to meet as much as possible the settlor’s investment objectives.

Are the Trustees investment experts?

No, the Trustee’s expertise is in managing Trusts and not necessarily in the management of investments per se.  Should the Trustee have discretion in the manner in which investment powers are to be exercised, the Trustees would get experts on board to manage such investments, typically in the form of Discretionary Portfolios.  In a Discretionary Portfolio, an investment manager is appointed to invest within the risk parameters set by the client and the trustee.  A third party investment manager therefore  would typically be appointed to buy, sell or hold investments which are more likely to achieve the goals set by the client.  The Trustees would then monitor the performance of the investment manager  to ensure that the investment is performing according to the parameters agreed to.

The Professional trustee would typically hold a number of portfolios in a number of Trusts with different investment managers allowing them to build a good level of understanding on the products, understanding the philosophy of each service provider, as well as keep abreast with the current economic climate.  As an added safeguard, the Trustee could also engage further expertise to ensure the proper and effective monitoring of the relevant investment managers.