Best Practice – Avoiding distressed trusts & trustees

Published August 24, 2017

In helping advisers unlock commercial value and lower their risk in advisory services, I come across many situations where professional trustees have responsibility for what I’d call a “distressed trust”.

Distressed trusts are trusts with potential problems or issues.  They often result in distressed trustees.

They are the sorts of trusts we put on the back burner, or leave to a rainy day.  That’s because we don’t always perceive we’ve got the time to put things right.  It doesn’t mean we don’t stop thinking about them.

Distressed trusts generally have potential challenges, complexities, or risks.  Distress can arise in many ways.  For example, not knowing what to do, a challenging relationship, or not being paid for the job being done.  It may have been caused by something you’ve done, or not done.

Other times it can be hard to pinpoint exactly what’s causing the distress.  Anxiety may have built slowly over time from a feeling or niggle that something is not quite right.   As with any problem left untreated, a distressed trust can develop into something much more serious.

It can be challenging as a trustee when you find yourself in a situation that you haven’t had to deal with before, or you are uncertain about what step to take next.  When you hold a position of trust and responsibility, it’s often too late to back out when things get tough.

A professional trustee recently took me through a trust they were worried about.  The trust had substantial assets (and debts) and the settlor was continuing to use the assets of the trust as if he was still the owner.  As a sole trustee not in control, the trustee carried significant downside risk.  It was a potential ticking time bomb just waiting to go off.

As youngsters, we’re always taught to swim between the flags and raise a hand if we’re in trouble.  Why then as adults, are we sometimes reluctant to ask for help.  Maybe it’s a pride thing.

It therefore worries me when I see busy professionals at the helm of distressed trusts and not acting.  When things go wrong in the trusts space, they can go very wrong for trustees – upset people, complaints, time to put things right, reputational damage, financial loss, or penalties.

Sometimes we find ourselves too close to the problem.  It’s hard to see the wood for the trees.

I’ve learned over the years that a problem shared is a problem halved.

When you feel the niggle, trust your gut and get the right view.  It’s the time to be getting perspective, influencing outcomes and putting a plan of attack in place.  When you do, I’ve found that things generally work out just fine.

With a new Trusts Act on the horizon, there’s never been a better time to get things on a proper footing.

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