Prepare an outline explaining the various types of assets that may be held within a trust structure. Analyse the key administrative controls and risk management procedures trustees should implement to mitigate the risks associated with each asset class. (25 marks)

what is a trustee’s core duty regarding trust assets?

trustees mujst:

• obtain legal ownership/control of assets

• preserve and enhance the trust fund

• maintain accurate records

• administer assets prudently

why are administrative controls important in trust management?

controls help:

• protect assets

• reduce risk

• ensure compliance

• demonstrate proper administration

• fulfil fiduciary duties

what duties do trustees have when managing cash assets?

trustees must:

• protect cash value

• consider inflation

• seek reasonable returns

• manage liquidity prudently

what risk are associated with cash and bank deposits?

• inflation risk

• low interest returns

• banking collapse risk

• poor record keeping

• AML/source of funds concerns

what controls should trustees apply to bank accounts?

• segregate income and capital accounts

• use authorised bank mandates

• reconcile bank statements regularly

• verify source of funds

• maintain sufficient liquidity

• use appropriate account types

what risks arise when trusts hold property?

• maintenance problems

• inadequate insurance

• tenant disputes

• tax liabilities

• falling property values

what controls should trustees use for property assets?

• hold title deeds

• maintain insurance in trustee name

• use rental'/occupancy agreements

• appoint agents/property managers

• conduct periodic valuations

• monitor tax implications

what are trustees’ duties regarding investments?

trustees must:

• preserve and enhance assets

• mon itou investment performance

• act prudently

what controls apply to investment portfolios?

• appoint investment professionals

• obtain regular valuations

• conduct performance reviews

• compare against benchmarks

• monitor risk and complexity

what are examples of '“special assets” or chattels?

• artwork

• jewellery

• fine wine

• vintage cars

• yachts

• racehorses

• private jets

what risks are associated with special assets?

• theft or damage

• high maintenance costs

• insurance costs

• reputation risks

• wasting asset risk

what controls should trustees use for special assets?

• obtain valuations

• verify provenance/authenticity

• arrange specialist insurance

• monitor storage/security

• ensure trust deed permits asset

• obtain legal/tax advice

why might trustees hold special assets through a separate company?

to:

• ring-fence risk

• protect wider trust assets

• reduce litigation exposure

why do trustees maintain approved asset lists?

to:

• control risk exposure

• restrict unsuitable assets

• ensure proper oversight

what risks arise from unquoted investments or private companies?

• lack of transparency

• poor oversight

• governance risk

• litigation risk

• tax/reputation concerns

what documents should trustees obtain for private companies?

• certificate of incorporation

• constitutional documents

• director/shareholder registers

• financial statements

• due diligence documents

how should trustees monitor private companies?

trustees should:

• review performance regularly

• meet directors

• monitor progress and prospects

why is record keeping essential in trust administration?

records prove:

• ownership

• valuations

• transactions

• compliance with fiduciary duties

what fiduciary duties are linked to asset management?

trustees must:

• act prudently

• act in beneficiaries’ interests

• preserve and enhance assets

• monitor risk continuously

why do different asset classes require different controls?

because each asset creates different risk:

• cash → inflation/banking risk

• property → maintenance/liability risk

• investments → market risk

• special assets → storage/insurance risk

• companies → governance/transparency risk

what is the overall purpose of trust asset controls?

to:

• protect beneficiaries

• safeguard trust assets

• ensure proper administration

• reduce legal and financial risk