By David Prosser
Leading banks and building societies continue to withdraw the services they have traditionally offered trusts, leaving trustees struggling to access basic banking. While providers cite problems such as rising costs and an increasing compliance burden, their decisions leave trusts in the lurch – unable to run their financial affairs with simplicity and ease.
However, it’s not all bad news. With a number of providers still in the market for trusts’ business, there are alternatives available. Indeed, all trustees should periodically review the competition to ensure they’re getting the best possible deal on their bank account, as well as access to other services they may need.
Get the basics right
In practice, your options will depend on the type of trust you run. There is a particular shortage of banks offering accounts to trusts set up on behalf of a vulnerable person – someone with significant disabilities, for example. If you’re running a trust on behalf of an organisation, such as a charity, the choice is wider, but you’ll still need to compare terms and conditions carefully.
Picking the right account for your trust is a more nuanced decision than choosing the best personal bank account. It’s certainly still important to consider issues such as interest rates, cost and service, but there are other factors to take into account, from regulatory issues to the level of specialist expertise that a bank has.
To start with the basics, it’s important to make sure any account is suitable for your trust’s needs. You’ll need to bank in the name of the trust, rather than one of the trustees, but if there are several trustees who’ll be operating the account, make sure they can all get access.
Often, there’s a balance to be struck here between convenience and security. Often, trusts want to be able to specify that transactions can’t go ahead without two or more trustees giving their consent; in which case you’ll need an account that can operate with multiple signatories. But you should check on flexibility; if a bank says you can only specify that all or no transactions require several trustees’ permission, that may get in the way of day-to-day banking.
Similarly, how sophisticated is the bank’s fraud prevention system? Trusts often operate according to less predictable patterns – making large deposits and withdrawals occasionally, for example. Your bank should be able to identify potential frauds and rogue transactions without simply red-flagging everything that trustees are trying to do.
Digital accessibility can also be useful here, enabling trustees to work together more easily even when they’re based in different locations – and without having to go into the bank. What sort of digital tools do prospective providers offer on their trust accounts – for example, will you be able to sign documents digitally? Do they offer support for all your trustees, or limit remote access to apps and online banking to a single trustee?
Make compliance simple
On regulation and compliance, there are several areas to check. Every bank offering trust accounts should be familiar with HM Revenue & Custom’s Tax Registration Service, with which it’s very likely that your trust is required to register. That will ensure your trust is able to comply with HMRC’s requirements.
Similarly, check that the bank offers account statements that provide the level of detail your trust requires to meet its responsibilities. You’ll need detailed evidence of all transactions, including interest earned and tax paid, for audit purposes – and potentially to provide the beneficiaries of the trust with good visibility of how you’re managing the account.
Good record-keeping will also make it easier for you to meet the trust’s tax obligations, including filing the tax returns it is required to complete. Do statements make it easy to identify income and capital separately, for example?
Given these complexities, look for an account provider that you feel comfortable really understands the issues around trusts and trusteeship. Leading providers may have specialist teams or departments to support these accounts, perhaps with different expertise across different types of trust. Dealing with a bank that lacks this knowledge can be immensely frustrations.
It’s also important to interrogate the product carefully. For example, some trust accounts pay no interest at all on your balance. That can be costly. United Trust Bank’s Trustee Reserve Deposit Account, for example, pays 0.50% Gross/AER*
on its minimum deposit of £15,000.
Equally, check for charges and restrictions. Is there a fee for the account, or are there limits on the number of deposits or withdrawals you can make each month? What is the minimum balance your trust will be expected to maintain in the account? Are there restrictions on trusts set up offshore, as is common practice for certain types of organisation?
Shop around but stay safe
The availability of other banking products may also be a factor. Trusts with a United Trust Bank Trustee Reserve Deposit Account have access to the bank’s savings accounts for trusts, which can be a useful place to store cash that isn’t required for day-to-day needs.
Indeed, these savings accounts can generate valuable returns. United Trust Bank’s Trustee 2-Year Bond, for example, offers a fixed rate of 3.20% Gross/AER* on balances between £5,000 and £5m. As a fixed-term product, funds are locked in for the full two-year term, with no withdrawals, transfers or early closure permitted before maturity. On a £100,000 deposit, for example, this would generate annual interest of £3,200. Securing access to competitive savings rates can make a significant difference to the finances of many trusts.
Equally, trusts need to be confident their money is secured on behalf of beneficiaries. Check that potential accounts are structured in such a way that they’re covered by the Financial Services Compensation Fund (FSCS), which pays out in the event a bank or building society fails. Just bear in mind that the maximum pay-out from the FSCS is £120,000 per trust, so you may want to spread large deposits across multiple providers.
With so many different variables to consider, it’s important that trustees take their time to choose the right provider. But since providers have sometimes pulled out of the market at quite short notice, reviewing your options regularly makes sense. It may be possible to find a better option than your current provider today; but even if you decide not to switch right now, it will pay to know what the good alternatives are if you’re forced to move later on.
*AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Gross is the interest rate without the deduction of income tax. Interest is paid gross into your account.
United trust Bank (UTB) has an independent banking license and we are not affiliated with any other banks or building societies. This means that our eligible customers benefit from the full protection provided by the government backed Financial Services Compensation Scheme (FSCS) which protects savers in the event of a bank’s failure. The FSCS protects the first £120,000 of any savings an eligible account holder has deposited with a bank or building society. For joint accounts, each eligible account holder benefits from the same £120,000 of protection. This means that two eligible joint account holders can claim up to £240,000 between them.
Although this article may contain helpful information and tips, this is not advice. You may wish to seek advice from a financial advisor if you are unsure about next steps.