I have just met (and signed up) an elderly lady, who has trust income. Her husband died many years ago, leaving a trust to provide her with income, and the trust will pass to his remaining family upon her death.
Everything was fine for many years, and she received a payment of £7,500 every 6 months. Then the solicitor (who administered the trust) died, or retired, and the trust administration was handed over to a new unknown solicitor. Since then, the payments are sporadic and she hasn't received any payment for 12 months now. Also, the cheques issued from the trust during the 2012/13 tax year bounced 3 times. She eventually got 2 payments in that tax year, but only through persistence. But now, each time she calls to query the missing payments she gets fobbed off, ie. the signatory is on holiday, staff shortages, etc.
I do not have any experience with trusts, and have informed her I cannot give legal advice .... but what would you recommend she does next (off the record!). I hate to see anyone get ripped off, especially elderly people, but it seems highly suspicious that cheques issued by the trust should bounce (and I have the bounced cheques, and letters from the solicitor in my possession as proof, so it isn't an elderly lady getting her facts wrong).
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Very suspicious
I would get a letter of authority from your client,(if you havnt done that all ready), and write to the solicitor acting as Trust administrator asking for a full financial statement. There maybe genuine reasons for what on the face of it looks unusual, so it is important to establish the facts to identify whats happening.
The bounced cheques should show the name of the bank account on which the cheques were drawn. Is that account 'ABC Trust' or 'XYZ Solicitors' or 'XYZ Solicitors client account' or 'John Smith as Trustee for ABC Trust' or what?
David
Worrying
I find this worrying. I agree with PAULGACC - get a letter of authority from the client, then write to the solicitors asking for a full statement / explanation within a specified period (e.g. 14 days). Suggest that if they are unable to prepare a full statement & explanation in that timescale they should simply send you copies of the bank statements for the Trust account with further information to follow.
One possibility is that the client had been paid too much in previous years (she is presumably entitled to the income but not the capital in the Trust) or Trust tax liabilities had previously not been accrued and have had to be paid - resulting in nothing being due to her currently. (However I am bending over backwards here to think of an innocent explanation!)
In any event it is very worrying that cheques were issued which bounced (on more than one occasion).
You may wish to say that yourself and your client are very concerned and warn the solicitors that in the absence of a satisfactory reply by the deadline you will, without further notice to them, refer the matter to the Solicitors' Regulation Authority.
You can check online whether the solicitor has a disciplinary record on the SRA website.
David
Essence of Trusts
The essence of a trust (I would suggest) is that assets are held in the name of one person (the trustee) for the benefit of another (the beneficiary). The trustee will also manage the assets of the trust and be responsible for the trust's tax returns.
In this case there are two forms of beneficiary - the widow (who gets the income of the trust for as long as she lives) and the children (who will get capital the capital in the trust once the widow has died).
Ordinarily one would expect the capital to be invested and to produce income and perhaps also capital appreciation. Obviously there are decisions to be made (by the Trustees) on how to invest the money in a way that balances the interests of the widow and the children over a period of years. But that is not relevant to your current query.
It should be a simple matter for the trustees to receive the income of the trust (which might be dividends, interest, rent of property if the trust owns property which is rented out, etc), complete tax returns & pay the tax, and pay out the net income to the widow regularly. (The widow should get an annual certificate of the net income paid to her and the tax deducted from it - those figures go on her own tax return.)
There should be no bouncing cheques!
The worry, of course, is that someone has taken money out of the trust to which they are not entitled!
If - and I sincerely hope not - a solicitor has misappropriated money belonging to the trust then ultimately that will be made good under insurance & compensation arrangements which all solicitors have.
David
Bounced Cheques
As a trust it is likely that it maintains at least two bank accounts; a current account to receive trust income and pay distributions to beneficiaries and a deposit account to earn interest on monies held before distribution. One possible explanation is that the solicitors have issued the distribution cheques but not done the transfer between deposit and current account in time.
I agree with the above comments and you are right to be concerned about the circumstances that you have come across. However, whilst I dont believe it is always helpful to speculate, the perfomance of investments in the current economic climate may explain the inability of the trustees to maintain the regular payments to your client although at the very least an explanatory letter from them to your client would have been courteous.
The bounced cheque situation should never have happened although as iavago1 rightly points out, this may be no more than a case of poor administration by the trustees. Something that shouldnt happen, but I have come across bad admin in solicitors practices before, so it does happen.
When you get a reply from your enquiries if you are still not happy everthing is correct, or if you dont get a reply, I agree with David's advice, refer it to the SRA.
I have dealt with trusts over a number of years and I find this very odd.
The only genuine explaination for bounced cheques should be some sort of admin error. Eg monies were received in one account but the cheque has been issued on another account. Or the income has been paid to the solicitor's client account and has inadvertantly not been paid to the trustee's bank account.
As a beneficiary of the trust the client is entitled to see the trust accounts and I find it surprising that the client has never been given the accounts. They should also have been given form R185(E) showing the income from the trust so that tax returns can be completed. The form R185(E) should show the income ARISING from the trust assets, as this is the amount she is taxable on, and not the amount which has been actually received in the year. So even if she was overpaid last year it makes no difference to her taxable amounts.
Paul is correct in saying that in adverse economic times, the investments may be performing poorly. However, that should have nothing to do with bounced cheques.
To ensure that this does not happen again, she could ask for the income of the trust to be mandated directly to her so that not only does the issue of bounced cheques caused by maladmistration occur, but there would be less admin for the solicitor which would result in less charges for the trust.
I hate to worry you, but the only time I have ever encountered bounced cheques from a trustee's bank account, the solcitor was stealing the money (he subsequently was jailed for this) We took over the admin of the trust following an interventtion order from the Law Society.
I would get authority from your client to deal with the solicitor. Ask him for the accounts for all years. Give him a couple of weeks to sort it out. You will have to first write to the senior partner to deal with it, (and then fail to deal with it to your satisfaction) before the SRA will get involved.
Hi Shirley
If you want to do some research what you have there is an interest in possession trust and your client is the life tenant.
don not mess about with this.
Ok
No games- This is professionally unacceptable behaviour.
Regrettably a small numer of solicitors do tend to regard trusts of this nature as a complacent cow to be milked.
Not, God forbid, to steal or defraud them, but as an easy uncomplaining client to put on the back of the desk for action when time permits, Which inevitably it never does.
The Law society regards issuing a client's account cheque before the orginal funds are cleared into the acocunt as a serious offence. As does ICAEW and ACCA. Retaining client's money without due cause is also a professional offence. No delay is acceptable in the transferring of funds properly due to a client. Nor, incidentally, is the taking of fees therefrom except and unless a proper detailed account has been rendered.
To bounce a client's account cheque is often a striking-off offence.
Based on my experience, please show no mercy.
Send a Special delivery letter to the solicitor giving him seven working days to provide the client with a full statement of account. Warning him that full details will be sent to the Law society if the statement with a BACS transfer for funds due is not received on time. If his "Clients" account is compliant, the statement should really just involve a photo-copying exercise.
If it does not turn up, send full details to the Law Society and ask them to deal with the matter. Further in serious cases the Law society has a compensation scheme where money is lost through a solicitor's incompetence.
Further as the accountant, from bitter experience, you may be considered as the meat in the sandwich, for not making clear to the client that the solicitor's behaviour may be in breach of Professional Conduct, and a serious matter.
What have you done about tax deducted at source on distributions?
I had a case recently where a client effectively received two years' investment interest within one year, resulting in a loss of the benefit of personal tax reliefs.
ICAEW and ACCA are ferociously hot on accountants who have given solicitor's annual accounts a clean "Solicitors' rules" certificate, but where mismanagement or bounced cheques are in evidence from the law practice clients' account.
As a final comfort, telephone your PI insurer, I have found insurers only to happy to advise us in these difficult cases. It does save them money in the long run, and you cannot then be accused of not acting responsibly.
DG
Shirley,
I would be interested to know how you get on with this one.
Anyway, why not get the beneficiaries to remove the solicitor as trustee and get them to appoint you instead. As David pointed out, this is easy money.
Clearly, from reading your other posts, you are not stupid, so you should manage OK. Trusts seem to be shrouded in mystery and I don’t know why. The accounts are straightforward. Except for solicitors with dedicated private client departments, I would be surprised if they knew any more than you do. Any problems you have, you could post on here. Most solicitors would charge around £1,000 for this work, even if the income is mandated direct to the beneficiary. You could tell the client that you would charge an extra £500 if they want you to collect the income. They won’t because it is more delay for them. You would probably get about 2 investment reviews from the stockbrokers per year. If you are not collecting income, the accounts would be straightforward.
If you let this one go, you are leaving money on the table.
Deed of Trust
You might ask them for the original deed that established the trust too, to ensure it is being complied with...
Establishing who are the trustees
The trust is apparently a Will Trust and your client is the life tenant. Obviously you do not have a copy of the Will but it would be worth establishing who were the original trustees. The names on the bounced cheques are not definitive proof. It would be surprising if at least one family member were not a trustee along with the solicitor. A further deed would have been needed to appoint a subsequent trustee later (such as father solicitor to son).
If a family member is a trustee then although she/he might have taken a back seat, that person should get involved to put pressure on the solicitor. Certainly the beneficiary is entitled to an explanation and the accounts as a life tenant.
You can get a copy of the Will and the fee is a mere £6 (go here) , which would be well worth the expense. The more information you have, the better, especially if making a complaint and you do need to.
Before taking any further action I would give them a little time to produce the accounts they say are in the course of preparation.
How many years' accounts does the letter of 9 May asks the trust's accountant to prepare?
The letter asks for 2012/2013 accounts only, so you are quite entitled to go back now and ask for copies of accounts (which by implication must already have been prepared) for as many years back as you need to advise your client.
Would do no harm and you would have nothing to lose. But if he has woken up properly this morning he should plead client confidentiality and say that his client is the trustee, to whom all enquiries should be addressed.
Client should not have to pay for accounts that should already have been distributed to her. Trustee's request for payment relates to bank statements etc, which request I suggest you defer until you have the accounts.
I'm not a lawyer so I may be talking through my trousers on this one but would it be possible to make a Subject Data Access Request under s7(1) of the Data Protection Act 1998 where the maximum fee payable under the Data Protection (Subject Access) (Fees and Miscellaneous Provisions) Regulation 2000 s3 (few!) is £10?
Perhaps David Winch or other lawyers could comment on this as I'm not sure it applies to this circumstance.
Good stuff
I'm not a lawyer so I may be talking through my trousers on this one but would it be possible to make a Subject Data Access Request under s7(1) of the Data Protection Act 1998 where the maximum fee payable under the Data Protection (Subject Access) (Fees and Miscellaneous Provisions) Regulation 2000 s3 (few!) is £10?
Perhaps David Winch or other lawyers could comment on this as I'm not sure it applies to this circumstance.
All good stuff - although I won't comment in the legalities either - but surely over the top until the line of least resistance has been exhausted (namely to wait for the accounts that are expected shortly).
Agreed
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All good stuff - although I won't comment in the legalities either - but surely over the top until the line of least resistance has been exhausted (namely to wait for the accounts that are expected shortly).
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Agreed, a little over the top at this juncture.
Edit: Is everyone having trouble with the comments box today or is it me?
Charges to put you off?
There should be very little time needed to comply with your request, if you defer your request meantime for copy bank statements, as John suggests. Therefore I am suspicious that the threat of charges "in connection with time spent in complying with your request", is just an attempt to deter you from pursuing for information.
This only adds more alarm to the already questionable circumstances that have occurred so far
I would agree with Paul that the threat of charges seems to be to put you off pursuing a reasonable request. The trustees should have produced accounts in any case, so other than photocopying charges, there should be no additional charges. Your client as life tenant and the remaindermen should receive the accounts. The only time I would not produce account would be if the trust had a low value and consisted of only a bank account. You should be specific in what you want. ie accounts for all years since the trust started (ie date of death of settlor) and also be specific about what you want an explanation of. (ie bounced cheques) The solicitors are not entitled to charge for this as it is something they have done wrong. Also ask for a remuneration certificate, (They are not entitled to charge for this either) I think the whole thing is quite unprofessional and would go as far as to say negligent. I would not bother with the accountants as the solicitor is their client. He, as trustee, has to account for the money anyway. If you have not already done so, write to the senior partner voicing your concerns and if you get no satisfaction, you will have to go to the Law Society. Instead of him charging extra to sort this out, you could say that you want to sort it out on behalf of the trustees and it is a proper expense of the trust which you will recover from his firm. Sorry this is just one paragraph, but I cannot do paragraphs on this site. For some reason my return key will not function on the site.
Ok, so long as
You could suggest that you will pay their fees for doing the copies if they will compensate your client for the distress she has suffered from their cheques bouncing and your fees in having to deal with following that up!
All you need / want are copies of the documents which they copied to their accountant for each of the previous 3 years and copies of the Trust accounts which the accountant prepared in response. Ten pence per page should be more than adequate. However ask them to limit their fee to a maximum of £10, which is the normal cost of a subject access request under the Data Protection Act.
David
Puzzling
It is puzzling that the solicitors do not seem aware of past problems per their letter to you but acknowledge bounced cheques in their letter to your client. It is also puzzling that the distributions are apparently always round sums - or is it that the final distribution in each tax year a balancing figure?
Is the money on deposit in a notice account?
No reference to the missed distribution. No tax certificates. Your client apparently hasn't got past accounts.
I really don't find the solicitors answers satisfactory and I suggest you do not allow yourself to be fobbed off.
David
I'm also not easy with this £7,500 instalment method either.
As the life tenant your client would be entitled to receive all of the income generated by the trust (with tax deducted at source at the appropriate rate for each class of income) less any accounting/legal fees properly chargeable against the income account.
I can understand that the arrangement was put in place to give your client a degree of financial security but surely a balancing adjustment either way must be due at some point.
I suppose it's a matter of what the Will says.
EDIT: Crossed with David
The instalment method is not unusual at all. Unless income is mandated directly to the life tenant, the trustees will make regular payments and at the end of the year, when the accounts are produced, there is a balancing payment. It would cost too much for the income payment to directly equate with the monthly dividend payments as the trustees would end up having to look at the file every month. It is very common. The only alternative is for the trustees to ask for the dividend payments to go directly to the life tenant.
Fully agree with LyneT.
Instalments are fine but my worry is that from what Shirley's said a round sum £7,500 every 6 months has been paid out since the trust was set up without any balancing adjustment at the year end to agree to the R185 figure.
This lady could be owed/owes a small fortune.
Actually Triggle, I had not read that far down that this has been done since the trust was set up, and you are right. I wonder what the figure on the R185 is?
Trust specialist
Half of my practice is doing compliance work for trusts (annual accounts, tax returns, forms R185 etc). If you want help in understanding the information you are sent, let me know.
One poster suggested that you should become a trustee and that it was a good fee earner. Anyone thinking about becoming a trustee should be aware that it is an onerous position that carries great responsibility. The Courts are very harsh on those who are paid for being a trustee and make mistakes. I suggest that no-one should ever accept a position as trustee without understanding exactly what they are doing.
Also, if I were appointing a trustee (or an executor) I would avoid appointing a solicitor or any professional without the power to insist that they resign when asked. I have seen too many trusts or estates decimated by high and unnecessary fees.
I love trusts and their ability to protect wealth in a flexible manner. I am also only too aware of how easily they can be abused.
Charges for photocopying
I would offer to pay for the photocopying provided that it does not exceed a certain amount - the trust accounts are not likely to be more than ten pages long and thus the cost should be minimal (but you could cap it at £50, say). Otherwise there is the danger that you will spend more in your time arguing with the solicitors.