Choosing the Right Trustee:
A Practical Guide for Families and Businesses
Selecting the right trustee is one of the most important decisions when establishing a trust—whether for family wealth protection or an employee benefit or share scheme. As a trusted barrister once remarked, the clue is in the name: you must be able to trust the person or organisation appointed.
Below we explore the key trustee options, their advantages and risks, and the factors to weigh before making this vital choice.
Key Trustee Options
For family trusts, the two main options are:
Individual trustees – usually a family member or professional adviser.
Corporate trustees – typically a licensed, regulated trust and corporate service provider (TCSP).
For employee benefit or share schemes, additional trustee types may be appropriate:
A representative of company employees.
A director of the Settlor (founding) company.
A subsidiary or group company acting as trustee.
A professional independent trustee company.
The appeal of a PTC often lies in the sense of control it offers to settlors and their families, particularly in jurisdictions where the concept of a trust is unfamiliar, such as France or Egypt.
Factors Influencing Trustee Selection
When deciding on the composition and number of trustees, consider:
Statutory requirements (e.g. employee involvement for HMRC-approved share schemes).
Expected workload and trustee experience.
The need for trustees to act jointly—differences of opinion can delay decisions.
Tax implications for the trust and its beneficiaries.
Costs of external professional trustees.
Employee perceptions of independence.
Potential conflicts of interest.
Compliance and reporting obligations (CRS and FATCA)
Individual Trustees
While appointing a single individual may appear cost-effective, it brings significant challenges:
Fiduciary duties and personal liability – individuals can face claims for negligence or financial loss.
Regulatory obligations – including CRS and FATCA reporting, with potential fines or criminal penalties.
Time commitment – even modest trusts can demand considerable administration.
Continuity issues – illness, incapacity or death of a trustee can trigger delays and legal costs to transfer assets.
Decision-making difficulties – when board members and employees have conflicting objectives.
For these reasons, an individual should rarely act as the sole trustee unless legally required.
Company Directors as Trustees
Appointing company directors may seem logical but creates serious conflicts:
Directors owe fiduciary duties to the company and shareholders as well as to trust beneficiaries, making impartial decisions almost impossible.
Claims of discrimination or constructive dismissal can arise.
Regulatory restrictions, e.g. on loans, dividend payments, or dealings if the company is listed—can interfere with trust management.
Directors often hold commercially sensitive information, complicating decision-making as trustees.
Directors frequently find themselves forced to recuse or even resign from one role to resolve these conflicts.
Subsidiary Corporate Trustee
Using a group company as trustee offers some benefits over individual directors:
Limited liability – exposure is generally capped to the company’s assets or share capital.
Continuity – legal title to trust assets remains with the company even when directors change.
Operational flexibility – meetings and document execution are easier to manage.
Potential tax advantages – residency and control of the trust are linked to the corporate trustee’s place of incorporation.
However, conflicts of interest may still arise if the trustee company belongs to the same group as the Settlor.
Professional Corporate Trustee
ppointing a licensed, regulated professional trustee, for example an Isle of Man TCSP, offers significant advantages:
Expert compliance – ensuring CRS and FATCA reporting is correct and up to date.
Independence and impartiality – increasing confidence among employees, beneficiaries and regulators.
Reduced legal risk – professional indemnity insurance provides additional protection.
Efficient administration – from executing deeds to managing share plans.
Regulatory credibility – many jurisdictions and revenue authorities prefer or require an independent trustee.
This option is especially attractive where regulatory complexity and AML/CFT requirements are high.
The Modern Regulatory Landscape
Growing anti-money laundering and counter-terrorist financing (AML/CFT) standards, together with international reporting regimes like CRS and FATCA, mean the risks of appointing unregulated trustees are greater than ever. In many cases, a professional corporate trustee is the most robust, efficient and compliant solution.
Conclusion
Choosing the right trustee is more than a legal formality. It is a strategic decision that shapes the trust’s effectiveness, compliance, and legacy. Whether you are protecting family wealth or rewarding employees, seek regulated, experienced advice to ensure the structure remains secure, tax-efficient and fully compliant.
For more information or tailored advice on trustees, please contact us