Testamentary trusts are a way to create flexibility and discretion when distributing assets to beneficiaries. But when a family member is also given the responsibility to act as trustee, it can create issues.

“When an individual is made a trustee, it often starts to define their entire relationship with their family,” says Equity Trustees National Manager, Continuing Trusts, Jonathan Guthrie-Jones.

Bob* left such instructions in his will, making his partner, Tracey, the trustee of his testamentary trust. Tracey is the income beneficiary and Bob’s siblings are entitled to the capital at vesting. The underlying investments are where the friction lies, favouring one side over the other.

“Under trustee legislation, you've got to balance the interests of all beneficiaries – whether that be income or capital – and when the income beneficiary is also the trustee, it puts them in a very difficult position. There was this constant friction because of their view that there were these competing interests.”

This friction grew worse over the years, until Tracey reached breaking point.

“This trustee decided to relinquish their role because of this strained relationship in the family and appoint us as an independent professional trustee. We could make investments and decisions without this perceived conflict, making sure there's comfort on all sides.”

Equity Trustees’ trust investment specialists now manage the trust within trustee guidelines, removing any notion of favouritism between the differing beneficiary classes.

More importantly, Equity Trustees now manages all communication regarding the trust, allowing the relationships between family members to heal.

Jonathan says it is a situation that is occurring more often as individual trustees are put in untenable positions within their family or grow weary of the growing legal obligations that apply to trustees.

“Most of our trusts used to come from an estate that we administered and there was a trust written into the will – now, more are coming from external trustees,” he says.

“In many families, their whole relationship revolves around the trust which creates unnecessary pressure. Others just don't want to wear the risk anymore. There are so many requirements of a trustee under the legislation that it's really difficult for individuals who are not in the trust industry to remain on top of. An independent trustee such as Equity Trustees can take that away from them.”

* Name changed to protect privacy.