What is required of a Trust?

words: Geraldine Gammell, Trustee and Chair of the Audit Committee of the Golden Charter Trust

Geraldine Gammell has a wealth of experience in business, currently a chartered accountant and member of the Ethics Committee of the Institute of Chartered Accountants of Scotland. Her varied roles currently take in a position as Non-Executive Director of the Royal Edinburgh Military Tattoo and as a Governor of Kilgraston School. She has held the high profile position of Director of The Prince’s Trust in Scotland.

Nothing stands still in funeral planning, but as changes mount it’s still vital that one thing remains true: plan holders’ money is protected.

The Golden Charter Trust is more than 100% funded; at the latest valuation on 31 March 2017 the Trust’s assets were over 100% of the funds required to meet future funeral costs, allowing for increases in funeral costs in line with future CPI, and as this month’s issue explains (see page 16), the Trustees are continuing their careful stewardship to ensure this is maintained.

One significant recent development has been the wave of new entrants, as businesses try to innovate and change the landscape. Some of these newcomers have suggested that funeral directors might best meet their obligations through setting up their own individual trust to store plan holders’ money.

It may sound tempting to employ an individual trust to support your business and have more freedom to set charges and fees to suit your local market. This column alerts you to the potential pitfalls and the different rules and regulations that make setting up your own trust a complex process which is unlikely to provide the benefits of a large, established, truly independent solution such as the Golden Charter Trust.

Funeral Planning Authority rules

The Funeral Planning Authority (FPA) requires plan providers to pay plan holders’ funds into a trust approved by the FPA Compliance Committee, or into a whole of life assurance policy. While FPA membership is not a legal requirement, ensuring a trust meets that level of scrutiny is clearly in the best interests of all funeral directors and plan holders.

The Authority’s rules highlight the need for sufficient distance between trust and provider by prohibiting a member trust from providing financial support to the provider. The FPA rules also restrict how trust surpluses can be dealt with; again to underline that trust money is not the provider’s money.

Given that Trustees must always act in the interests of the beneficiaries of the trust, the FPA’s guidance emphasises that invariably means funeral trusts must take a long term view, looking far ahead when ensuring they have sufficient funds to meet future funeral costs. Trustees have to avoid short term considerations and think independently of the provider, acting as a ‘guardian’ of the assets under their charge.

Legal requirements

Aside from the FPA’s rules, funeral planning Trusts must also legally comply with the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO).

The RAO requires the trust to be sufficiently independent of the provider. It cannot be controlled by the provider. The funds are after all not the provider’s money, even though ultimately the funeral director will be the likely recipient after conducting the funeral. The provider must give over control of the proceeds of a pre-paid plan sale to the trustees. The RAO also requires a majority of the trustees to be unconnected to the provider.

In addition to the RAO, trust law itself further requires the trustees as a whole body (connected or unconnected to the provider) to put the interests of the beneficiaries first and act with appropriate independence of thought from the provider.

Practical problems

All of these regulatory requirements can limit the benefit of setting up an individual trust. Added to which, the commitments and resources required to ensure compliance can be significant.

The affordability of actuaries and investment professionals’ advice quickly mounts up alongside other required costs such as producing accounts, and in a world of increasing regulation, requirements are unlikely to become less stringent in the future.

The Golden Charter Trust’s strong foundations, its Trustees’ expertise and the economies of scale available to it are just some of the reasons it can maintain a strong position and why it is utilised by so many Independents to keep funds safe. Golden Charter Trustees remain steadfast in their commitment to safeguarding the assets of the Trust for the long term benefit of funeral directors.

Future SAIFInsight issues will cover the position of the Golden Charter Trust itself, and the practical differences between trusts of varying scales.

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