Trust

UK AEIM 100700: Trusts are treated as entities by all of the agreements for automatic exchange of information. A trust can be either a financial institution or an NFE. Where a trust meets one of the definitions for being a financial institution it is most likely to be an investment entity and its financial accounts would usually be the equity and debt interests in the trust itself. It may, alternatively, meet the requirements for being a Custodial Institution. For example, shares held in trust may be in a Custodial Account maintained by the trust and therefore subject to reporting by the trust as the Custodial Institution that maintains the account. This may be the case where a trust such as an Employee Benefit Trust continues to hold Financial Assets, such as shares, for an employee after they have been granted. Where an Employee Benefit Trust holds shares for the future benefit of employees, but the shares are not allocated, then under most circumstances this right to a future allocation would not fall to be a Custodial Account. Similarly, when shares are allocated and the trustee is directed to transfer the assets as soon as reasonably possible to the beneficiary, a broker, a custodian, etc., then the trust will not be treated as maintaining a financial account for the duration of time it takes to complete the transfer. Further guidance on trusts can be found at.

AEIM100800. Trusts are treated as entities by all of the agreements for automatic exchange of information. A trust can be either a financial institution or a NFE. Where a trust meets one of the definitions for being a financial institution it is most likely to be an investment entity but it may, alternatively, meet the requirements to be a Custodial Institution. A trust is unlikely to be regarded as an investment entity by virtue of investing as a business because trusts generally do not carry on businesses for or on behalf of customers unless they are collective investment schemes. A trust may be an investment entity however where its gross income is primarily derived from investing, reinvesting or trading in Financial Assets and it is managed by a financial institution. The test of being managed by a financial institution will be met where the trust or its activities are being managed by a Financial Institution. A trust is managed by a Financial Institution where either one or more of the trustees is a financial institution or the trustees have appointed a discretionary fund manager who is a financial institution to manage the trust’s assets. For a more detailed description of what constitutes management by a financial institution please see the guidance at. If the trust is not managed by a Financial Institution in this way, and does not meet any of the other definitions of financial institution, it will be a non-financial entity. For example, where the trustees of a trust are individuals (and therefore not financial institutions) and the trust holds only a Depository Account or other investments with a financial institution, and that financial institution does not have discretion to manage the account or the assets in the account, then the trust will not be an investment entity.

AEIM100820. A trust is typically regarded as being managed by a Financial Institution where either one or more of the trustees is a financial institution or the trustees have appointed a financial institution, such as a discretionary fund manager, to manage the trust’s assets or to manage the trust. Does a Financial Institution Manage the Trust? A financial institution will manage the trust where it has been appointed by the trustees to carry out the day to day functions of the trust on behalf of the trustees. This goes beyond managing the investment of the trust’s assets and includes other management functions that the trustees have to perform but which are contracted to the financial institution. Does a Financial Institution Manage the Financial Assets of the Trust? A financial institution manages the Financial Assets of the trust where it has discretion to manage the investments or investment strategy for the assets. This will usually be where the trust has appointed a discretionary fund manager to manage their portfolio or a part thereof. The appointment of a discretionary fund manager will be evidenced by an agreement between the parties that provides for discretionary management. Where the trustees of a trust invest in retail investments the arrangement will not amount to discretionary management where the trustees make the decision on what investments to make, even though advice may be taken on investing and third party brokers used to buy, hold or sell the investments. The Glossary of Definitions in the Financial Services Handbook defines both retail investment and retail investment activity. The Society for Trust and Estate Practitioners (STEP) in conjunction with the Law Society for England and Wales and The Institute of Chartered Accountants in England and Wales (ICAEW) have produced a series of questions and a supporting flowchart that may be useful when considering the status of a trust. Please note that use of this flowchart will in no way take the place of HMRC guidance and it should be used as a supplementary tool only. [http://www.step.org/sites/default/files/Policy/fatca-flow-chart-12-august-2014.pdf] Any information accessed from the link above should not be reported as representing the official views of HMRC or of its employees. The opinions expressed and arguments employed are those of the authors