Trust Compliance: The Risks That Arise Long After The Trust Deed Is Signed

For many practitioners, the most complex part of trust work is often seen as the initial planning and drafting exercise. The suitability of the trust structure, inheritance tax implications, trustee powers and the client's objectives understandably attract significant attention at the outset. However, some of the greatest risks for trustees and their advisers can arise many years after the trust has been established.

Increasingly, trust administration is no longer simply a matter of maintaining records and considering occasional distributions. Trustees are operating within an environment of enhanced transparency, ongoing reporting requirements, and tax compliance obligations. Failure to identify and manage these responsibilities can lead to delays, unexpected costs and, in some cases, regulatory or tax consequences.

Trust compliance is an ongoing process

A common misconception among trustees is that compliance obligations are largely addressed when a trust is first established. In reality, trust administration should be viewed as an ongoing process that requires periodic review.

Many trusts remain in place for decades. Over time trustees and beneficiaries may change, investments may be restructured and reporting obligations may evolve. Without systems for periodically reviewing trusts, advisers can easily miss important issues, key dates and relevant changes in compliance obligations.

A regular trust "health check" can often identify risks before they become problematic, particularly where a trust has not been actively reviewed for a number of years.

Trust Registration: Beyond the UK Register

Most practitioners are now familiar with HMRC’s Trust Registration Service (TRS), since coming into force in 2022, but cross-border assets can create additional reporting obligations that may not always be immediately apparent.

One area attracting increasing attention is the treatment of trusts holding Irish-based offshore investment bonds. It is not uncommon for Scottish clients to hold investment products issued by Dublin-based providers through discretionary, flexible or other trust arrangements.

In certain circumstances, registration on the Irish Central Register of Beneficial Ownership of Trusts (CRBOT) may also be required, notwithstanding that the trust is already registered on the UK TRS, due to the trust having a relevant connection with Ireland.

Although the obligation to register on CRBOT has existed since October 2021, it has only recently become a practical issue for those advising on UK trusts. Since March 2025, the register has been updated to allow non-resident trustees to register and maintain trust records, bringing affected UK trusts more clearly within the scope of consideration.

Where a UK trust falls within the scope of an Irish reporting obligation, registration will generally be required within six months of the trust becoming registrable. Practitioners should therefore consider whether existing trust structures include Irish-based investments, whether this gives rise to a separate registration requirement, and whether trustees require advice on the relevant filing deadlines.

The Forgotten Ten-Year Anniversary

Another area that can present significant risk is the inheritance tax relevant property regime.

Many discretionary trusts have existed for a considerable period and trustees may not appreciate that important tax events continue to arise throughout the life of the trust. In particular, ten-year anniversary charges can be overlooked where responsibility for the trust has passed between advisers or where administration has been relatively dormant.

A ten-year anniversary should act as a trigger point for advisers to review the trust’s assets, available reliefs, current valuations and potential inheritance tax exposure. Trusts within the relevant property regime may have reporting obligations at each ten-year anniversary and, depending on the value of the assets held and the nil rate band available, may be subject to a periodic charge of up to 6%, payable at the anniversary.

A failure to identify an upcoming anniversary can create unnecessary compliance difficulties for trustees, particularly if valuations require to be obtained at relatively short notice.

Exit Charges and Trustee Decision-Making

Trustees often focus on whether a proposed distribution is appropriate from a trust law perspective. However, distributions may also have tax implications that require separate consideration.

Capital appointments from relevant property trusts can potentially give rise to exit charges, and trustees should ensure that these consequences are understood before implementing significant distributions.

From a risk management perspective, it is also worth considering whether trustee decisions are being adequately documented. Well-maintained trustee minutes and records can prove invaluable if decisions are challenged at a later date or if future trustees require to understand the rationale behind previous actions.

Conclusion

While trust creation remains an important part of private client practice, the greatest risks often emerge years later through missed compliance obligations, forgotten reporting requirements and inadequate governance procedures.

For practitioners, there may be increasing value in treating trust administration as an ongoing compliance exercise rather than a passive holding arrangement. Periodic reviews of registration requirements, changes in trustees or beneficiaries, valuation issues and potential inheritance tax charges can help identify problems early and reduce risk for both trustees and their advisers.

As trust regulation continues to evolve, a proactive approach is likely to become increasingly important.