Philip must balance his role as a trustee and a financial adviser to the trustees, with the responsibility to act in the best interests of his long-standing client. How should Philip proceed?
Read the results of the survey, the CISI verdict and readers' commentsPhilip has been a financial planner and adviser to the Evergreen family for several decades, having begun the relationship when advising the late Brian Evergreen on making provision for his wife and four children following his retirement from the armed forces. Brian had unfortunately died from cancer in his early seventies.
The disposition of Brian’s assets included putting them in trust for his wife Eileen, who was anticipated to remain during her lifetime in the family home, funded by income from Brian’s other financial assets and her pensions. Following Eileen’s death, all the remaining assets will pass equally to their four children. Philip is both a trustee and acts as financial adviser to the trustees, for which service he makes an annual charge to the trust of £1,000.
Eileen is now eighty years old, and although physically quite robust, she is suffering increasingly from dementia. This is compounded by the fact that she recently fell at home and broke a hip, which necessitated a stay in hospital. Although Eileen’s hip was successfully repaired, she was not able to walk again immediately, and the hospital sought the Evergreen family’s involvement in her rehabilitation.
Discussions about how to care for their mother focused the attention of her children both on how best to care for her and also on how to pay for the type of care that was felt most appropriate. As a trustee, Philip was involved in these discussions, which proved quite troubling for him in many ways.
When Brian Evergreen set up the trust, the invested assets had seemed adequate to provide sufficient income for Eileen to enjoy a relatively comfortable lifestyle, although the assets had been diminished somewhat by some essential but expensive work that had to be undertaken on Eileen’s home. Use of the capital of the trust for this sort of purpose is permitted by the trust deed, but there are restrictions on its unfettered use.
The children had anticipated that on Eileen’s death they would each inherit a reasonable sum of money, and two of them had entered into the expensive commitment of private education for their children, the provision for which appears to weigh on their minds as much as the need to protect their mother.
There are restrictions on the unfettered use of the trust
At a meeting to discuss Eileen’s future, the family suggested various options without much apparent thought for what they might cost, including an option to move Eileen to a highly regarded residential care home which also caters for residents with dementia. The current fees for this are £40,000 per year to care for Eileen in her present state, but the cost will almost certainly increase as her condition deteriorates. Alternatively, they might adapt her home and employ full-time care for their mother, while accepting that in either case they are likely to encounter resistance from Eileen. This course of action might involve depletion of both capital and income.
Philip felt that he should inject a note of caution into the discussion so that the trustees focused not just on Eileen’s welfare, but also on the financial ramifications of the various courses of action. He pointed out the danger that the trust assets might not generate sufficient income to cover all the costs of looking after Eileen and that the longer she lives, particularly if assets are liquidated, the more rapid this liquidation will become.
Philip is concerned about the apparently conflicting pressures on the trustees in the matter of Eileen’s care, conscious that while he is involved as a trustee, his is a minority view, and can be outvoted by family members.
How should Philip proceed? Read the verdict
This dilemma appears in the Q4 2017 print edition of The Review. The results of the survey and the opinion of the CISI will be published in the Q1 2018 print edition of The Review.