My maternal grandparents died in 1978 and 1980. They left a legacy of GBP 60,000. It was put on trust for investment in a fund, with the interest being paid to my mother, and on her death, the capital is to be divided equally among her surviving children.
Some 40 years later, as my parents are now getting on a bit (both will turn 91 this year), they have started discussing their financial affairs with me and this is the first time this trust has been discussed.
It turns out that while they have been receiving OK income from the trust fund (last year roughly GBP 4k), the capital value is now only around GBP 150k.
I am not really into investments, but a brief internet search (moneywise.com) indicated to me that if you had invested USD 2k in 1980 you might expect that to be worth USD 40k now. 2k in bonds would be worth around 16k. The same amount just in savings would likely be worth around 10k now. So a growth of somewhere between 5 and 20 times the initial capital contribution should have been easily achievable.
I had an initial conversation with someone at the trustee about this, who said that I needed to bear in mind the fees and management costs would also impact the returns. He also mentioned that the trustees had to do a balancing act between current interest payments to my mother and long term capital growth for the long term beneficiaries. But on the above calculations, even if the trustee had invested purely in savings, that seems like a massive chunk of the capital growth has been taken away.
Does anyone have advice about what we can do? My first step has been to ask the trustee to provide accounts from the date the investment was first made so that we can see what they have done. Is there a complaints body we can turn to if we think the trustee has invested incorrectly?
Does anyone who knows about this sort investment have any advice about whether the capital growth given the circumstances is in fact so wildly off where it should be (am I missing something)? Is it worth getting wound up about at all?
I don’t want to get dragged into needless challenges and disputes, but if there were any way to successfully challenge this investment and result in a larger capital pot once the trust vests in us would make a significant difference for a couple of my siblings.
My parents were from a generation where they didn’t question any of this - they just left the investment (though my father always suspected they were being ripped off) and trusted the bank trustee, so they don’t really have any information about the terms of the trust, etc that can be of any help.
Thanks for any tips that you can give.
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I’m not able to give a full answer, but the factor that strikes me is the income that’s been taken over the years. Are you sure you’re taking this into consideration?
I have investments that give very modest capital growth but a decent income which I don’t re- invest, if I re- invested it the capital growth would be far higher.
You can’t have your cake and eat it, if income has been taken over the full period that may explain the limited capital growth.
This. They’ve drawn from the fund each year thus limiting the growth. Other questions to ask are what was the volatility of the fund invested in, what was the fee structure etc.Originally Posted by walkerwek1958
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I think the invested 2k in 1980 would be 40k if all the profits would’ve been invested.
If there has been yearly payouts the current value would be a lot lower.
An income of £4K from £150k is less than 3%. If invested properly and with low charges back in 1980 you’d probably be looking at a pot nearer £1m today which could be drawn down 30-40k per year without ever depleting the capital in their lifetime, and probably not even in the lifetime of the OP.
I’d say the OP is stuffed in terms of retrospective complaint/compensation.
Last edited by Justin Case; 17th March 2021 at 10:14.
Have I got this right? Taking just inflation alone, £60k in 1980 is about £260k in 2020. ie the 'pot' alone is now effectively 58% of its original value.
The best advice is to seek the advice of a specialist lawyer because everything depends on what is written on the contract that your grandparents / parents / trustees signed. No one can offer any advice until they have read that contract.
Surely there's a choice with this kind of investment; take an annual income or re-invest it annually to grow the pot? If the recipients have had an income equivalent to circa £4k a year in each of forty years and the pot is still double the original investment, isn't that a win-win?
That's what I'm thinking...they took out 4k per year for 40 years... that 160k with compounding would have delivered 1 million quid by today, but they chose a different route. And presumably a low risk profile for the fund.
Last edited by Passenger; 17th March 2021 at 11:03.
Unlikely they were taking £4K in 1980 surely?
That is likely the number today after inflation adjustments over the 40years.
Returns of 10% were common back then due to inflation. I can recall sometime during Dennis Healy's term as Chancellor when inflation hit 26.8%.
I had a friend who took out an endowment policy where he was guaranteed £25k to clear his mortgage, he actually received nearly £70k because everything was reinvested.
There is nowhere near enough information here to comment on the OPs case.
Who knows, OP needs to look at the books and terms of the arrangement.
as Mick says...
Someone needs to look at the figures and do the calculations but with the income taken, don't think it is necessarily a terrible return.
That is just the question restated really, isn't it? Is it a fair return over 40 years if that 3%/4k adjusted was typical/average for the income received each year, taking into account inflation. Is 2.5x a reasonable growth over 40 years? Maybe they chose lower risk investments.
I think there's too little information to come to a view either way until he has the accounts. Did the parents take out larger amounts earlier? Did they gift any of that to the OP or other siblings for any purposes, who themselves may or may not have been aware of the trust and that the money came from it?. That's not relevant to the trust issue but might make things interesting when it comes to dividing the remaining money if one or more siblings has already had part of their 'share'.
If the trustees charges were excessive the question of whether the beneficiaries were aware of and agreed or acquiesced to those charges is going to be relevant. Beneficiaries have had only partial success in challenging excessive trustee fees in the past and I believe it's an expensive business going to court. https://www.lawskills.co.uk/articles...onal-trustees/
Last edited by ernestrome; 17th March 2021 at 11:25.
Hindsight is a wonderful thing.
As others have said, the sums don't look that bad considering income has been drawn from the fund. But the figures should be a warning for the younger generation to save to provide for their future. We are in a golden age of great tax advantages (salary sacrifice at your marginal tax rate) and a very competitive and open investment market with miniscule rates.
Thanks all for the thoughtful replies. I realise I haven’t got enough information to make a definitive call at this stage, but it’s really helpful to hear from people experienced in these matters. Hindsight is indeed a wonderful thing, but it is annoying to think what that legacy could have been worth and how it might have been a better help to my brothers and sisters.
I’ll wait and see what I get from the trustee and then think about what course of action to take. I suspect we won’t end up in court!
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A much larger legacy might be handy to your siblings but (w/o knowing their affairs of course) a 4K extra income to your parents may be equally useful to them.
Has the OP suggested reducing the parents income from the trust at any point?
If you have access to yearly statements, fees charged etc, monies paid to parents, that should give you an idea of how much it grew and how the investment was set out. Once you have that you can establish why the current value is what it is.
There is one important number missing to judge the quality of the trust management: how much were the annual pay-outs? Was it a static percentage over the years?
If the OP would provide some info, I can run a calculation.
Someone who lies about the little things will lie about the big things too.
Have a read yourself.
This. Not a lot of work to put it in an excel btw
Yes, but we need to know how much income was taken.
Someone who lies about the little things will lie about the big things too.
I did twice, I don't see any suggestion of reducing income. Quote it.
4K income for almost 40 yrs so that’s £160,000. Trust worth £150,000. Initial invested £60,000.
I don’t think it’s terrible at all.
From the info provided I wouldn't infer that £4K per annum has been taken. Without a lot more information its impossible to judge whether the investment has underperformed or been mis-managed. OP needs to ask a lot of questions and seek clarity regarding the fees being charged over the years and whether the money was invested in funds that were appropriate to meet the objectives of the investor.
Indeed. For all we know the initial investment remit was to be completely risk averse and to avoid equities at all costs. Hard to gauge if growth decent without knowing what it’s been invested in.
What type of arrangement is in place.
They are responsible for the good governance of the trust fund. Who have they used to look after the investments? Who is the investment manager? Who is continually reviewing the performance of the investment manager, and what action/actions have they taken over the last 40 years?
Lots of questions, but unless you look at all areas, the trust fund may or may not have been managed correctly/competently.
You would likely have more success challenging the investment choices, strategy, oversight by the Trustee (or at least to get answers/clarity), than challenging any level of charges applied by them covered by a contract.
It's just a matter of time...
Wait for that.My first step has been to ask the trustee to provide accounts from the date the investment was first made so that we can see what they have done.
R
Ignorance breeds Fear. Fear breeds Hatred. Hatred breeds Ignorance. Break the chain.
The title of your post is possibly quite misleading as you use the word ‘terrible’ when it seems from your posts you don’t actually know. It may well have performed well for all you know. You need to find out a lot more information to know whether the advice was terrible or good.
I’m guessing here as I’ve only got your limited information to go on.
The job of the trustees would be to balance what’s fair to your mum (the life interest)in the form of income and her children (the remainderman) and also take into account the wishes of your grand parents. For all we know they could have agreed on a cautious approach as they we’re fairly low risk. Again for all we know your mum may have taken 3% income from the beginning, or 4% or even 5% which with charges could have meant the fund had to average 6.5% to 7% a year to break even. On that basis you could argue that it’s performed very well, especially if it wasn’t high risk.
Presumably over the last 40 years your mum has had meetings with the trustees and reviewed the funds, performance and income levels?
Also presumably I’d imagine that your grand parents main wishes were to ensure that their daughter was taken care of income wise, but the capital was locked in a trust so that anything left would benefit their grand children?
I see where you’re coming from, but I think you need to know a lot more before deciding if any action is appropriate.
Mr Devonian is an IFA and knows what he is talking about. I’m a professional trustee and not an investment expert but this summary is exactly right.
^^^ I love seeing the depth and breadth of this community’’s knowledge at work
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Me too. Loads of food for thought there and all really helpful. Thanks to you all and sorry I don't have more information. The use of the word terrible in the title was just my gut feeling. Some of the posts above clearly show this may not have been all that bad after all.
Never said I wanted to reduce my mum's return at all - I'm more than happy for her to have the whole lot!
Sadly my parents were very trusting and have never discussed investment strategies at any point in the last 40 years!
My father had a good angle on it...in the end they used the income, among other things, to invest in equity which he picked. And that's done pretty well, so I think the end position will be OK, though it may well have inheritance tax implications I guess...another topic there for another thread.
Thanks again to you all. Amazingly kind of you to help me.
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If you put £100 in a 5% bank account 40 years ago, it would now be well over £700. If you withdrew the £5 interest every year, the account would only have £100 in still, but you've pocketed £200 over the years. Which was the wiser choice? Depends, but it's not the accounts fault
Just to forewarn you...
From the information in your OP, if the trust was written in the expected form, the capital value of the trust fund will be included in your Mother’s estate for inheritance tax purposes. You may of course have been aware of this.
Even at your parents’ advanced age there may be scope to reduce that IHT exposure. This is subject to other matters that would need to be taken into account, including capital gains tax, your Mother’s wishes and the views of the present trustees. This isn’t a tout for business, I hasten to add, but a chat with a good IFA or tax advisor would let you and your parents know what options there are so that your Mother can take it up with her trustees if she wishes.
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