Private Trusts – A Survey of the Market

Martyn Frost FCIB, TEP, Trustee Manager, Barclays Bank Trust Company Limited
and
Chairman of the Association’s Private Trust Committee
This article deals with the findings of a survey recently carried out among members dealing with
private trust business
(taken from Isssue No 3 – August 1997)

 

There is no definitive list of all the corporate trustees operating within the UK, nor are there any accurate statistics for the total size of the market and the corporate share. TACT have no published statistics for the total value of either the trust or the estate markets.

I have contacted the members of TACT (and the British Bankers’ Association) and asked for a fairly simple questionnaire to be completed about their personal trust and estate business. The returns (14 in total) have provided me with the figures used in this article. I cannot pretend that they will be wholly accurate, but they are perhaps the best attempt to date to establish what our member’s overall market share is. My thanks to all of those who have taken the time and trouble to respond to the questions. The individual replies have remained confidential and now that totals have been collated the replies have been destroyed.

First some general points about the general UK market size

  • There are approximately 240,000 trusts in the UK (figures from the Inland Revenue based on the tax returns for personal trusts)

N.B. it must be noted that these figures exclude all off-shore trusts (Channel Island and Isle of Man) and non-personal trusts such as pension funds and charities.

  • In 1995 there were 641,712 deaths in the UK (627,636 in 1994)
  • In 1996 there were 260,580 grants of representation to estates (figures from the Principal Probate Registry) in England and Wales with a further 21,901 in Scotland and 6,080 in Ulster: total grants issued of 288,561
  • The breakdown of the figures show that approximately 26% were personalapplications and 74% were solicitor applications.
  • In the tax year 1995/6 of the 288,561 estates requiring grants of representation, 21,959 estates gave rise to Inheritance Tax.
  • In the tax year 1994/5 the Inheritance tax yield was:-

 

discretionary trust charges £19.5m
lifetime gifts 4.7m
tax on death 1,222m
total yield 1,411m

(allowing for interest, old estate duty payments etc.)

  • In 1994 5,494 Enduring Powers of Attorney were registered (and 1291 where registration failed) and it was estimated that 18,826 remained registered.
  • Receivership applications remained steady at about 6,000 whereas before EPAs started it this was growing at around 6.6% annually
  • Recent research has shown that the age of the donor of an EPA at the time of application to register is
90+ 25%
80-90 54%
70-80 16%
60-70 3%
less 2%
  • The same research indicates that the gap between execution and application to register is

 

under 1 month 26%
1-3 months 23%
3-6 months 8%
6-12 months 20%
over 12 months 10%
unrecorded 3%

 

  • Sex of donor
Female 75%
Male 25%

 

  • Relationship of attorney to donor
Relative 62%
Solicitor 12%
Other 26%

 

  • I have not been able to find any statistics for the average duration of registration, but my own experience says that this is approximately five years.

Some Corporate Trustees’ Market Statistics (from the survey answers)

a Trusts

  1. The Inland Revenue’s figures indicate 240,000 trusts, but as this is based on tax returns I think that this figure is probably low, as there will be some trusts where tax returns are not required or have not been made. However, it is probably sufficiently accurate for these purposes.

The informal survey has identified approx. 36,190 of these as being administered by TACT members:-a market share of 15.1% by numbers

  1. There are no comparable national statistics for value, but the TACT members estimate that the value of trusts under their management is currently £4,015m.

If this represented 15.1% of the market by value (as well as by case numbers) it would give a total market value of £26,590m. In fact the total trust value is likely to be substantially more than this as some private trusts of most unusual size remain with solicitors or familytrustees.

b Estates

  1. On the basis of 288,561 applications for grants of representation annually, those by the corporate trustees amounted to 5,024 or 1.74%, but if one excludes personal applications the figure becomes 2.35%.

However, I find this figure misleading in that most corporates are looking towards estates of £100k+, although some might take them on as low as £50k. Given that grants are generally required in any estate of over £10k, there is a good proportion of this market where the corporates choose not to compete. My personal estimate would be that of the market that corporates choose to compete in the figure for market share should double this level to approximately 5%.

  1. There are no figures for the annual value of estates, but corporate trustees estimate that they take on annually estates with an annual value of £702m. Unfortunately I cannot find any basis on which a reliable figure for the market by value can be extrapolated from this.

c Enduring Powers of Attorney

  1. Given the relative novelty of these powers the market is not yet really developed. I do not have any figures for the total number of these powers signed in favour of corporate trustees. Figures from my survey show somewhere around 65 are registered annually at present, or 1.2% of the annual market.

Personally I would expect this figure to rise over the next few years. The major banks in particular have all become active in this field in recent years. As well as offering a sound business opportunity in itself, an EPA scores again in protecting existing asset management and taxation contracts which would fail automatically as a consequence of loss of mental capacity.

2 The number of suitable people for registration of such powers will rise with the general ageing of the population.

Perceptions of the present market

Profitable?
The great majority of the replies (85%) regarded this business as profitable, while the remaining 15% thought that it was not.

Expanding?
43% of replies were positive, but the same 15% as above were negative. The remaining 42% offered no opinion.

Has the level of litigation associated with these areas increased in
(a) the last five years?
21% thought `yes`
(b) the last ten years?
14% thought `yes`

Do you believe that in general the risks of financial loss (not necessarily actual losses) have increased in these areas in
(a) the last five years?
71% replied `yes`
(b) the last ten years?
36% replied `yes`

If you are a member of an ombudsman scheme, do you believe that the level of complaints is rising?
57% thought that complaints were rising. On the face of it this might indicate a falling-off of standards, but I think that the question is probably too simple to draw that conclusion alone. These replies may be indicative of a greater public awareness of the ombudsmen schemes.

Marketing

When asked to rank in order of priority their main competitors on a scale of 1-4 (with 1 being the highest priority) the following was observed
Solicitors                               average 1.35
Other corporate trustees      average 2.29
Accountants                       average 2.78
Private individuals                       average 3.36

This provides a fairly clear identification of solicitors being perceived as the main competitors with accountants and other corporate trustees being viewed in a fairly similar light.

Which were the preferred means of advertising?
One reply only indicated the use of television advertising and no one admitted to using radio, national press or posters on public hoardings. 14% used financial magazines and mail shots, while 21% had advertised in general interest magazines.By far the greatest use was made of advertising within each company’s own branch network (57%). A higher percentage (71%) said that their most used method of marketing was through their organisation’s staff contact with customers. This is almost certainly going to mean that other parts of the organisation, distinct from the trust operation, are introducing leads to the trust business.

Prime source of new business?
In all cases this was perceived as each organisation’s existing customer base.

Brochures
In all cases brochures setting out details of services were published.

Types of Business undertaken

Trusteeship of private trusts 86%
executorship of estates 100%
act as administrator of estates 100%
estate planning 64%
will writing 71%
attorney under enduring powers of attorney 71%
investment management for other trustees 71%
preparation of tax returns for other trustees 43%
preparation of accounts for other trustees 50%
company services for individuals 21%
trusteeship of FURBS or small self-administered pension schemes 21%

Martyn Frost 1997