The role of a trustee is very important as they are entrusted with managing assets which belong to others, the beneficiaries. There is therefore a relationship of trust, confidence and loyalty which arises between the trustee and the beneficiaries. There are numerous duties which a trustee must comply with, some of which are fiduciary in nature (i.e. they are fundamental to the relationship of trust and confidence).
If these duties are not met by a trustee, there can be serious consequences for them, particularly in relation to the specific fiduciary duties, such as the duty of good faith. In the event of such a breach, an action can be pursued against the trustee to recover any losses stemming from their breach. Additionally, the beneficiaries or the other trustees may take steps to remove them, for example by an application to the Court.
Duty to obey the trust document
It is important for a trustee to be familiar with the trust document and their powers under it. These powers and the other provisions of the trust will set out things such as how distributions must be made and to whom, plus they may limit or expand upon the trustee’s statutory powers.
A trustee must strictly adhere to the provisions of the trust document.
Duty to act impartially between beneficiaries
A trustee must not exercise their powers so as to favour one beneficiary (or class of beneficiaries) over another. This includes not performing their duties in a way which may disadvantage some beneficiaries when compared to others. For example, a trustee should not prioritise high income producing investments over ones which create capital growth, where this would benefit some beneficiaries more than others.
They must also distribute the trust property in a fair manner which does not favour one beneficiary, or one class of beneficiary.
Duty to invest in authorised investments
A trustee must take significant care in choosing and making investments. They must exercise their powers in a way a prudent person would in making investments on behalf of people to whom they felt morally obliged.
The investments made by a trustee must be reviewed regularly to assess whether they are still appropriate. A trustee must have regard to the standard investment criteria in both making and reviewing investments. The standard investment criteria places particular importance on the diversity and suitability of investments.
A trustee has a duty to take professional advice on the investments of the trust. Regard will be had to any special knowledge or experience that the trustee has or holds themselves out as having. Any trustee acting in the course of business or a profession will be judged according to any knowledge or experience it is reasonable to expect of a person acting in that business or profession.
Duty of care and skill
A trustee is expected to undertake their role in a way which reflects the duty of care and skill which they owe to the beneficiaries. They must exercise their powers in the same way a prudent businessman would in the management of his own affairs.
The care and skill exercised by a trustee will be judged in light of the relevant circumstances and therefore regard will be had to any special knowledge held by the trustee, or the fact that they are acting as a professional.
Duty to keep beneficiaries informed
Where beneficiaries have a fixed interest in a trust, they have a right to know their position and what is going on with the trust.
There is also a need to inform beneficiaries of a discretionary trust about certain information, for example the nature and value of trust property, investments and distributions made, and a trustee must give the beneficiaries copies of the trust accounts.
Duty not to benefit from the trustee position
A trustee is not permitted to make any profit from their role, even where they have acted honestly. They must also not put themselves in a position where their duties conflict with any other interests they may have, as they have a duty of good faith and loyalty to the beneficiaries.
They must also not ‘self-deal’ with trust property, for example a trustee cannot sell land to themselves in their personal capacity. The beneficiaries can set aside any such transaction and the trustees will have to account for any loss.
Removal of trustees
Beneficiaries may direct a trustee to retire if certain conditions are fulfilled, and in straightforward cases it may be possible to remove a trustee this way. To do this, the beneficiaries taking the action must between them be beneficially entitled to the whole trust property, and must all be over 18 years old and have capacity. If these conditions are met, the beneficiaries may make a direction that a trustee retires. However, the actual removal requires the trustee to complete the necessary documents themselves.
Where removal in this way is not possible, beneficiaries may apply to the Court to have a trustee removed. This is also an option available to any other trustees.
The Court has a statutory power to remove a trustee where trustees disagree, or where a trustee has lost capacity, but the Court also an inherent power to remove a trustee under its jurisdiction to ensure that trusts are properly administered in the beneficiaries’ best interests.
This power may be exercised where a trustee has acted in breach of their duties, or where the relationship between the beneficiaries and the trustees has irretrievably broken down. The Court will only remove a trustee in this situation where there is such animosity and distrust so as to make the administration of the trust unworkable. It is not enough that there are feelings of friction or hostility between the parties.
The Court also has a similar power to remove the personal representatives of a deceased person’s estate.
In summary, a trustee has numerous and often onerous duties and responsibilities which they must adhere to. If they do not do so, there can be severe consequences including possible personal costs orders against them and removal as a trustee.
Please contact us if you would like further advice on this specialist area of law.