Acting as trustee is an important role, involving the management of assets which in essence belong to 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 that relationship of trust and confidence).
Trustees can either be professionals or ‘lay people’ – e.g. family members or friends of the person who created the trust. The key point here is that the standard expected of professionals when carrying out their trustee duties is higher than for lay trustees; they are subjected to a greater level of scrutiny. It is, therefore, vital that trustees understand their duties and carry them out appropriately and properly.
The duties of trustees are far-reaching and extensive. The general duties which a trustee must adhere to are as follows:
|To obey the terms of the trust
||A trustee must familiarise themselves with the trust instruments so that they act in accordance with the trust provisions when managing the trust.
|To act impartially between beneficiaries
||A trustee must act fairly when making investment decisions and distributing a trust so that one beneficiary or class of beneficiaries is not advantaged over others.
|To invest in authorised investments
A trustee must take significant care in choosing and making investments.
Investments made by a trustee must be reviewed regularly to assess whether they are still appropriate. A trustee must have regard to standard investment criteria in making and reviewing investments. A trustee has a duty to take professional advice on investments made.
|Duty of care and skill
A trustee is expected to undertake their role in a way which reflects the duty of care and skill owed to the beneficiaries. They must exercise their powers in the same way a prudent business person would in managing their own affairs. Regard will be had to any special knowledge held by the trustee, or the fact that they are acting as a professional.
|To ensure that trust property is vested in all the trustees’ names
||This is necessary to ensure that all trustees are party to dealings with trust property at all times and to avoid a trustee being liable to the trust for the actions of another trustee acting without their knowledge.
|To disclose any potential conflicts of interest
||Any potential conflicts of interest should be declared by a trustee before they accept the appointment. If any conflicts become apparent after, they should be disclosed immediately to the settlor and the co-trustees.
|To act jointly with your co-trustees
||Normally all the trustees should be parties to transactions and decisions concerning the trust. The trust instrument may allow individual action in some, specified, circumstances and a trustee can appoint an attorney to act on his behalf for a limited period (not exceeding 12 months).
|To exercise discretion
||The trust deed, and statute, gives trustees power to act or not act. A trustee must exercise discretion and consider when and how to use powers contained in the trust instrument and by law.
|To not profit from the trust
A trustee must not use their position to their personal advantage. This means they have a strict duty to account to the trust for any profits arising from the trust property.
In addition, a trustee may not charge for acting as a trustee unless specifically stated in the trust document. A trustee must not “self deal” and is prohibited from selling land to themselves in a personal capacity. Of paramount importance, a trustee owes a duty of good faith and loyalty to the beneficiaries.
|To account and give information to beneficiaries
||A trustee should provide beneficiaries with information about the nature and value of trust property, together with investments and distributions made. Trust accounts should be properly maintained and be made available to beneficiaries.
If the above 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.
The court has a statutory power to remove a trustee where trustees disagree, or where a trustee has lost capacity, but it also has an inherent power to remove a trustee under its jurisdiction to ensure that trusts are properly administered in the beneficiaries’ best interest. 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 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.
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. It is, therefore, imperative that a trustee seeks specialist advice where they are unsure of their obligations.
If you believe you do need specialist advice in relation to the above area, please do contact us for further advice.
Authors: Lucy Howard and Lauren Lucas