A Quick Guide to Trustee's Duties
The duties of trustees are diverse and can be quite onerous.
The first points of reference to determine the scope of a trustee’s duties are the trust instrument and associated trust documents. However, the law (both statutory and common law) also imposes powers and duties on trustees.
A trustee’s main duties are:
Duty to use good faith and uphold the trust
A trustee’s primary obligation is to carry out the trust purposes in accordance with the Trust Deed.
The utmost good faith is required of a trustee. A high degree of probity, honesty, and integrity are required to ensure the fulfilment of the trust.
Duty to disclose any potential conflicts of interest
If these are known to you before accepting the position of trustee, you should disclose them before your appointment. If they become apparent afterwards, they should be disclosed immediately to the settlor and your co-trustees.
Duty to acquaint yourself with the terms of the trust deed
As a trustee you are entitled to see all trust documents and have a duty to acquaint yourself with the trust instruments. The rationale behind this is that the trustees should be active in the administration of the trust.
Duty to ensure that trust property is vested in all the trustees’ names
Even if the trust property is not in your name, you will be liable for any loss from it while it is in the other trustees’ names. The trust documents can be deposited for safekeeping, for example with a bank, as should securities and title deeds.
Duty to use due diligence and exercise reasonable care in managing the trusts
A trustee is under a duty to act with reasonable care and prudence in all matters relating to the trust. The mere fact that a trustee has acted under advice from his solicitor does not necessarily excuse him from liability.
The standard of care is that which a prudent man of business would take in his own affairs. This involves having a reasonable basis for decisions taken.
A higher standard of care will be expected from a paid professional trustee than from an ordinary lay trustee. The Trustee Act 2000 creates a new statutory duty of care for trustees in carrying out their powers, although this duty can be excluded or modified by the trust deed itself.
Duty to act jointly with your co-trustees
Normally all the trustees have to be parties to transactions and decisions concerning the trust. However, the trust deed 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).
Trusteeship imposes a duty on each trustee to ensure that the actions of his fellows comply with the Trust Deed and with the law.
Even although day-to-day management may be, and sometimes practically must be, delegated, overall supervision lies with the trustees as a whole. Trustees are not entitled through good nature or ignorance to allow co-trustees free rein to do as they see fit.
Allowing a co-trustee to commit a breach of trust will involve both Trustees in the consequences of breach of trust.
Duty to exercise your discretion
The trust deed, and statute, gives the trustees power to act. A trustee must therefore exercise his discretion as to whether or not to use the powers conferred on him by the trust instrument and by law, i.e. the powers must be considered and there must be an active mental process.
Trustees are entitled to have their own opinions but must distance themselves from these and not allow them to undermine the trust. They cannot allow themselves to be influenced by matters outside the terms and purposes of the trust.
Duty to provide information
A beneficiary is entitled to inspect any trust documents (e.g. accounts) and to be given appropriate information in relation to the administration of the Trust.
Powers
All powers of a trustee are fiduciary. The powers allow a trustee to manage the trust diligently.
Remuneration
A lay trustee is not entitled to any reward, but the Trustee Act 2000 permits professional trustees to charge for their services, as may the trust deed itself.
Liability for Actions
The general rule is that trustees incur personal liability on a joint and several basis. The liability of the trust is determined by the liability of the trustees, not their ability to pay.
Trustees can take out their own insurance to cover liability for their actions but the premiums can only be met from trust funds where there is authority in the trust deed or a scheme approved by the court. However, if insurance cover is justified by the nature of the trustees’ activities the expenditure on premiums may be justified.
Brochure request