Duties and obligations of trustees

What is a trustee?

This is an individual who has chosen to hold and protect the assets held within a trust, for the benefit of the beneficiaries. A trustee assumes a role of responsibility over the trust and becomes the legal owner of the trust assets. A trustee will be held accountable for their actions and decisions, and it is therefore important that they understand and appreciate their duties and obligations.

What are the key duties and responsibilities of a trustee?

• The trust deed may clearly specify the duties and powers of the trustees who must then act according to those powers. The trustee must not act beyond the wording of the trust deed and must always act in accordance with the current legislation in force. The trust deed may give the trustees flexibility concerning the administration of the trust, for example within a discretionary trust structure, however, the trustees must still ensure they are acting in accordance with the purpose of the trust.
• A trustee must always act in the best interests of the trust and consider all of the beneficiaries. A trustee can be included within a group of beneficiaries but must act impartially and not abuse his position as a trustee to benefit himself improperly. Unless included in a group of beneficiaries or there is express provision, a trustee must not benefit from the trust. Reasonable trustee expenses can, however, be compensated from the trust.
• A trustee must act in a “fiduciary” capacity and must always exercise care and act in good faith. This means that they should treat trust assets more carefully than they would necessarily treat their own possessions, particularly as they become personally liable for them. In all dealings, a trustee must act with honesty and integrity.
• A trustee should generally preserve the value of the trust assets by being careful with their investment and use. This means that the trustee should take professional advice where necessary and should not engage in risky investments unless specifically authorised. For example, a trustee may well be entitled to invest in land but would be in breach of his duty if he invested money on a horse race. A trustee should, therefore, consider if it is appropriate to seek investment advice or they may find themselves financially liable for any losses that the trust suffers.
• The trustees must deal with all aspects of trust accounting and taxation where appropriate. If the trust produces income or gains there will be a duty upon the trustees to disclose these to the relevant tax authorities. Other payments may be involved, for example, stamp duty on the purchase of a property and inheritance tax on the death of a beneficiary of a trust. The trustee has a duty to disclose these events to the HM Revenue and Customs and to pay the appropriate tax or duties. If the trust fails to pay tax then the trustee is personally liable for that tax – although he can reclaim the tax from the trust.
• A trustee has a duty to account to certain beneficiaries for the performance of the trust. This would normally involve the provision of trust accounts setting out the assets in the trust, the income and gains of the trust and how these have been applied in previous years.

Why is this important?

If a trustee fails to uphold their duties and responsibilities they will generally incur personal liability and may become financially liable for any losses they have caused or contributed to. The trustee may also be removed from their position and will no longer be able to contribute to the decision-making of the trusts’ affairs.

For more information, please contact Brachers’ private client team.

This content is correct at time of publication