If you have been appointed as a trustee, you may be concerned about your duties and obligations. Trustees are appointed to manage assets on behalf of the trust’s beneficiaries and, as a result, have certain fiduciary duties towards those who benefit from the trust. In this article we provide a brief overview of what trustees must do, the duties that they have, and how they can get advice and assistance in carrying out their obligations.
A trustee is under a fundamental duty to act in the best interests of beneficiaries of the trust. It is crucial that a trustee must in no circumstances place himself or herself in a position where his or her interest and his or her duty may conflict.
The general law lays down certain principles to be followed by a trustee. A trustee must ensure that:-
Trustees must always act honestly and with ordinary prudence, and must judge the suitability of investments having regard to the best interests of all the beneficiaries, present and future. They must take “such care as a prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide”.
In view of the high standard of care which is expected of them, trustees should, in their own interests, adopt a conservative investment policy. Where there are child beneficiaries, a special duty of care is involved. Trustees often have to make decisions on matters about which they have little knowledge or expertise and must seek specialist advice where appropriate.
Trustees could be in breach of trust if they fail to diversify their investments.
Where a trust has a material amount of cash, the trustees must consider investing it unless it is required for use for a beneficiary in the near future.
A trustee must not assume that investments will look after themselves. This is especially true of a professional trustee, such as a solicitor. Investments should be reviewed periodically to check that they are still appropriate to achieving the required objectives in terms of income and capital growth over relevant periods of time.
The trustees have a duty to keep a fair balance between different categories of beneficiary. For example, if the trust provides that one class of beneficiary (the liferenter) is to receive income from the Trust Fund during their lives and a second class (the fiars) is to receive capital on the death of the liferenter, it would be unfair to the liferenter if the trustees were to invest in assets which produced little or no income, but offered the prospect of greater than usual capital growth. Equally, it would be unfair to the fiars if the trustees were to make investments which offered a high income but little or no capital growth or which lead to the value of the capital being eroded. The exception might be if the person who established the trust (the settlor) made it clear that one class of beneficiary was to be preferred over another.
The trustees must take account of considerations such as tax and administrative costs in selecting between alternative types of investment. This includes consideration of the tax status of the beneficiaries.
A trustee must not place himself in a position in which his interests as an individual may conflict with his duty as a trustee. The purchase of trust property by a trustee would be contrary to this rule, no matter how fair the terms of sale may be to the beneficiaries.
Beneficiaries have a right to certain information about the trust. It is generally accepted that they have a right to see the trust accounts and to have access to such parts of the trust deed that confer a benefit on them.
We understand that it can be challenging to act as a trustee and that your duties may feel overwhelming. However, you are permitted to seek professional assistance. Our experienced team regularly provides trustees with advice and assistance on trust matters. A solicitor can help you interpret the terms of the trust deed to understand your legal obligations fully. We can also help you fulfil your duties, such as keeping records of your management and decision making concerning the trust and providing beneficiaries with requested information. If you need advice and assistance with trust matters, contact our team today.
If this article has raised any questions or you would like to discuss any issues covered here, then please complete our contact form, or call us on 0131 225 1200 to speak to one of our specialist estate planning lawyers.
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