When a trust is established, a relationship is created between the Trust's trustees and the Trust's beneficiaries. This relationship is fraught with duties trustees owe to the beneficiaries of the trust.
These duties can be found both in both statutory law (Trustee Act 1956), and in 'equity' - which are found in case law. As there are two areas of law in which they can be found, there is no single document that sets out all the duties a trustee owes. Consequently, there is a risk that trustees may not be aware that they owe duties, or not be aware of the extent of duties that they owe.
What Duties Do Trustees Owe?
The following is a non-exhaustive list, which will provide an example of some of the duties a trustee owes:
To know and adhere to the terms of the trust.
- To act prudently.
- To act with reasonable care.
- To be accountable.
- To exercise discretions in good faith and within the scope of their powers.
- To invest prudently.
- Not to act for their own benefit.
- Not to profit from trust assets.
- Not to delegate the trustees’ duties or powers.
The trust deed can modify and limit the duties that a trustee owes. It should be recognised, that while modifications are allowed, it cannot go so far as to remove these duties entirely.
Joint And Several Liability.
In addition to the duties, trustees should also be aware that they are liable for the actions and decisions undertaken by the Trust. This means that the debts and liabilities incurred by the trustee are the trustee’s own debts.
In the situation where there are multiple trustees, the trustees are jointly and severally liable for properly incurred liabilities - that is, all trustees are responsible for each others decisions in respect to the Trust. This means that trustees are equally liable and if one trustee has met that liability, they may recover the shares from their co-trustees.
If however the debt is not properly incurred, co-contribution may not apply and the liability will fall on the trustee who acted inappropriately.
An indemnity agreement between the trustees and settlor(s) of the trust will further enhance the protection of the trustees.
To learn more about the duties you owe, and how we can help you ensure these responsibilities are met, please make an appointment.