The law imposes on trustees a range of duties in respect of their dealings with trust property, as well as their duties in respect of the beneficiaries. The express terms of the trust can alter or add to these duties.
1. Duty of care
Trustees are under a statutory duty of care (Section 1 Trustee Act 2000). This means that they must take reasonable skill and care when dealing with trust assets, and if there is ever any question as to whether they have exercised reasonable skill and care, the law will take into account any special knowledge that they may have. So for example the duty of care expected from a solicitor or a financial adviser, would be greater than that expected of a lay person.
2. Duties on appointment as trustees
When a trustee is first appointed they must:
(1) Check that they are properly appointed.
(2) Check who the beneficiaries are under the trust.
(3) Check that all the trust property has been transferred into their name.
(4) Check that any investments that have been made on behalf of the trust, fall within the terms of the trust.
(5) Ensure that no breaches of trust have been committed by former trustees.
3. Duty to safeguard trust assets
The trustees must ensure that trust property is safeguarded. This duty extends to, for example, the requirement for a trustee to sue for the recovery of assets. That said, trustees do have the discretion to allow time for payment of debts, and to negotiate compromise agreements.
4. Duty to act unanimously
With the exception of charity trustees and trustees of occupational pension schemes, trustees must act unanimously.
5. Duty to distribute
Trustees must act under the terms of the trust and distribute the trust property in the manner specified by the settlor. Trustees cannot make a distribution to someone who is not entitled. If it is not clear from the trust document who should benefit from the assets, the trustees may apply to the Court for directions. The Court can also help resolve issues relating to missing beneficiaries, by ordering that they be treated as dead.
6. Duty of impartiality
Where a trust is established to benefit a number of beneficiaries, the trustees must not favour one beneficiary or type of beneficiary over another.
7. Duty to supply information and produce accounts
Trustees are under a duty to maintain accurate accounts, and allow the beneficiaries to inspect them on demand. Trustees are not under a duty to have the accounts audited, but they have the power to have them audited, and to have the cost paid from the trust funds. Trustees must also be prepared to provide information concerning the trusts administration, but they do not need to justify to the beneficiaries any discretionary decisions that they make. In fact the trustees have a right to exercise a discretion in confidence.
8. Duty to invest
Trustees must invest trust property to maintain its value. From a duty of care perspective low risk investments are preferred, and the investments should be diversified to minimise risk. In effect trustees have the same power to invest the trust assets that they would have if they owned the assets themselves, but they have a duty to err on the side of caution in respect of the type of assets selected. In making investment decisions, the trustee must seek proper (usually professional) investment advice, unless they are able conclude that it is unnecessary or inappropriate to do so.
Trustees duties in respect of investment are complex. Trustees should seek guidance on the law from their Stone King adviser.
9. Duty of loyalty
At all times the trustee must act exclusively in the best interests of the trust. In practical terms this means that a trustee cannot profit from the trust; a trustee must avoid any conflict of interest between their own interest and those of the trust or the beneficiaries; and they must always act in good faith.
The decision to act as a trustee should not be taken lightly. If any loss to the trust fund occurs as a result of the trustee breaching any of the above duties, the trustee could be held personally liable for the loss. In certain circumstances it may be desirable to take out trustee indemnity insurance.