A trustee is a person appointed under a trust deed to ensure that the trust is run properly to provide for the beneficiaries of that trust. The most common forms of trust are family trusts usually created for the protection of property, or testamentary trusts which are created in someone’s will and come into existence when that person dies.
Often with family trusts, the appointed trustees include the person or people who create a trust (the settlor(s)), however it is recommended that a professional or independent trustee is also selected to help ensure that the duties and responsibilities of the trustees are properly carried out. Commonly lawyers or accountants are appointed as independent trustees.
On paper, the trustees are the legal owners of the assets in the trust, but must manage and act in the best interests of the beneficiaries of the trust – the ones who benefit from the trust. The key duties of trustees are:
1. Efficient management of a trust.
It is important for trustees to ensure they understand the trust deed, so that the terms of the trust are adhered to. Trustees provide checks and balances on one another’s actions. In performing their duties, trustees must act with the level of care, diligence and skill that a prudent business person would exercise in managing his or her own affairs. Effective management of the trust requires good communication between trustees and ensuring that accurate trust records are kept, including meeting minutes.2. Keep accounts and provide them to beneficiaries
The trust accounts kept by trustees need to be up to date and accurate, and may at times be disclosed to beneficiaries. The accounts need to be a full and proper record, and the extent of accounting work will depend on the particular trust. Where the trust is simple and has limited assets, trustees may be able to generate accurate trust accounts easily. Where there are significant assets or a complex set up, trustees should engage qualified accountants to prepare the financial statements/accounts for the trust.3. Act personally
Trustees cannot delegate their decision making powers, either to each other or to anyone else unless there is a legal requirement to do so, or this is expressly provided for in the trust deed. At times it may be necessary for trustees to seek expert advice, such as from lawyers or accountants, but the obligation to make any decision will still rest with the trustees. In most cases trustees will be required to make decisions unanimously. A trustee cannot sit back and hope that the other trustees will make decisions for them, or “rubber stamp” a decision made, as all trustees are responsible together and separately.4. Duty of loyalty and to act as a fiduciary
Trustees owe a fiduciary duty to the beneficiaries of a trust, and they must act in the best interests of the beneficiaries (both present and future beneficiaries). Matters can become complicated when the same people are both trustees and beneficiaries. The trustee needs to ensure he or she avoids conflict between the duties owed to the trust as its trustee and the trustee’s personal interests. The general rule is that a trustee cannot profit from their role as trustee, although professional trustees may receive a fee if the deed allows for it, and a trustee may also receive a benefit if they are a beneficiary.5. Invest prudently
Trustees must make sensible business decisions and invest prudently. This is not to say that a trustee will have acted inappropriately if a particular investment makes a loss, provided that the decisions made by the trustees were in the best interests of the beneficiaries, and carried out in accordance with good investment practice.
If you are asked to be a trustee for a friend, family member or business partner, it can seem like an honour, but there are risks associated with this position. Before you agree, it is important to first enquire about the workings of the trust. If a trust has been run poorly in the past there are unlikely to be good financial records and meeting minutes, which could make the future management of the trust difficult. If other trustees or beneficiaries of the trust become concerned about the trust’s management there is recourse available to remove trustees, and to hold trustees personally liable for any debts owed by the trust or in some cases for losses suffered by the trust.
Gillian Spry is a Partner in the Family Disputes team at Norris Ward McKinnon. You can email Gillian at [email protected]