Client Guide: Principal Duties of a Trustee
On accepting a position as a trustee, a person must be aware of the duties imposed on him by the trust deed and by statute. The following is a non-exhaustive overview of the principal duties of a trustee.
- A trustee must understand and comply with the terms of the trust.
- A trustee is under a duty to act in the interests of the trust and its beneficiaries. He must not permit conflicts between his duties as a trustee and his personal interests.
- The standard of conduct required of trustees has been put on a statutory basis by the Trustee Act 2000. The Act provides that a trustee must act with such care and skill as is reasonable in the circumstances bearing in mind any special knowledge or experience he might have. Professional trustees such as solicitors and accountants have a higher duty of care than private individuals acting as trustees.
- A trustee must make distributions of income and capital as any income or capital becomes due to the beneficiaries. However, in a discretionary trust, a trustee will have a discretion as to the manner in which the capital and income are distributed and the people who are to benefit.
- A trustee must maintain accounts and produce them to the beneficiaries on request. He must also give information to beneficiaries in relation to the administration and management of the trust fund on request.
- A trustee has a duty to insure the trust property. Insurance premiums may be paid from the trust funds.
A trustee must invest trust funds in order to achieve the best possible investment return for the beneficiaries in the circumstances. A trustee may make any kind of investment but regard should be had to the terms of the trust, the current investments of the trust and the need for diversification of the trust investments.
Before exercising his power of investment a trustee must obtain and consider professional advice.
- A trustee must from time to time review the investments of the trust and after obtaining and considering professional advice, must decide whether any changes should be made.
- In a life interest trust, a trustee must consider the competing interests of the life tenant (the beneficiary currently entitled to the income) and the remaindermen (the beneficiaries, who will become entitled to the whole trust fund on termination of the life tenant's interest), investing so as to provide a reasonable income for the life tenant, but also to keep the capital secure for the remaindermen.
- In a discretionary trust, a trustee may favour one beneficiary over another, but he must at least consider the interests of all the beneficiaries.
Delegation of duties
- A trustee may delegate his duties of administration and investment if permitted by the trust deed. However, the overall responsibility will remain with the trustee. He must act with reasonable skill and care in appointing agents.
- If there is a delegation of any investment functions, eg to a stockbroker, an agreement in writing and a policy statement will be required. The policy statement should give guidance as to how the functions should be exercised and the agent must agree to comply with it.
- A trustee who does delegate his investment function should keep the arrangement under review. As long as a trustee has acted with care and skill in appointing the agent and in reviewing the arrangement, he will not be liable for the default of an agent.