Trustee Duties, Obligations and Breaches

A Trustee must act exclusively in the best interests of the Trust, taking note of and acting in accordance with the duties and directions set out in the Trust instrument.  A Trustee owes a duty to the beneficiaries of a trust which include loyalty, good faith, integrity and honesty. They must act impartially between beneficiaries so as to ensure that one beneficiary does not suffer at the expense of another. Competing interests for income and capital must be balanced, unless the Trust instrument provides otherwise.

When approached to act as Trustee a person must ensure there is no conflict between themselves and any beneficiary.  They should then familiarise themselves with the terms of the trust and have a clear understanding of their duties and obligations.

A Trustee must comply with the Trustee Act 1925 and Trustee Act 2000 although these powers may be supplemented, restricted or varied within the Trust instrument.  When a Trustee exercises their powers they must: do so in the best interest of the beneficiaries, not for their own benefit (unless expressly authorised by the Trust instrument), in compliance with the terms of the trust instrument, only for the beneficiaries, not defeat the terms of the Trust instrument or derogate from it and do so upon consideration of all the relevant facts.

Statutory powers may include;

• delegation to agents, nominees or custodians,
• investment,
• dealing with land/property
• insurance,
• remuneration for professional trustees.

Additional and specific powers may be contained within the Trust instrument which may provide the Trustees with power to;

• Advance capital;
• Appropriate trust assets or,
• Appoint trust assets;
• Lend funds to beneficiaries on certain terms;
• Provide maintenance for a beneficiary.

Guidance for Trustees

Trustees can seek professional guidance with their obligations to ensure they are acting in the best interests of the trust and its beneficiaries and to help them navigate what can often be a challenging and complicated role.

 Disagreement Between Trustees

 In the majority of Trusts, Trustees must make decisions unanimously. There may be occasions where the Trustees are not able to do so because they do not agree with the others view of what is in the best interests of the Trust or its beneficiaries. Trustees should work together to try to reach agreement, but if that is not possible advice should be sought which may include an independent review of the Trust deed to ensure the trustees are clear about their instructions and powers, the appointment of a representative to enter into discussions on their behalf, or entering into mediation.

Breach of Trust

Where a loss to the trust fund occurs due to a breach of trust, Trustees are jointly and severally liable for that breach of trust to their beneficiaries.

A breach of trust may include where a trustee;

• Breaches their statutory or common law duty of care, for example exercising a power of investment without exercising reasonable skill and care,
• Profits from the Trust (fiduciary duty breach),
• Invests the Trust fund without having the relevant express or statutory powers of investment, and
• Advances Trust assets to a beneficiary not entitled to them.

There are various defences and reliefs which may be available to Trustees who have committed a breach. The court will apply an objective test when considering whether a trustee is in breach asking what a reasonably prudent trustees would have done in the circumstances.

The Hasting Bass rule following judgment in 1975 was relied upon to resolve mistakes by trustees until 2013 when the cases of Pitt v Holt and Futter v Futter led to it being closely scrutinised by the Court of Appeal and the Supreme Court. The Court of Appeal and Supreme Court held that the law had taken a ‘wrong turn’ and the Hastings-Bass rule had (over time) been used by trustees as a ‘get out of jail free’ card, rather than protecting beneficiaries against wrong doing.

Despite the Hastings-Bass rule no longer being relied upon there have been several cases since 2013 where trustees have succeeded in pleading mistake. This perhaps demonstrates a willingness by the Court to sanction the undoing of genuine mistakes, provided they are rectifiable.

The Commercial team at Anthony Gold offers a wide range of dispute resolution services for individual clients and businesses.   Please feel free to get in touch on mail@anthonygold.co.uk.

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*