Trustee Duties, Obligations, and Breaches of Trust: A Guide

If you are in the process of estate planning, you may have heard about the use of trusts to protect assets intended for your beneficiaries. Or perhaps a friend or loved one has approached you to speak about appointing you as a trustee. The fact is, that not many people know a great deal about trusts, until the time comes for them to set one up, or they are asked to administrate one. 

In this comprehensive guide, we have consulted with our relevant estate planning solicitors and trust experts, to bring together everything you need to know about trusts, and the role of a trustee. We will cover what a trust entails, the duties and responsibilities of being a trustee, as well as what can happen if there are disagreements with regard to how a trust is administered.

If you’re interested in learning more about trusts, and how they work, read on to find out more.

Contents

• What is a Trust, When it comes to writing a will?
• What is a Trustee?
• Can you appoint more than one trustee?
• Do trustees have a duty of care towards the beneficiaries of a trust?
• What are the benefits of creating a trust?
• What are the responsibilities of a trustee?
• What are the fiduciary duties of a trustee?
• What powers do trustees have?
• What happens when there are disagreements between trustees?
• What can be done if a trustee isn’t acting in the best interests of the Trust and its beneficiaries?
• What is a Breach of Trust?
• What is the difference between the Trustee Act 1925 and the Trustee Act 2000?
• Support and Guidance for Trustees

What is a Trust, When it comes to writing a will?

Trusts, or trust funds, refer to assets which are held, and managed, on behalf of another person. A trust fund may be liquid, meaning it is only money being held, but other assets such as property or stocks can also form part of a trust.

The final recipients of these assets held in trust are referred to as beneficiaries. Upon the creation of a trust, the creator of the trust may specify that these funds or assets are to be used for a specific purpose, and released on a specific date. For instance, when the beneficiary reaches the age of 18, and the funds should be released to pay for their University fees.

If the trust has been set out as part of a will, once the executor of the will has carried out the terms of the will, the trust will then be managed by an appointed trustee, on the behalf of the beneficiaries.

What is a Trustee?

A trustee is an individual who is appointed to manage a trust, on behalf of one or more beneficiaries, and according to the terms set out by the trust. Due to the high responsibility required for this role, a trustee should be somebody that you can rely upon to be honest, organized, and to act in the best interests of the beneficiary when managing the assets held within the trust. 

A trustee’s role may be to safely save or invest money on behalf of a beneficiary, until they come of age, or it may be to allocate funds for their care, as set out in the trust agreement. The creator of the trust may specify that the money can only be used for certain purposes, such as the care of a vulnerable person. Therefore, the trustee would be responsible for making sure the money is used for this purpose only, and to approve and manage any payments made from the trust.

Can you appoint more than one trustee?

It is possible to appoint more than one trustee to manage a trust, and in some cases this can be very beneficial. This allows trustees to share the decision-making power, hold each other accountable, and also helps prevent issues like conflict of interest, or poor trust management from arising. 

However, it is normally recommended to keep the number of trustees between 2 and 4. Partly for simplicity’s sake, but the more trustees which are appointed, the higher the likelihood may be for disagreements, or unnecessary admin which can slow down the process of payments being made. When appointing trustees, it’s best to use your own judgement, and ensure you are only appointing individuals that you trust, and that you feel will work well together to manage the trust.

Do trustees have a duty of care towards the beneficiaries of a trust?

Yes, trustees do have a duty of care towards beneficiaries of a trust, in terms of ensuring the trust is correctly and prudently managed. In legal terms, a duty of care can mean many things, but in simple terms, it is a legal obligation to act within your appointed role, to protect others from harm. For instance, a healthcare worker has a duty of care to make sure their patients are kept safe and receive appropriate treatment.

The duty of care for a trustee is different, but pertains to their role. They must protect beneficiaries from financial harm and loss, by making informed, suitable decisions about the assets held in the trust. For instance, if a trustee decided to take on a risky investment opportunity, causing the loss of assets held in the trust, this would be a clear violation of their duty of care the to beneficiaries. In a case like this, the beneficiary may also have a right to make a legal claim against them for the losses incurred.

What are the benefits of creating a trust?

There are a number of reasons why you might consider creating a trust as part of your estate plan. Here are just a few:

1. Ensure your loved ones are well-provided for. A trust allows you to specify, in clear terms, who certain assets should be left to, and even how the money is spent. If you want to make sure that in the event of your death, your child has enough money for a house deposit to set them up for success, a trust is a great way to achieve this. 
2. Avoidance of probate, and quicker distribution of assets. Setting up a trust also allows you to bypass parts of the time-consuming, and sometimes expensive probate process. This means that your loved ones will receive their legacy quicker, and with less money lost to costly admin fees.
3. Tax advantages. By utilising trusts, particularly irrevocable trusts, as part of your estate planning, there are certain government schemes which you can take advantage of to ensure your assets are protected, and are not diminished by unnecessary fees. This means that you are able to leave more of your legacy to your beneficiaries, and the ones who matter to you most.

There are a number of benefits to setting up trusts, but it’s important to consult with an expert and legal counsel, to ensure this is done properly. The risks of an improperly administered trust can be significant, and can result in loss, or even fraud allegations if not done through the proper channels.

To ensure that your trust is fully compliant, and provide the greatest benefit to your loved ones, you can speak to a member of our experienced team of trusts and estate planning experts. Submit an enquiry today, and we’ll be in touch shortly to discuss your needs and estate planning goals.

What are the responsibilities of a trustee?

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 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, that could cause them to act impartially.  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.

What are the fiduciary duties of a trustee?

Being appointed as a trustee, or indeed an executor, deputy, or attorney, requires the acceptance of a fiduciary role under common law which gives rise to a relationship of trust and confidence.  Fiduciary duties are in addition to a trustee’s duties, and whilst all trustees are fiduciaries, not all fiduciaries are necessarily trustees. There is an ethical and legal responsibility to the client, a relationship that requires trust and prudence on the part of the fiduciary. A fiduciary has a duty to act in a way that best meets their client’s needs.

One of the most common examples of a fiduciary duty is that which a trustee performs under a trust. A trust may be created during a settlor’s lifetime or by Will after death, it may be set up for a number of reasons such as to protect assets for future generations.

When a trust is created, trustees are given the right to hold property or assets, the legal title to which passes to them to be held for the beneficiary.  A trustee must administer the trust solely in the interest of the beneficiary, acting prudently, impartially and objectively.  They must also keep the beneficiary informed and account to them.

Breaching Fiduciary Duties

Trustees are personally liable for any breach of their fiduciary duties. A trustee remains liable for any decisions taken whilst acting in that capacity, even after retirement.  A breach of fiduciary duty can occur in several ways, including failing to disclose important information, or profiting from a transaction involving trust property. The result of the breach is that the beneficiary is deprived of a benefit that is rightfully theirs or suffers a loss of an intended benefit, which contravenes the terms of the trust, as well as the legal duty of the trustee.

What powers do trustees have?

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); 
• do so in compliance with the terms of the trust instrument;
• exercise their powers only for the beneficiaries;
• not defeat the terms of the Trust instrument, or derogate from it; 
• 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 or appoint trust assets;
• lend funds to beneficiaries on certain terms;
• provide maintenance for a beneficiary.

What happens when there are disagreements between trustees?

In the majority of trusts, trustees must make decisions unanimously. However, there may be occasions where the trustees are not able to do so, because they do not agree with the other trustee’s 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. This will ensure the trustees are clear about their instructions and powers. They may also consider the appointment of a representative to enter into discussions on their behalf, or entering into mediation.

The trust agreement will typically state that no single trustee can enforce their decision, without agreement from the other appointed trustees. Therefore, it is the responsibility of each trustee to resolve the disagreement, and seek outside counsel if necessary.

What can be done if a trustee isn’t acting in the best interests of the Trust and its beneficiaries?

When a trustee fails to uphold their legal duty to act in the best interests of the trust and its beneficiaries, it can sometimes feel to the other trustees, or the beneficiaries, that there is no legal recourse. However, this isn’t the case. 

If a trustee is consistently causing disagreements, or is even responsible for a breach of trust (more on this below), an application can be made to have the trustee removed. We would typically recommend mediation, or trying to reach a mutual agreement before this point, but in some cases, removal of a trustee is the best option. 

To learn more, visit our Removal of Trustees and Executors landing page, to see how you can properly protect your trust.

What is a Breach of Trust?

A breach of trust is the term used when a trustee has neglected their duty of care and their responsibilities, going against the terms outlined in the trust instrument. The most common example is when the funds within the trust are lost or diminished, due to the actions of one or more trustees.

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 instance, by 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, or;
• 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, by 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.

What is the difference between the Trustee Act 1925 and the Trustee Act 2000?

The Trustee Act of 1925 was an act of parliament which updated and codified the powers and responsibilities of trustees into law. This Act that there was a solid legal basis for the appointment and trustees, and a clear understanding of what their role entailed.

The Trustee Act was updated in the year 2000, in order to modernise the existing legislation around the administration of trusts. The Trustee Act of 2000 amended the existing Act in the following ways:

• The investment power of trustees was broadened, to remain relevant with modern-day financial markets and investment practices.
• It introduced a statutory duty of care for trustees, which legislated that the trustees must use their highest level of care and skill in the administration of the trust. 
• Introduced a duty for trustees to obtain proper advice while investing funds from the trust, which had not previously been specified.

There are some other key differences between the Trustee Acts of 1925 and 2000. However, you can find the full stipulations of the Trustee Act of 2000 on the UK government’s website.

Support and 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.

To discuss setting up a trust, advice for administering a trust, or just general support and guidance from one of our solicitors who specialise in trusts and estate planning, feel free to submit an enquiry via our website today. A member of the team will be in touch shortly, to see how we can help and support you.

For more information about trusts, or other legal issues you may be facing, be sure to visit the Anthony Gold blog for more helpful and informative articles like this one. 

*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.*