Role of Trustees

The position of Trustee brings with it many onerous responsibilities and the Trustee Act 2000 provided wider powers to trustees but also created a safeguard against possible misuse of these powers.  It did this by introducing a statutory duty of care designed to protect the interests of the beneficiaries.

The public are also becoming more and more knowledgeable about investment matters and trustees must increasingly consider whether they could be exposed to criticism by beneficiaries.

Who can act as trustee?

A trustee can be an individual or a corporation. Provided that an individual is of majority age and is of sound mind they can act as a trustee.

When choosing trustees the settlor should look to appoint trustees who will best carry out their intentions. A trustee may also be a beneficiary of a trust but consideration should be given to possible conflicts of interest before appointing such a trustee.

A corporate trustee, such as one offered by a bank or specialist trust company, will of course be impartial. They will also have specialist expertise in this field, and being a corporation as opposed to an individual, cannot die.  However, corporate trustees will charge for their services.

Most life office trust deeds automatically include the settlor as a trustee. Consideration should always be given to appointing at least one additional trustee. On the death of the last surviving trustee, the role of trustee will pass to the deceased's executors or administrators. 

What are the trustees' responsibilities?

The trustees are the legal owners of the trust property and their responsibilities include:

• Ensuring trust property is registered in the name of the trustees.
• Complying with the terms of the trust deed.
• Acting impartially between all beneficiaries.
• Distributing the trust funds.
• Keeping accounts.
• Completing the trust self assessment returns.
• Paying any tax due.
• Investing trust funds.

What duties and investment powers does the Trustee Act 2000 impose on trustees?

The Act imposes a duty of care on trustees and applies to trusts already in force, not just those created since its introduction.

There are three main aspects of the Act:

1. Powers of investment

The Act allows the trustees to invest in any asset as if they were absolutely entitled. This general power of investment can be overridden or amended by any investment powers specified in the trust deed.

Most modern trust wordings specify the investment powers available to the trustees. Typically these allow the trustees to invest in a wide range of investments such as life assurance products, shares, deposits and property.

When selecting investments, trustees are required to have regard to the ‘standard investment criteria' that investments should be suitable and diversified, taking into account factors such as:

• The size of the fund to be invested
• The risk profile of investments
• The need to produce an appropriate balance between income and capital growth
• The requirement to meet the needs of the trust
• Any relevant ethical considerations.

In addition, there is also a duty to undertake a periodic review of the investments held and to obtain and consider proper advice when doing so.

In the case of Nestle v National Westminster Bank PLC [1993], it was argued that the bank (as trustees) had failed to carry out periodic reviews of the trust investments, creating a loss. Whilst the judgement favoured the bank on the basis that no loss could be established, it criticised them for their "incompetence and idleness" in failing to conduct periodic reviews. Doing nothing is no longer an option for trustees.

2. Duty of care

Trustees have always been subject to general duties of care, established largely through case law. For example, they should act only in the best interests of the beneficiaries of the trust. They must treat all classes of beneficiary fairly and, in particular, where some beneficiaries are entitled to income and others to capital, they must invest to achieve both income and capital growth. Professional Trustees who are paid for their services are expected to meet a higher standard of care than other trustees.

The Act describes the new duty as that which can reasonably be expected of a person carrying out their duties, having regard to their specialist knowledge, experience or professional status. The trustees have to show such skill and care as may reasonably be expected in the circumstances.

3. Delegation of duties

There is now a general power given to trustees to appoint an agent to carry out some of the duties of the trust. The main functions which the Act does not allow to be delegated to an agent are:

• Decisions as to how the assets of the trust should be distributed;
• Whether payments should be made out of capital or income;
• The appointment of a trustee.

What is a breach of trust?

A breach of trust may occur when a trustee fails to comply with duties imposed upon them by law or the terms of the trust deed.

Some common examples of breach of trust include:

• Failure to invest the trust funds in an authorised manner.
• Failure to correctly distribute the trust assets.
• Making an unauthorised profit from the trust.
• Failure to register trust property in the names of the trustees.

Where a breach of trust has occurred the beneficiaries may decide to take legal action against the trustees who may be liable to restore the trust property or pay compensation for the breach.

When can a trustee be removed?

A trustee can be removed in a number of ways, either with or without their consent.

Many modern trusts will include express powers over the appointment or removal of trustees. Often this power of appointment or removal of trustees lies with the settlor during their lifetime and passes to the surviving trustees on the death of the settlor. Where power lies with the trustees, all trustees must be in agreement, including the trustee who is to be replaced. 

Where the trustee does not consent to be removed the court has the power to remove trustees where the trustee:

• Has been declared bankrupt;
• Has been convicted of any offence involving dishonesty;
• Is unfit to act;
• Refuses to act;
• Is incapable of carrying on their functions;
• Resides outside the UK for a period of more than one year.

A trustee who wishes to retire can do so where they are to be replaced by a new trustee. A trustee may still retire without a replacement trustee being appointed provided that:

• Following retirement there will be at least two continuing trustees or a trust corporation; and
• The continuing trustees consent to the retirement.
  The death of a trustee will of course bring their trustee duties to end. However, on the death of the last surviving trustee, the legal personal representatives of the deceased trustee will have the power to appoint new trustees.

For more advice and assistance on this topic please call us on (01225) 785520 or send us an email.

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