Wills, Probate and Trusts
Introduction to Duties of Trustees and Rights of Beneficiaries
Duties of Trustees
- Trustees stand in a fiduciary(trustworthy) relationship to beneficiaries but are neither their servants nor agents
- Trustees must follow the terms of the trust and act exclusively in the interest of the trust.
- Trustees are not entitled to make any personal profits from the trust, compete with the Trust or use the knowledge gained during their work as trustees for their benefit
- Trustees do not generally get paid unless expressly authorized in Trust Instrument
- Trustees have a duty of care and must exercise such care and skills as is reasonable in all circumstances
- The duty of care for a trustee is to act like a man of ordinary prudence and fortitude
- The duty to invest trust property when the purpose of the trust is to provide financial benefits for the beneficiary.
- Trustees have the power to invest but this power must be exercised in a way to yield the best return on the investment
- Duty to must obtain and consider advice before investing trust property. Trustees must select the right investment, diversify the portfolio and seek expert advice
- Duty to balance the conflicting interest of the beneficiaries
- Duty to employ agents, people with specialized skills to run investment policy of the trust
- Generally, a trustee is not entitled to remuneration unless it is authorized by the trust instrument
- There is generally no obligation to consult or follow the wishes of beneficiaries or anyone else
EXCEPT, if all beneficiaries are of full age and capacity and between them absolutely entitled to the trust property, they may dispose of the property as they wish
Trustee Act 2000
The duty of care.
(1) Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular—
(a)to any special knowledge or experience that he has or holds himself out as having, and
(b)if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
- Trustees have the power to acquire Investment in Land
Trustee Act 2000
Power to acquire the freehold and leasehold land.
(1) A trustee may acquire freehold or leasehold land in the United Kingdom—
(a) as an investment,
(b) for occupation by a beneficiary, or
(c) for any other reason.
(2) “Freehold or leasehold land” means—
(a) in relation to England and Wales, a legal estate in land,
(b) in relation to Scotland—
(I) the estate or interest of the proprietor of the dominium utile or, in the case of land not held on feudal tenure, the estate or interest of the owner, or
(ii)a tenancy, and
(c) in relation to Northern Ireland, a legal estate in land, including land held under a fee farm grant.
(3) To exercise his functions as a trustee, a trustee who acquires land under this section has all the powers of an absolute owner in relation to the land.
Liabilities of Trustees
- Trustees are personally liable and must restore the trust fund to the value of what it would have been in cases of losses
- Trustees hold a general duty of reasonable care and skills
- A Trustee who acts honestly and with reasonable care will escape liability, even where the trust loses money.
- Trustees could be held liable for failing to take the necessary action
- Trustees may not impose their ethical views on beneficiaries when it decides on ethical investment.
- No liability for Ethical investment as long as the profit motive is not neglected
- A person managing a property in a fiduciary capacity is generally prohibited from obtaining any personal benefit from that position. Any ‘profit’ is held on a constructive trustee
- Trustees (especially company directors) must account for profits obtained from the exploitation of opportunities which have arisen out of their position
- If a trustee buys the trust property the transaction may be avoided at the instance of any beneficiary
Delegation of duties
Trustees are allowed to employ people like solicitors, accountants, or investment specialist and pay them for their services out of the trust fund.
Trustees will not be held liable or responsible for the default of any such agent if the agent is employed in good faith. A suitable agent must be selected with reasonable care and skill.
A trustee cannot delegate the following acts
- Any function relating to the way assets of the trust should be distributed
- Any power to decide whether any fees or other payment due to be made out of the trust funds should be made out of income or capital,
- Any power to appoint a person to be a trustee of the trust, or
- Any power conferred by any other enactment or the trust instrument which permits the trustees to delegate any of their functions or to appoint a person to act as a nominee or custodian.
The rules of delegation for charitable trusts are different. There must be a writing agreement between a trustee and the agent who has been delegate some duties. There must also be a policy statement to guide the agent on how to invest the trust funds
Supervision of Agents
Trustees must check what the agent is doing and intervene if necessary. Trustees must supervise their agents with reasonable care and skill. Trustees are not liable for any act or default of the agent, nominee or custodian unless the trustees have failed to comply with the duty of care which applied to them
Rights of Beneficiaries
- The beneficiaries of the trust have limited rights to information from trustees
- Any beneficiary can compel a trustee to carry out a duty and can obtain an injunction to prevent a breach of duty
- Trustees do not have to explain or justify their decision to the beneficiaries or to give reasons for their decisions (to protect trustees from harassment from beneficiaries)
- However, trustees are obliged to consult with beneficiaries where the trust involves land
- Beneficiaries have a right to see the audited accounts of the trust fund
- Beneficiaries have a right to see the basic trust documents
- Beneficiaries have no automatic righto to information (They have to inquire)
- Beneficiaries retain a right to appeal against the decision of trustees in a court
- Beneficiaries have a right to object to the appointment of trustees but only because someone unqualified is chosen.
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While every effort has been made to ensure the accuracy of the information provided in this article, it does not constitute legal advice and cannot be relied upon as such. Each legal case and issue may have unique facts and circumstances, as a result legallex does not accept any responsibility for liabilities arising as a result of reliance upon the information provided. For further help and guidance, you can always rely on and seek advice from our experienced lawyers.