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What Are The Legal Obligations of Trustees?

Posted: Wednesday, 20 March 2024 @ 11:31

Here is some information(in plain English) on the key legal obligations of Trustees. 

What Are the legal obligations of trustees?

1. To exercise reasonable care and skill

Section 1 of the Trustee Act 2000 provides a general duty of care that is applicable to both trustees and PRs. The duty applies to specific situations defined in the Act, such as investing trust funds or acquiring land. Where the duty applies, a trustee must use such care and skill as is reasonable in the circumstances.

For trustees with professional knowledge or trustees acting in the course of business, i.e. professional trustees, a higher standard of care will be expected, in line with their additional knowledge.

In addition, there is a common law duty of care to act in the best interests of the beneficiaries even if this conflicts with the trustee’s personal beliefs.

The standard of care applicable is that expected of a prudent businessman managing affairs for someone he felt morally bound to provide for and depends on the individual’s skills and expertise.

The Will or trust instrument may exclude the duty of care and may exclude trustees’ liability for breach of duty.

2. To act in the best interests of the beneficiaries as a whole

•           Trustees should not favour one beneficiary over the others. This means that they should maintain a balance between the beneficiaries. For example, trustees of a life interest trust should not prefer the interests of the remainderman over those of the life tenant or vice versa.

•           Where the testator or settlor had a personal connection to the life tenant but not to the remainderman, the PRs or trustees can prefer the interests of the beneficiary known to the testator of settler to a certain extent. This does not, however, allow them to exclude the interests of the remainderman entirely (Nestlé v. National Westminster Bank plc [1993] 1 WLR 1260). Duties and Responsibilities of Trustees and Personal Representatives.

•           Not to be remunerated for services provided unless authorised.

•           It is common now for a Will or trust instrument to provide for PRs and trustees, particularly professionals, to be paid.

•           A professional PR or trustee can be paid if all his fellow PRs or trustees agree in writing, even if the Will or trust instrument does not specify this (s.29(2) Trustee Act 2000). This provision does not apply to sole PRs or trustees or to charity trustees. A sole PR or trustee of a non-charitable trust will therefore need to appoint a co-trustee to receive remuneration if this is not expressly authorised by the Will or Trust Instrument.

•           Not to use trust property for private advantage A trustee may not sell trust property to himself nor make a secret profit from the trust as there is a conflict between the trustee’s fiduciary duty and his personal interest.

3. To obey the terms of the trust

In the case of a Will trust, the terms will normally be found in the Will. If trustees act outside the terms they will be in breach of trust.

4. To invest trust funds properly

Trustees have a duty to preserve the trust fund which implies a duty to invest any money not required for current use. This includes a duty to convert any improper funds into sensible assets, e.g. to convert investments in a life interest trust which only produce capital to income producing investments.

Trustees should obtain the best rate of return available. The Trustee Act 2000 provides trustees with a general power of investment to invest as if they were absolutely entitled to the assets of the trust.

Before exercising their powers of investment, trustees must obtain and consider proper advice on the suitability of the proposed investment unless they reasonably conclude that in all the circumstances it is unnecessary or inappropriate to do so. Trustees must also review their investments from time to time to consider whether they should be varied considering the standard investment criteria.