Knowing the duties associated with being a trustee

Being a trustee is more than a title – it’s a role that comes with a range of legal duties and responsibilities. It is therefore essential to understand what is involved before you accept.

What is a trustee?

When someone sets up a trust, they must appoint one or more trustees to manage it. A trustee is the person who holds and administers the trust assets on behalf of the named beneficiaries – the people who benefit from the trust – in accordance with the terms of the trust. Trustees can be individuals, such as family members, friends or professional advisers, or corporate entities. A trustee may be appointed at the time the trust is created, or at a later stage, for example to replace a trustee who has retired, died or been removed.

What are the legal duties of trustees?

Trustees are required to observe a range of different legal duties. These often depend on the terms of the trust and the nature of the assets involved, but the underlying principles are consistent:

Taking control and safeguarding trust assets: Trustees must take control of the trust property and ensure it is properly protected. They are responsible for preserving its value and must keep it separate from their own personal assets. Where there is more than one trustee, the assets should usually be held in their joint names.
Understanding and following the trust terms: Trustees must be familiar with the terms of the trust. This includes understanding the rights and interests of the beneficiaries, as well as the powers and limits placed on them when managing the trust.
Acting with reasonable care: Trustees are expected to act with reasonable care and skill. In practice, this means managing the trust as a prudent person would when looking after someone else’s affairs.
Acting personally and collectively: Trustees must act personally, meaning they cannot delegate their core duties, although they can seek professional advice. Where there is more than one trustee, decisions should generally be made jointly and unanimously, unless the terms of the trust say otherwise.
Avoiding conflicts and personal gain: Trustees must not profit from their position unless the trust explicitly allows it. They should avoid conflicts of interest and always act in the best interests of the beneficiaries.
Maintaining confidentiality and transparency: Trustees have a duty to keep trust matters confidential. At the same time, they must provide beneficiaries with enough information to hold them to account and understand how the trust is being managed.
Keeping records and accounts: Trustees must maintain accurate records of the trust’s activities and finances. They should be able to provide clear accounts to beneficiaries on request.

How should trustees treat beneficiaries?

Trustees must act in the best interests of all beneficiaries and must not allow one beneficiary to benefit at the expense of another. In trust law, beneficiaries can be grouped into different classes depending on the nature of their interest in the trust. For example, income beneficiaries (those entitled to receive income from the trust) form one class, and capital beneficiaries (those entitled to receive the capital assets) form another.

Treating beneficiaries of the same class equally means that where several people share the same type of interest, no one within that group should be favoured over another. This requires particular care when balancing the competing interests of a life tenant, who receives income from the trust during their lifetime, and a remainderman, who will receive the capital assets when that life interest comes to an end. Trustees must be even-handed when making investment decisions that affect both.

What are the consequences of breaching trustee duties?

A trustee who fails to carry out their duties may face serious consequences. For example, they can be held personally liable to compensate the trust for any loss caused by their breach, and may be required to repay any profit made because of their position. In serious cases involving fraud or dishonesty, criminal prosecution is possible. A trustee can also be removed from their position by the court.

Who can and who cannot be appointed as a trustee?

In most cases, any adult individual or corporate entity can be appointed as a trustee. However, there are some important exceptions. A minor, that is someone under the age of 18, cannot act as a trustee, and a person who has been declared bankrupt may be disqualified in certain circumstances. Certain criminal convictions will also disqualify a person from being appointed, or from continuing to act, as a trustee. Anyone with concerns about their eligibility should seek legal advice before accepting the role.

Trust arrangements with Attwaters

At Attwaters, our Wills, Trusts & Probate team has been advising clients for over a century, combining technical expertise with a practical understanding of family needs. To discuss how trusts could support your long-term planning, contact lubna.zaman@attwaters.co.uk or
tony.brownlie@attwaters.co.uk, or call 0330 221 8855.