When someone sets up a trust, they need to appoint people as trustees to manage the trust and its assets. The trust deed will usually include specific instructions about how to do this but there are some general legal duties that apply to the role as well.

A trustee is a person who takes responsibility for managing money or assets that have been set aside in a trust for the benefit of someone else. As a trustee, you must use the money or assets in the trust only for the beneficiary's benefit.

 

First steps:

Obtain a copy of the trust deed and read it.

The trust deed will set out the powers and duties the settlor has given to the trustees. These powers will be outline both how, and in what circumstances, the trustees are to distribute trust income and/or capital and how the trust is to be run.

Trustees must comply with the various Trustee Acts. A trustee must handle duties with honesty, integrity, loyalty, and good faith to the beneficiaries of the trust. They must act exclusively in the best interests of the trust and be actively involved in any decisions.

 

The appointment of trustee(s).

The trust deed will set out clear guidelines for the appointment of trustees. These guidelines must be followed – if it stipulates that the appointment must be by way of deed then a duly executed deed is essential.

The general duties of trustees are:

  • To observe the terms of the trust - Trustees must learn the terms of the trust and comply strictly with the duties and directions set out.
  • To act impartially between beneficiaries - Trustees mustn’t allow one beneficiary to suffer at the expense of another. They must balance potentially competing interests for income and capital.
  • To provide information - Trustees must keep clear and accurate accounts for the trust and provide beneficiaries with any information or documents relating to the trust that they ask for.
  • To act unanimously - Trustees must act unanimously unless the trust deed says otherwise.
  • To act carefully and distribute assets correctly – Trustees must provide income for the beneficiaries but still preserve the value of the capital

 

Understand the interests of beneficiaries.

The trustees must act solely in the interest of beneficiaries. The beneficiary has a right to have the trust administered, the trust fund invested and income distributed in accordance with the terms of the trust.

A beneficiary who is of “full age” (generally 18 in England, Wales and Northern Ireland and 16 in Scotland) should be told of his or her interest in the trust.

 

Protecting the interests of beneficiaries

Trustees must act impartially between the beneficiaries and ensure that one beneficiary does not benefit at the expense of another. Consider for example an interest in possession trust where one beneficiary is entitled to income with others entitled to capital on the death of that person. Those ‘competing’ beneficiaries should be treated fairly unless perhaps the settlor had made it clear that one class of beneficiary was to be preferred over another.

 

Manage where appropriate

Certain parts of the trust fund might require management. For example, in the case of a property which is let out then the trustees need to ensure that rent continues to be received, the property is adequately maintained and so on.

 

What happens if trustees do not comply with their duties?

If a trustee doesn’t comply with their duties and responsibilities, the trust beneficiaries can apply to the Court to have them removed. The Court can also direct the trustees on how to correctly administer the trust.

The trustees can only act within the terms of the trust deed. If they act outside those powers they are said to be in breach of trust. A breach of trust will cause some detriment to the beneficiaries. As trustees can only act in the interests of their beneficiaries a newly appointed trustee is obliged to check that there have been no previous breaches of trust. If there have been such breaches the situation must be remedied. The beneficiaries may absolve the trustees from responsibility for the consequences of the breach. Otherwise the trustees have to make good any loss to the trust fund from their own resources.

A trustee has a general duty not make any profit from the fact that he or she acts as trustee. Professional trustees may charge for their services in a number of circumstances:

  • Where there is an express charging clause on the trust deed
  • In certain circumstances with the written agreement of the other trustees
  • Where appropriate with the prior agreement of all the beneficiaries
  • Keeping accounts and records

 

HMRC make it clear that a record of trust income and expenses must be kept to complete the trust and estate tax return and pass information to beneficiaries.

 

Can new trustees be appointed?

The trustees can appoint a replacement to succeed any trustees that agree to step down or retire from their position. The Court can appoint replacements for any trustees that they remove for neglecting their duties.

 

What happens if trustees diasgree on how to manage the trust?

For most trusts, the trustees must make decisions unanimously. This can cause problems if the trustees disagree about what’s best for the trust and its beneficiaries – unless you agree, you might not be able to do anything at all.

A trustee must not place himself or herself in a position in which his or her duties as a trustee conflicts with his or her private interests.

 

 

What are the different kinds of Trust that are available?

There are many different types of trusts and below are a few examples;

  • Interest in possession trusts
  • Bare Trusts
  • Immediate Post Death Interest Trusts
  • Business Trusts
  • Children’s Trusts
  • Discretionary Trusts
  • Home Protection Trusts
  • Property Protective Trusts
  • Pilot Trusts

 

How can we help?

As well as facilitating the establishment of these trusts, we can help and support trustees to understand their role, comply with their responsibilities and, if necessary, help to appoint professional trustees to undertake the role for them. Call 01522 500823 for a chat.