What is a breach of Trust?
Trustees have strict duties which they are obliged to comply with. In summary they must:
- Exercise reasonable care and skill.
- Adhere to the terms of the trust document.
- Act impartially between beneficiaries.
- Invest in authorised investments.
- Act in the best interests of the beneficiaries.
- Avoid conflicts of interest.
- Act in good faith and with honesty and integrity.
- Take control of trust property.
- Inform beneficiaries of their position, providing such information concerning the trust as the beneficiaries are entitled to.
- Keep proper records and accounts.
- Not profit from the trust.
Where a trustee fails to act in accordance with the terms of the trust or in breach of duty a breach of trust will arise.
It should be noted that trustees are jointly and severally liable for any breach of trust to their beneficiaries where that breach has given rise to a loss.
Common grounds for breach of trust are:
- Incorrect distribution of trust assets.
- Improper investment of trust assets.
- Breach of fiduciary duty or breach of the common law or statutory duty of care.
What standard of care can beneficiaries expect?
The statutory duty of care is set out at Section 1 of The Trustee Act 2000. A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular:
- To any special knowledge or experience that he has or holds himself out as having, and
- If he acts as trustee in the course of a business or profession, to any special knowledge or experience that is reasonable to expect of a person acting in the course of that kind of business or profession.
The common law duty of care requires trustees to take such care as the ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.
How can a trustee defend his/her actions?
There may be an express clause within the trust deed exempting trustees from loss or damage.
Under Section 61 of The Trustee Act 1925 it is open to the Court to relieve a trustee wholly or partly from personal liability for a breach of trust if the trustee is found to have acted honestly, reasonably, and ought fairly to be excused for the breach and for failing to obtain Court directions.
If a beneficiary of majority and capacity of their own free will assents to or concurs with the breach.
The prescribed statutory time period for making a claim for breach of trust is six years. It should be noted that in the event of fraud and/or recovery proceedings there is no period of limitation. The general limitation period for claims on a deceased person’s estate is twelve years.
Where a claimant is found to have delayed unreasonably in pursuing a breach of trust claim and such delay prejudices the trustee’s position the Court may refuse to allow the claim to proceed.
What happens when a trustee is found to have committed a breach?
In such circumstances a trustee would be required to restore the trust fund to the position it would have been in had the breach not occurred.