The role of a trustee of a trust varies depending on the type of trust, its specific provisions, and the trust assets held. This note explains some of the main duties and powers which apply to most types of trust.
Failure to comply with your duties and make appropriate use of your powers as trustee can lead to serious consequences, including personal liability, so it is important to fully understand these.
Your duties as a trustee
Duty of care
As a trustee you must take reasonable care when carrying out your role. Professional trustees, or those with special knowledge or expertise, are held to a higher standard.
Avoid conflicts of interest
You should ensure that your personal interests do not conflict with your role as a trustee to act in the best interests of the beneficiaries of the trust.
Act impartially between beneficiaries
For certain types of trust (although not usually in trusts where trustees have wide discretion to benefit beneficiaries as they see fit) you should ensure that one beneficiary does not suffer at the expense of another.
Comply with the terms of the trust
Obviously a trustee must comply with the provisions of the trust. This will involve familiarising yourself with the trust deed, the trust assets and the beneficiaries.
Take control of the trust assets
You will need to ensure that the trustees have control of all trust assets and take steps to ensure that the assets, and any trust documents, are secure. For example, if the trust contains a property this should be adequately insured.
Keep clear and accurate accounts and provide these to the beneficiaries if requested.
Prepare tax returns
Depending on the nature of the trust, and the assets held, it may be necessary to complete annual tax returns for the trust.
Take professional advice
You should take professional advice on matters such as tax, investments and the law if you do not have the expertise to deal with these yourself.
Not profit from the trust in your role as trustee
Although professional trustees can charge for their services, generally a lay trustee cannot be paid for his or her work and can only be reimbursed for reasonable expenses.
Although there are certain exceptions (for example charitable trusts or when the trust deed provides otherwise) generally any decisions must be agreed by all of the trustees.
Your powers as a trustee
All trustees have powers conferred on them by law including those set out below. Additional powers are usually included in the trust deed itself and sometimes the general powers in law are restricted. As a trustee you should review the trust deed to determine the powers applicable to you. The powers can be administrative (generally relating to the management of the trust assets) or dispositive (enabling you to effect the benefits that beneficiaries receive).
Power to invest
You have authority to invest the assets of the trust in any investment you could make (after taking advice from a qualified person, as appropriate) as if you were entitled to the assets yourself. You must keep any investments under review having regard to their suitability to the trust and the need for diversification.
Power of delegation
You are able to delegate some non-dispositive powers to an agent (although where asset management functions are delegated there must be a written agreement and a statement giving guidance to the agent). For example, trustees are able to employ a professional investment adviser.
Power of insurance
You have powers of insurance which are the same as if you owned the assets personally allowing you to insure the full value of trust assets against damage.
Power of advancement
You have discretion to advance capital of the trust fund to a beneficiary to bring forward their entitlement under the trust. Up to the whole of the beneficiary’s share may be advanced under this power and the value given to them is brought into account if the beneficiary later becomes absolutely entitled to a further share of the trust assets with other beneficiaries.
Power of maintenance
If trust assets are held for the benefit of someone aged under 18 years, and the gift also carries the right to income from the assets, you are able to apply the income for the maintenance, education, and benefit of the beneficiary. You could pay out as much income as you saw fit. Any income not applied should be accumulated and added to the capital.