As a Trustee you need to be aware that you are liable for your actions in respect of the assets of the Trust and can potentially be sued by Beneficiaries if you do not undertake your duties appropriately. We have provided a thorough analysis of Trustee Duties below, which you should familiarize yourself with as a Trustee on any Trust.
Upon accepting office a Trustee has the duty to acquaint him or herself thoroughly with the terms of the trust. This means that the trustees should:
- read the Trust Deed and understand it’s terms;
- look at the accounts of the Trust, the minute book, schedule of Trust property and any other document such as a Memorandum of Wishes that may be relevant to the administration and management of the Trust;
- consider any contractual obligations entered into by the Trust;
- familiarise himself or herself with the situation of the Beneficiaries, the nature and extent of any regular distributions being made and any other matters having to do with the welfare of the beneficiaries.
Similarly, upon being appointed, a Trustee has the duty to “get in” the trust assets. Where title is registered in the name of the previous trustees, upon the appointment of a new trustee, all trustees have the duty to ensure the title to the trust property is vested in them as joint tenants.
Trustees have a duty to ensure that documents of title to the Trust assets, and the Trust assets themselves, are safeguarded against improper use. A Trustee can be liable for breach of duty if he or she allows title documents to remain in the name of only one of the Trustees and as a result of this, Trust assets are misappropriated.
Practical Day To Day Management
The Trustees should meet at least annually and, if required, more regularly. The most appropriate time for a meeting would be at the end of the financial year after accounts have been done. The purpose of the meeting would be to review the accounts, the tax return and the investments of the trust and to consider such other matters requiring discussion and decision. Preferably, the Trustees should develop an agenda in advance of the meeting and the agenda should include items such as the consideration of the accounts, a review of the investments, the situation of Beneficiaries, whether or not distributions are required, and whether Trust investments require maintenance, repair, etc. Where there is a diverse portfolio of investments, decisions on those may also be necessary.
The Trustees should have a minute book (which may be in loose leaf form) in which all Trustees Resolutions should be recorded.
The Trustees may also keep an information or memorandum file. This would contain all the documents directly connected with the Trust such as the Trust Deed, past accounts, contracts entered into by the Trustees, details of Beneficiaries, details of past Trustees, details of distributions made and copies of correspondence.
A schedule of Trust property should also be maintained. This would contain a list of assets owned by the Trust and information such as whether any particular asset is destined for a particular beneficiary, etc.
The Trust should have a separate bank account. This should be clearly identified as an account of the Trust both on the face of documentation such as the chequebook, and in the records of the bank itself. Care should be taken to ensure that only Trust transactions are conducted through the bank account.
Care should be taken to ensure that Trust investments are not intermingled with personal investments. Care must be taken when buying and selling securities to ensure that title of the newly acquired securities is taken in the correct names.
An efficient diary system either in hard copy or in computerised form should also be kept. This would act as a reminder of payments due or receipts expected. In particular, matters which require recurring attention such as the payment of income to beneficiaries, payments under a Gifting Programme, and reminders for the preparation of annual returns, and due dates for filing returns with the IRD could be the subject of such a system. An efficient call up and diary system will ensure that Trustees have “no surprises” and will go some way towards ensuring that they meet deadlines and critical dates associated with the administration of the Trust.
Agents should be employed to carry out specialist tasks such as preparing accounts and carrying out the Trustees’ instructions in relation to the administration of the Trust or the investment of the Trust’s assets.
Duty To Keep And Render Accounts
Trustees have the duty to keep and render to the Beneficiaries a full and proper record of their stewardship of the Trust’s assets. The Trustees must keep appropriate and adequate accounting records and prepare financial statements in respect of appropriate accounting periods.
Trustees do not have to prepare the accounts personally. Section 29 of the Trustees Act 1956 provides that a Trustee may employ and pay an agent to administer the Trust assets including the receipt and payment of money and the keeping and audit of Trust accounts. Unless Trustees have appropriate skills, or the affairs of the Trust are very simple, Trustees should engage qualified accountants to keep accounting records and to prepare periodic financial statements and tax and associated returns for the Trust. Section 29 states that a Trustee is not responsible for the default of an agent engaged pursuant to the power in section 29 if the agent is employed in good faith.
The Duty To Act Personally
General PrinciplesA Trustee has the duty to act personally in the affairs of the Trust. A Trustee cannot delegate his or her powers and discretions unless the delegation is authorised. However, a Trustee has a broad power to engage agents to assist in the execution of the Trust or the administration of the Trust property.
A Trustee must not fetter his or her discretions. The Trustees must act and exercise his or her powers at the appropriate time and with reference to the particular facts and circumstances at the time.
Where there is more than one Trustee the Trustees’ decision must be unanimous except where the Trust Deed provides for majority rule. If the unanimous decision rule applies in a particular case and one Trustee does not agree to the proposition before the Trustees, the status quo would remain and the Court would not intervene unless the failure of the Trustees to act is a breach of the Trust or if disagreement is so frequent and disruptive so as to be a hindrance to efficient administration.
Trustees are jointly and severally liable for their decisions. There is no room for a passive Trustee.
Duty Of Loyalty
The Trustees must observe the terms of the Trust and manage the Trust fund in the best interests of the Beneficiaries. The main components of the duty of loyalty are the following:
- the duty of loyalty requires a Trustee to act exclusively in the best interests of all the Beneficiaries of the Trust, present and future;
- the duty of loyalty also requires the Trustee to act impartially as between different Beneficiaries;
- there is a duty not to profit from the position of Trustee unless there is prior authorisation (in the Trust Deed), the consent of all of the beneficiaries or court sanction. The Trustee is also prohibited from purchasing Trust property or selling his or her own property to the Trust unless the exceptions mentioned above apply.
- Beyond these specific examples a Trustee has a general duty to refrain from putting himself or herself in a position of conflict. This comprises two elements: a conflict between the Trustee’s duties to the Trust and its Beneficiaries and his or her personal interests and a conflict between the Trustee’s duties to the Trust and its Beneficiaries and his or her duties to others;
- Finally, Trustees have the duty not to assist any third party in a claim against the trust.
Investment Of Trust Property – Section 13 Trustee Act
Subject to any specific conditions in the Trust Deed the Trustees may “invest any trust funds, whether at the time in a state of investment or not, in any property”. A Trustee must invest prudently, exercising the “care, diligence and skill that a prudent person of business would exercise in managing the affairs of others”. Where the Trustee has special expertise by reason of his or her profession, employment or business, the standard of care is extended to that which a prudent person engaged in that profession, employment or business would exercise in managing the affairs of others.
Matters which may be considered by Trustees when exercising their power of investment are as follows:
- the desirability of diversifying Trust investments;
- the nature of existing Trust investments and other Trust property;
- the need to maintain the real value of the capital or income of the Trust;
- the risk of capital loss or depreciation;
- the potential for capital appreciation;
- the likely income return;
- the length of the term of the proposed investment;
- the probable duration of the Trust;
- the marketability of the proposed investment during, and on the determination of, the term of the proposed investment;
- the aggregate value of the Trust estate;
- the effect of the proposed investment in relation to the tax liability of the Trust;
- the likelihood of inflation affecting the value of the proposed investment or other Trust property.
The following should be considered by the prudent Trustee:
- a Trustee should read the Trust Deed to identify any specific investment directions in the instrument.
- A Trustee should be familiar with the provisions of sections 13A to 13Q of the Trustee Act.
- A Trustee should seek independent professional advice regarding proposed investment portfolios and utilise section 29 of the Trustee Act. Financial advisors familiar with modern portfolio theory and with the range of investment products available in the market place are able to provide independent reports and recommend investments strategies.
- The Trustee may consult with the beneficiaries regarding proposed investment and it may be prudent to seek the beneficiaries’ endorsement of the investments strategy. The Trustees are not bound by the requirements of Beneficiaries.
- The investment strategy must be regularly and continuously monitored. Where necessary, investments will need to be adjusted after consultation with the investments advisors.
- Trustees would be wise to maintain an active interest in investment markets and seek to be as informed as is possible regarding the investment markets (but not as a substitute for expert professional advice)
- Trustees should record their investment plan in writing and as with any of their decisions they should record subsequent discussion in writing and record the basis for their decisions. Again agreement from Beneficiaries to the plan and changes to the plan may be advisable.