Understanding the Role and Responsibilities of Trustees
When someone creates a trust, they depend on trustees to manage it according to the trust deed and legal standards. Trustees play a key role in protecting and overseeing trust assets, making this position both a significant responsibility and a potential source of complex challenges.
This guide offers a detailed overview of trustees’ duties and legal obligations, highlights potential pitfalls, and explores support options for those creating a trust, the trustees managing it, and the beneficiaries it supports.
What is a Trust?
A trust is a legal arrangement where a person (the settlor) transfers assets to a trustee, who manages and distributes those assets for the benefit of others (the beneficiaries) according to the terms set out in the trust deed. It is often used for estate planning, protecting assets, and managing wealth.
What Are the Legal Responsibilities of Trustees?
Trustees are legally obligated to act in the best interests of the beneficiaries. This responsibility includes being honest, loyal, and trustworthy. Trustees must manage the trust’s assets only to benefit the beneficiaries, following the relevant laws and the specific instructions in the trust deed.
Here are some of the key duties that trustees must follow:
- Adherence to Trust Terms
Trustees must carefully review the trust deed to ensure all decisions follow its terms and legal requirements. Failing to understand or follow the deed can lead to mismanagement, so trustees should seek legal advice if they are unsure.
- Impartiality Among Beneficiaries
Trustees must remain impartial, balancing the interests of income beneficiaries (who receive payments from the trust’s income) and capital beneficiaries (who will inherit the trust’s assets).
For example, trustees must ensure current beneficiaries receive income while protecting the trust’s assets for future beneficiaries.
- Providing Transparent Information
Trustees must keep detailed records and ensure accurate accounts of the trust’s management. While they aren’t required to share all documents with beneficiaries, they may choose to provide relevant information.
Consulting a legal professional can help trustees manage information requests and stay compliant without over-disclosing.
- Unanimous Decision-Making
Trustees are usually required to make decisions together. Unless the trust deed states otherwise, they must act unanimously to consider all perspectives. Disagreements can cause issues, so trustees may need help from dispute resolution professionals if they can’t reach an agreement.
- Prudent Management and Correct Distribution of Assets
Trustees must handle the trust’s assets carefully, especially in trusts with multiple beneficiaries or life-interest provisions. They must follow the trust deed’s instructions exactly, such as paying income to life beneficiaries while preserving capital for remaindermen.
If uncertain about managing assets, trustees should seek legal advice.
- Duty to Invest Responsibly
Trustees must invest trust assets wisely, balancing income generation with asset growth. This requires managing risk and following any investment strategies that are outlined in the trust deed.
Trustees often seek advice from financial advisors to handle complex investments and meet their responsibilities.
Can Trustees Seek Professional Help?
Being a trustee can be challenging, and professional assistance is often essential to manage a trust effectively. Trustees have the option to seek help from a variety of professionals, including:
- Accountants
For trust accounting, tax planning, and ensuring financial compliance. - Legal Professionals
To interpret the trust deed, advise on legal obligations, and resolve disputes. - Financial Advisors
To develop and monitor an investment strategy that aligns with the trust’s goals. - Property Experts
For trusts that include real estate, property consultants can assist with the valuation, management, or sale of properties.
In cases where the demands of the role become overwhelming, trustees can choose to step down and appoint new trustees. Professional trustee services also exist, which can manage the trust impartially and ensure compliance with all relevant laws and duties.
Consequences for Non-Compliance: What Happens If Trustees Don’t Fulfil Their Duties?
If trustees don’t fulfil their duties, they could be removed, face legal action, or be held personally responsible for losses to the trust. Beneficiaries can ask the court to remove a trustee if their rights are being overlooked or the trust is being mismanaged. The court may also order trustees to handle the trust correctly.
If beneficiaries aren’t getting the support or distributions they expect, or if assets are being mishandled, they can take legal action. This could include requesting a trustee’s removal or changes in how the trust is managed.
Appointing New Trustees: How Does It Work?
New trustees can be appointed to replace those who retire, resign, or are removed for not fulfilling their duties. The trust deed usually explains how to appoint a new trustee, but the court can step in if a replacement is needed due to negligence.
If trustees are unsure about finding the right person, professional trustee services can help. Trust corporations or specialist firms can take on the role, ensuring the trust is managed smoothly and efficiently.
Handling Disagreements Among Trustees
Disputes among trustees can occur when there are differing views on how to manage a trust. Since most trusts require unanimous decisions, disagreements can create challenges. Dispute resolution options include:
- Legal Advice
A legal professional can review the trust deed and advise trustees on their duties and the best course of action. - Mediation
Alternative Dispute Resolution (ADR) techniques, such as mediation, can help trustees reach an agreement outside of court. - Court Intervention
In extreme cases, trustees may petition the court to resolve disputes or remove a trustee who is not acting in the trust’s best interests.
Disputes are best settled peacefully, as ongoing conflicts can waste the trust’s resources and affect its goals.
Beneficiary Rights: What Options Exist for Disagreeing Beneficiaries?
Beneficiaries who disagree with trustees’ decisions can challenge them if they believe the trustees are not fulfilling their duties or mismanaging assets.
Trustees must act in the best interests of beneficiaries, so legal action is an option if this isn’t happening. However, trustees often have some discretion in managing assets, and court involvement is usually reserved for clear mismanagement or breach of trust.
Negotiation is often the first step in resolving disputes. If the relationship breaks down, trustees can sometimes be replaced, as long as it aligns with the trust’s terms and benefits all beneficiaries.
Conclusion
Trustees have a vital role in managing a trust, and have important responsibilities. They must adhere to the trust deed, treat all beneficiaries fairly, manage assets responsibly, and resolve disputes when they arise.
If you’re unsure about your responsibilities or facing difficult issues, it’s essential to seek professional guidance.
Get in touch
For more information on probate, wills, or estate planning, you can trust ELM. Contact us today on 0117 952 0698 or submit a free, no-obligation enquiry.
