A Trust is a private legal relationship created where a person (the “settlor”) places ownership of assets under the control of another person (the “trustee”) for the benefit of someone else (the “beneficiaries”) or for a specified purpose
Duty to the terms
A trustee must know and adhere to the terms of the trust which are prescribed by the trust deed.
Duty of loyalty
Trustees have a fiduciary duty towards beneficiaries. A trustee must administer the trust solely in the interest of the beneficiaries and cannot place his or her interest in conflict with the beneficiaries. Trustees should not profit personally from their position as trustees but may be paid for acting as trustee, subject to the trust deed providing for payment.
Duty to manage the trust efficiently
To manage a trust efficiently, a trustee must be very familiar with the terms of the trust, the trust’s assets and liabilities, the circumstances of the beneficiaries and the purpose of the trust. Effective management systems should be in place to ensure that the appropriate decisions are made in a timely manner and taking into account the terms of the trust and the interests of the beneficiaries. This also includes effective communication with related parties and proper record keeping.
A trustee also has a duty to invest prudently on behalf of the trust and should diversify the investment of trust assets in the interest of beneficiaries.
Duty to act personally
Trustees act personally and must be involved in decision-making in respect of a trust. While trustees are typically permitted to engage advisers such as lawyers and financial advisers, the final decision on trust matters should be made by the trustee. In certain circumstances, trustees may delegate powers to third parties which must be permitted by the trust deed. For example, in delegating powers to an agent to purchase or sell trust property, the trustee is still obliged to properly instruct and supervise the agent.
Where there is more than one trustee, decisions must be made unanimously unless otherwise permitted by the trust deed.
Duty to consider the beneficiaries
A trustee must act impartially with respect to the beneficiaries by considering all beneficiaries in their decision making.
Duty to account
A trustee must keep trust accounts and other records. They must also respect beneficiaries’ rights with regard to requests for trust information. Generally, beneficiaries have a right to receive information about the trust but not the decisions of the trustee.
In deciding who to appoint, a settlor should consider that whomever they choose will have to:
When selecting a trustee, a settlor ought to consider these factors and determine whether the proposed trustee has the requisite knowledge, skills, experience and time to carry out the duties and responsibilities of a trustee.
Settlor’s should carefully consider the nature and extent of the trust assets and any potential for conflicts of interest. In short, is a family member, friend or other connected party, a suitable person to act as the trustee? If, after careful consideration the answer is no, then the appointment of a professionally qualified, regulated and experienced trustee should be considered.
This guest blog has kindly been provided by Pearse Trust, a leading independent provider of corporate and family trust structures.
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This marketing material is not intended to provide advice and is provided for general information purposes only.