Trustee duties and responsibilities

Understand the roles, responsibilities and powers of trustees
May 2022

Paul Lucas

Vice President, Strategic & Technical Sales

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PART OF 50 MINS STRUCTURED CPD

15 MIN READ

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Risk Disclaimer

This content is directed only to persons having professional experience in matters relating to personal investment (investment professionals) and should not be distributed to anybody else. It has been prepared for general information purposes only. It does not constitute advice (whether investment, legal, regulatory, tax or otherwise) provided by BMO Global Asset Management (EMEA) (BMO). Certain content in this document is based on our own reading of legislation, regulation, or guidance issued by a government or regulatory authority, as at the date of publication, which is subject to ongoing change. Tax treatment is based upon individual circumstances. BMO gives no warranty or representation, whether express or implied, that such content is up to date, complete, or accurate.

Investment professionals in receipt of this document should not rely on any of its content. They remain solely responsible for advising their underlying clients in accordance with their own legal and/or regulatory obligations and for taking their own independent advice as they determine is necessary.

To the extent lawful, BMO excludes all responsibility and associated liability for any loss or damage suffered by any recipient of this document who chooses to rely on its content, whether occurring in contract, tort (including negligence), breach of statutory duty, or otherwise, even if foreseeable.

Key takeaways:

  • Understand the roles, responsibilities and powers of trustees
  • Describe trustees’ essential record keeping obligations

Financial Planners are increasingly making use of trust based planning solutions for their clients. In many cases, the trustees are likely to be inexperienced in their roles and responsibilities.

Financial Advisers play a key role in supporting lay trustees in understanding their role in managing trusts efficiently and effectively.

Supporting trustees in this way ensures that the trust benefits are optimised and can add real value to both client and potential client relationships as part of their inter-generational wealth planning service.

This course aims to summarise some of the key duties and responsibilities of trustees.

Prior to accepting the role of a trustee, consideration should be given to what the position involves.

No one should become a trustee without fully understanding the role.

The duties of trustees are split into two distinct categories:

  1. General trustee duties – these duties form a code of conduct and are the manner in which the trustees need to act
  2. Specific trustee duties – these are actions that the trustees must carry out.

Their main responsibilities include:

General trustee duties

Risk Disclaimer

This content is directed only to persons having professional experience in matters relating to personal investment (investment professionals) and should not be distributed to anybody else. It has been prepared for general information purposes only. It does not constitute advice (whether investment, legal, regulatory, tax or otherwise) provided by BMO Global Asset Management (EMEA) (BMO). Certain content in this document is based on our own reading of legislation, regulation, or guidance issued by a government or regulatory authority, as at the date of publication, which is subject to ongoing change. Tax treatment is based upon individual circumstances. BMO gives no warranty or representation, whether express or implied, that such content is up to date, complete, or accurate.

Investment professionals in receipt of this document should not rely on any of its content. They remain solely responsible for advising their underlying clients in accordance with their own legal and/or regulatory obligations and for taking their own independent advice as they determine is necessary.

To the extent lawful, BMO excludes all responsibility and associated liability for any loss or damage suffered by any recipient of this document who chooses to rely on its content, whether occurring in contract, tort (including negligence), breach of statutory duty, or otherwise, even if foreseeable.

Act in accordance with the trust deed and general law:

Trustees must fully understand the terms of the trust and comply strictly with the duties and directions set out in the trust deed. Trustees must always act in good faith and with honesty and integrity.

Maintain a duty of care to the beneficiaries:

Trustees owe the beneficiaries a duty of care in the administration of the trust. The standard of care required is the same degree of diligence that a man of ordinary prudence would exercise.

Not to act with a conflict of interest

The role of a trustee is a “fiduciary” duty and potential trustees should also ensure no conflict of interest exists between them and any beneficiaries.

To act impartially

Trustees mustn’t allow one beneficiary to suffer at the expense of another. They must balance the needs and interests of all beneficiaries. For example, some classes of beneficiary may be entitled to income and others capital and careful consideration should be given to balance these needs.

This does not mean that all beneficiaries should be treated equally.

To act personally and take managerial decisions

Trustees are under a duty to act personally however that does not mean take on all of the administration and management themselves. Trusts can be complex, and the trustees may need to appoint Agents which may include solicitors, accountants, financial advisers etc.

To consult one another about all trust decisions

All trustees must consult one another about all matters that require a decision of the trustees.

Specific trustee duties

To take control of the trust property

The trustees must transfer assets into their ownership for example, if a property is held on trust, the trustees need to be named as the legal owners. If there is cash, this should be held in a separate trust bank account.

Where there is a change of trustees, all the trust property needs to be transferred into the new trustees’ names.

To comply with the terms of the trust as set out in the trust deed

Trustees should fully inform themselves of the terms of the trust and comply strictly with the duties and directions as set out in the trust deed/instrument.

To take advice

The trustees ought to seek advice from those who are suitably qualified when investing trust monies.

To invest the trust fund

To ensure that they are informed of all relevant circumstances before making any decisions and exercise such care and skill as is reasonable in the circumstances.

When choosing investments, the trustees must consider the purpose of the trust and the needs of the beneficiaries and apply the standard investment criteria accordingly, these are:

  • the suitability to the trust of the investments and
  • the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust
  • Trustees must periodically review investments to ensure they remain suitable
  • It is generally recommended that trustees take professional advice when considering investment of the trust assets

Trustees should of course be aware of any investment restrictions laid out in the trust deed and factor these into investment decisions.

Keep accounts and records:

Trustees must maintain a record of trust income and expenses to complete the trust and estate tax return.

Trustees must declare and account for any tax arising on trust assets and where necessary the payment of inheritance tax. Trustees are jointly liable for any tax that is due.

The HMRC guidance outlines:

  • Which records must be kept and for how long
  • Records of income payments to beneficiaries
  • What happens if records are lost or destroyed

Trustees must use HMRC’s Trust Registration Service for tax purposes – see the article on the Trust Registration Service that forms part of this course.

To provide information:

Trustees must keep clear and accurate records and accounts for the trust and to provide information and accounts to the beneficiaries upon request.

In addition to the duties above the following also applies to trustees –

Not to profit from the trust:

A lay trustee is not entitled to any reward but may claim for ‘out of pocket’ expenses. The Trustee Act 2000 permits professional trustees to charge for their services, as may the trust deed itself.

Trustees are not allowed to obtain any benefit directly or indirectly from the trust. A trustee is not generally permitted to purchase trust property.

Trustee liability

A Trustee who causes loss to the trust will be liable to the beneficiaries for wasting assets. It is not at all uncommon for private trustees to make mistakes in administration, especially if they are not professionally advised, and for the beneficiaries thereby to suffer loss.

An example might be where a trustee misinterprets the trust and makes a payment to a beneficiary that is beyond their entitlement, so that other beneficiaries suffer.

If a trustee acts outside of their powers or does not fulfil their duties, they may be held liable for breach of trust and will have to make good personally, the loss incurred by the trust.

Occasionally, trustees might misappropriate assets from the trust and use them for their own purpose. Clearly, they will be held personally liable, without limit, for the loss suffered by the beneficiaries.

Removal and/or retirement of trustees

Please see further article on Removing and retiring trustees.

Conclusion

Advisers play an integral role in the effective management of a trust. Providing advice and guidance on trustees’ duties and responsibilities ensures the trust’s objectives are achieved. It also helps to establish the adviser as a trusted and credible expert. In turn, this can help with inter-generational wealth planning and the expansion of the firm’s client bank.

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