Comply with the terms of the trust deed
An obvious and fundamental requirement of a Trustee’s role is to read and understand the terms of the trust document. It is essential that a Trustee complies with the terms of the trust deed when exercising its powers.
Duty to exercise reasonable care and skill
The statutory duty of care is set out in section 1 Trustee Act 2001 (the “Act”):-
“Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular-
(a) to any special knowledge or experience that he has or holds himself out as having, and
(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.”
Schedule 1 of the Act states that the duty of care applies to Trustees when:-
(a) investing the trust fund;
(b) appointing agents & nominees;
(c) acquiring land and dealing with insurance.
This statutory duty can be excluded from applying within the trust deed.
There is also a common law fiduciary duty. This has not been “laid down with precision”. It is an evolving duty. A Trustee must exercise the care that an ordinary prudent business person would in managing his own affairs.
The standard of care expected is judged by way of an objective test. The conduct of Trustees will be judged with reference to the facts and circumstances existing at the time when they had to act and which were known or ought to been known to them at the time. Decisions of Trustees are not judged in hindsight.
Professional Trustees are expected to exercise a higher standard of knowledge than that of a lay person acting as Trustee.
Duties in relation to the investment of trust funds
Generally, subject to the terms of the trust deed, a Trustee will be given power to make any kind of investment that it could make if it were absolutely entitled to the assets of the Trust.
The Trustee, in making the investment, must exercise such care and skill as is reasonable in the circumstances, having regard in particular-
to any special knowledge or experience that he has or holds himself out as having; and
if he acts as Trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
In exercising any power of investment, the Trustee must have regard to the standard investment criteria and must from time to time review the investments of the trust and consider whether they should be varied.
The standard investment criteria are:
the suitability to the trust of investments; and
the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.
The general power of investment is subject to any restriction or exclusion imposed by the trust deed or by any statutory provision.
Trustees have a duty not to delegate their duties or powers unless authorised to do so.
In selecting investments, a Trustee is under a duty to consider that the Trustee is making an investment for the benefit of other people (for whom he is morally obliged to provide).
The Trustee must carefully balance the risk of investments against not using their powers to invest fully.
It is important, especially when a Trustee does not have the relevant experience or qualifications that they take appropriate legal, tax, investment, etc. advice before exercising their powers. Please see our note on the recent Isle of Man case AB and CD (CHP 2016/7).
The Trustee must ensure fairness between the beneficiaries and act impartially in the sense of fairly and disinterestedly, between the beneficiaries
A trustee must consider the needs of all of the beneficiaries of the trust, and consider from time to time making distributions to the beneficiaries.
There is no strict duty for a Trustee to consult with the beneficiaries of a trust. However, as the beneficiaries are the people who may sue a Trustee, it is important to maintain a good working relationship and manage expectations.
Duty of Trustee to act gratuitously unless otherwise authorised (as is usual now)
Unless there is a specific clause within the trust deed, a Trustee must act without reward and not make profit from the Trust. Most modern trust deeds include provisions allowing Professional Trustees to charge in accordance with their usual terms of business.
Duty of Trustee to be ready with his accounts
The beneficiaries must be able to hold a Trustee to account for their actions. Accordingly, a beneficiary has a right to a copy of the accounts of a Trust. See part five of this series for further information regarding a beneficiary’s right to documentation from the Trustee.
A Trustee must not put themselves in a position where either their personal interest or fiduciary duties as a director or trustee of a company or another trust conflict with their role as a Trustee of the Trust.
In the next part of this series we discuss the issues arising on a change of Trustees.
The guidance in this note is for information purposes only and is not intended to be exhaustive. It is not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. DQ shall accept no responsibility for any errors, omissions or misleading statements or for any loss which may arise from reliance on the information in this note.