In the previous edition of our Wealth Office newsletter, we continued our series on “Generational Wealth Planning” where we discussed Types of Trusts. In this edition, we will be reviewing “Trustee Duties”.
The core irreducible duty of a trustee is to hold the trust property’s legal ownership upon trust and comply strictly with the terms of the trust. This typically involves managing the assets on behalf of and in the best interests of the beneficiaries and periodically making distributions to them in the manner provided by the trust instrument.
If the trustee fails to comply with the trust, he is said to be in breach of trust and becomes liable in a lawsuit brought by the beneficiaries or any one or more of them. So, for example, if the trustee dishonestly misappropriates trust property for his benefit, he commits a breach of trust. If the trustee mismanages the trust assets by investing the same perversely and inappropriately causing loss, he commits a breach of trust.
If the trustee distributes to a non-beneficiary, he commits a breach of trust. The relationship between trustee and beneficiary is a fiduciary one. The obligations owed by the trustee are fiduciary in nature and there are a number of specific duties that implicitly attach to the trustee’s equitable obligations. These are duties implied by equity and are owed by a trustee to the beneficiaries of his trust. In particular, a trustee at all times:
- must act honestly and in good faith and exercise his powers in the best interests of the beneficiaries, putting their interest first, before his self-interest and the interests of others;
- must be loyal to the beneficiaries and transparent with his dealings relating to the trust and the trust property;
- must avoid conflicts of interests, so that he must not put himself in a position where his duty to the beneficiaries conflicts (or may conflict) with his self-interest or his duties to others;
keep trust property separate from his own, maintain accurate records relating to the trust property, and be ready to produce accounts showing historical receipts and payments made from the trust fund;
- must not profit from his position as fiduciary unless authorised; in other words, a fiduciary must never make an undisclosed profit and is accountable to his principal for any profits acquired by him by virtue of his position;
- must avoid ‘self-dealing’.
Our series on Generational Wealth Planning – continues in subsequent editions of this Newsletter.
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STEP POSITION PAPER (PDF)