Responsibilities of a Trustee

As the name would suggest, trustees have the most significant responsibilities with regard to the actual management of a trust. When they are appointed by the settlor (that is, the individual who has established the trust), they become responsible for the assets that have been transferred into the ownership of the trust. Thus, the management skills of the trustees are fundamental to the successful operation of the trust.

Fiduciary Duty

The responsibilities of a trustee vary, depending on the nature of the trust itself. However, there are a number of duties that will apply to all trustees, regardless of circumstance. In the first instance, all trustees owe a ‘fiduciary duty’ to the beneficiaries. This is a serious legal responsibility, with a number of implications.

Primarily, a fiduciary duty implies a fundamental ‘duty of care’ to the beneficiaries. This means that the trustees must ensure that there is no conflict of interest between their duty to the trust and any other duties that they may have; furthermore, they must subordinate their own personal interests to those of the beneficiaries.

More specifically, trustees are obliged to act upon the explicit instructions of the trust instrument, if such instructions exist. In the case of express trusts that have been established through a trust instrument, the trustees must act within the bounds established by this document.

In the case of a discretionary trust, however, the trustees will have considerably more freedom regarding their actions. In these cases, the trustees will be expected to act in such a way that they maximise the potential benefit passed on to the beneficiaries.

This will include a responsibility to invest any assets in a suitable fashion; generally this would involve avoiding high-risk investments in favour of safe, steady growth.

Trustees also generally have a responsibility to keep the beneficiaries informed of their activities. Where the trustees and beneficiaries are family or friends, this can obviously be performed informally. However, if a corporation has been appointed as trustee, it would be expected that the beneficiaries would receive regular written updates regarding the performance of the trust.

Liability and Indemnity

In general terms, trustees are expected to act in a prudent, honest fashion, and to ensure that they are constantly acting in the best interests of the beneficiaries, and of the trust itself. This can be a difficult and time-consuming task, particularly in cases in which the trust instrument instructs the trustees to make more complicated investments with the assets.

In return for their loyalty, the trustees are not personally liable for any losses. There are, however, certain significant limitations to this provision. Primarily, this is contingent upon the trustees acting in the manner expected of them.

Furthermore, trustees’ indemnity is limited to the sum of the assets in trust. If, therefore, a trustee makes a poor decision that incurs losses greater than the total assets in trust, they will be held personally liable for the remainder.

Legally, becoming a trustee is a voluntary action; there is no legal right to recompense. However, many settlers choose to make provision in the terms of the trust for payment to be made to trustees, in return for their work – work which can clearly be difficult.