Chapter 7: Trustees' Duties And Powers

• Fiduciary duty


  Trustees are under a fiduciary duty to manage the trust property for the benefit of the beneficiaries. A fiduciary must act with the utmost good faith and with undivided loyalty.
• Fiduciary duty


  • Not only acting in the interests of those to whom a fiduciary duty is owed, but also avoiding any possibility that those interests might conflict with the personal interests of the fiduciary
• Duty not to profit from trusteeship


  The general rule is that a trustee should not make a personal profit from their position
• Directors' fees


  • A trustee who obtains paid employment by virtue of the trusteeship holds the funds they are paid on constructive trust for the trust beneficiaries
  • If the trustee would have been appointed as a director even without the voting rights attached to the company shares, the rule does not apply
• Profits from information or opportunity


  • If a trustee makes a personal profit as a result of opportunities or information gained from their trusteeship, the trustee holds that profit on constructive trust, even where there is no obvious conflict between the interests of the trust and the trustee
• Remuneration


  The general rule is that a trustee may not charge for services as a trustee, although they may recover out-of-pocket expenses
• Exceptions to the general rule on remuneration

  • Charging clause in the trust instrument
  • Professional trustee charges
  • Consent of beneficiaries
  • Court may authorise
• No self-dealing - duty not to purchase trust property


  A trustee may not purchase any property owned by the trust
• A trustee's good faith or actual benefit to the trust is irrelevant when it comes to self-dealing
• Court may permit self-dealing


  • In exceptional circumstances, the court has the authority to permit a transaction of self-dealing to go ahead
• May purchase beneficial interest - fair dealing rule


  There is no rule to prevent a trustee from purchasing the beneficial interest of a beneficiary, but such a transaction will be voidable if the trustee cannot show that the trustee paid a fair price, made full disclosure of all material facts to the beneficiary, and in no way abused their position
• Equitable duties of trustees

  • Enquire as to the trust property, take control of it, and ensure its preservation
  • Segregate trust property from the trustees' personal assets
• Duty to observe terms of the trust


  The trustee has a duty to familiarise themselves with the trust document and observe its terms
• Duty of care


  Trustees must meet the requisite standard of care in exercising their duties and discretions
• Statutory duty of care

  Trustees must exercise "such care and skill as is reasonable in the circumstances" taking into account any special knowledge the trustee has, or holds themselves out as having
• General standard of care

  Trustees are under a duty to act with the "prudence of an ordinary man of business" acting in relation to their own affairs
• Duty to act jointly

  If there is more than one trustee, they must act jointly and unanimously in the exercise of their discretions
• Duty to act personally

  Trustees must act personally and have no general power to delegate their functions
• Exceptions to the duty to act personally

  • Administrative functions
  • Investment decisions in certain circumstances
  • All functions by power of attorney
• Duty to take possession of trust property


  Trustees must ensure that all the trust property is in their joint possession and control
• Duty to keep accounts and disclose information


  Trustees must keep accounts and records, and they must produce them to the beneficiaries when required
• Duty to act impartially

  The trustee must act impartially with respect to all beneficiaries, unless the trust instrument specifies otherwise
• Duty of confidentiality


  Trustees owe a duty of confidentiality in respect of information obtained in the course of the discharge of their functions as trustees
• Duty to invest


  Trustees are under a duty to invest trust funds in order to produce income
• Requirements for trustees' investment duties

  • The investments they select are authorised either by statute or the trust instrument
  • They take into account the relevant criteria in selecting investments
  • They take any necessary advice in making investments
  • They keep their investments under appropriate review
• Duty of Confidentiality


  Trustees owe a duty of confidentiality in respect of information obtained in the course of the discharge of their functions as trustees. Information gained by the trustees in their capacity as trustees cannot be exploited for their own personal gain, However, beneficiaries may consent to waive this duty if they are fully informed by the trustees (for example, the trustee would have to disclose what they intend to do with the information).
• Duty to Invest


  Trustees are under a duty to invest trust funds in order to produce income. Their investment powers are regulated by the Trustee Act, subject to any modification set out in the trust instrument. Trustees must ensure that: The investments they select are authorised either by statute or the trust instrument; They take into account the relevant criteria in selecting investments; They take any necessary advice in making investments: andThey keep their investments under appropriate review.
• General Power of Investment

  Trustees may make almost any kind of investment that they could make if they were absolutely entitled to the trust assets.
• Power to Acquire Land


  In addition to other investments, trustees may acquire freehold or leasehold land in the UK, for occupation by a beneficiary or for any other reason.
• Provisions in Trust Instrument

  The statutory powers may be extended or restricted by the trust instrument. The most common special provisions are to restrict the choice of investments so as to exclude investment in certain sectors, such as the tobacco or arms industries, usually for ethical reasons.
• Standard Investment Criteria


  The suitability to the trust of the type of investment proposed and the particular investment under consideration; and The need for diversification of investments of the trust so far as appropriate to the particular circumstances of that trust.
• Trustees holding a fund of £10,000 for a beneficiary aged 17


  • They are likely to select an asset which is easily realisable, such as a bank deposit account, and there is little need to diversify.
• Trustees holding a fund of £300,000 on trust for Jack for life, with remainder on his death to his children in equal shares


  • They will be considering long-term investments, which might be a mixture of different types of shares and government stock, to ensure that the investments are diversified
• Proper Advice


  Trustees must obtain and consider 'proper advice' about the way in which, having regard to the standard investment criteria, the power should be exercised. 'Proper advice' is the advice of a person the trustees reasonably believe to be qualified to give it by reason of their ability and practical experience.
• Advice Not Always Needed

  The requirement of proper advice does not apply if the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate.
• Trustees holding a fund of €10,000 for a beneficiary aged 17

  • The trustees may conclude that it is unnecessary to take professional advice given the short-term nature of the investment and their intention simply to place the money on deposit.
• Trustees holding a fund of £300,000 on trust for Jack for life, with remainder on his death to his children in equal shares


  • The trustees should take advice from a professional financial adviser about how, based on the standard investment criteria, the likely long-term nature of the investments and the need to balance income and capital returns, they should invest the trust funds.
• Review


  Trustees must keep their investments under review and consider whether, having regard to the standard investment criteria, they should be varied. Proper advice should be obtained when making such reviews on the same basis as in c., above.
• Standard of Care


  The statutory standard-to act with such care and skill as is reasonable in all the circumstances-applies when trustees are making investment decisions.
• Delegation of Investment Decisions


  Whilst generally a trustee may not delegate discretionary duties, under the Trustee Act, trustees have the power to delegate the choice of investments to an asset manager.