Trustees - what responsibilities do they have?

What is a trustee?

A trustee is a person or a firm that holds and administers property or assets held in a trust for the benefit of a third party. A trust can be created for a variety of purposes, including in bankruptcy situations, in certain types of retirement plans or to manage assets for a minor or someone lacking capacity. Trusts can also be established to hold assets with income and capital to be distributed to beneficiaries over time.

Trustees have a fiduciary responsibility to the trust’s beneficiaries which means they must act in the best interests of the beneficiaries when managing the trust assets.

What are a trustee’s duties?

A Trustee’s duties are many and varied.

Making Decisions

Trustees must make all decisions regarding the trust. They must decide on the acquisition, application and disposal of the assets whilst implementing the purposes of the trust for the benefit of the beneficiaries. They must make decisions within the rules of the trust and have a duty to exercise reasonable care, skill and diligence when making decisions and managing the assets of the trust.

The Trustee Act 2000 extended the powers of investment trustees have whilst protecting the interests of the beneficiaries against abuse of these powers.

Trustees decisions must be unanimous, unless otherwise provided for in the trust document.

Managing assets

Trustees are responsible for managing the assets in a trust, for the benefit of the beneficiaries. Under a discretionary trust, the trustees will have more freedom to make decisions provided those decisions are for the benefit of the beneficiaries.

Trust assets can be money, financial instruments, property or other asset types (for example, cryptocurrency). The 2000 Act enabled trustees to acquire freehold or leasehold land in the UK.

Trustees can instruct professionals to act on behalf of the trust to assist in the acquisition and disposal of assets.

Act in the best interests of the beneficiaries

The trustees must, at all times, act in the best interests of the beneficiaries. They must be impartial to ensure no single trustee benefits over others. They must also avoid any conflicts of interest that might arise in relation to themselves and their own affairs and the trust estate under their charge.

Follow the rules of the trust

The trust deed establishing the trust will set out the powers of the trustees and the rules designed to benefit the beneficiaries. Trustees must always follow these rules even if a beneficiary disagrees with them.

If the trust is a discretionary trust, the extent of the discretion will be specified and trustees should ensure they do not exceed the powers or breach the rules set out in the trust document.

Keeping accounts and paying taxes

The trustees are responsible for accounting to HMRC for any taxes due by the trust. The range of taxes might include Inheritance Tax, Capital Gains Tax and Income Tax. Accounts should be prepared each year and returns submitted to HMRC. Trustees can instruct accountants to prepare accounts and to advise on taxation matters.

Complying with the common law duty of care

All trustees must comply with the common law duty of care. That means they must take the precautions that an ordinary prudent person of business would take in managing similar affairs of their own.

Think carefully before accepting a trustee appointment

The duties and responsibilities of trustees are onerous and can take up a great deal of time. They may bring you into conflict with the beneficiaries of the trust and this can be challenging, especially when they are family members.

Before accepting the position, take professional advice about the duties and responsibilities and familiarise yourself with the rules under which you are being asked to act as a trustee.