As a Trustee you need to be aware that you are liable for your actions in respect of the assets of the Trust and can potentially be sued by Beneficiaries if you do not undertake your duties appropriately. We have provided a thorough analysis of Trustee Duties below, which you should familiarize yourself with as a Trustee on any Trust.
Upon accepting office a Trustee has the duty to acquaint him or herself thoroughly with the terms of the trust. This means that the trustees should:
Trustees have a duty to ensure that documents of title to the Trust assets, and the Trust assets themselves, are safeguarded against improper use. A Trustee can be liable for breach of duty if he or she allows title documents to remain in the name of only one of the Trustees and as a result of this, Trust assets are misappropriated.
The Trustees should meet at least annually and, if required, more regularly. The most appropriate time for a meeting would be at the end of the financial year after accounts have been done. The purpose of the meeting would be to review the accounts, the tax return and the investments of the trust and to consider such other matters requiring discussion and decision. Preferably, the Trustees should develop an agenda in advance of the meeting and the agenda should include items such as the consideration of the accounts, a review of the investments, the situation of Beneficiaries, whether or not distributions are required, and whether Trust investments require maintenance, repair, etc. Where there is a diverse portfolio of investments, decisions on those may also be necessary.
The Trustees should have a minute book (which may be in loose leaf form) in which all Trustees Resolutions should be recorded.
The Trustees may also keep an information or memorandum file. This would contain all the documents directly connected with the Trust such as the Trust Deed, past accounts, contracts entered into by the Trustees, details of Beneficiaries, details of past Trustees, details of distributions made and copies of correspondence.
A schedule of Trust property should also be maintained. This would contain a list of assets owned by the Trust and information such as whether any particular asset is destined for a particular beneficiary, etc.
The Trust should have a separate bank account. This should be clearly identified as an account of the Trust both on the face of documentation such as the chequebook, and in the records of the bank itself. Care should be taken to ensure that only Trust transactions are conducted through the bank account.
Care should be taken to ensure that Trust investments are not intermingled with personal investments. Care must be taken when buying and selling securities to ensure that title of the newly acquired securities is taken in the correct names.
An efficient diary system either in hard copy or in computerised form should also be kept. This would act as a reminder of payments due or receipts expected. In particular, matters which require recurring attention such as the payment of income to beneficiaries, payments under a Gifting Programme, and reminders for the preparation of annual returns, and due dates for filing returns with the IRD could be the subject of such a system. An efficient call up and diary system will ensure that Trustees have “no surprises” and will go some way towards ensuring that they meet deadlines and critical dates associated with the administration of the Trust.
Agents should be employed to carry out specialist tasks such as preparing accounts and carrying out the Trustees’ instructions in relation to the administration of the Trust or the investment of the Trust’s assets.
Trustees have the duty to keep and render to the Beneficiaries a full and proper record of their stewardship of the Trust’s assets. The Trustees must keep appropriate and adequate accounting records and prepare financial statements in respect of appropriate accounting periods.
Trustees do not have to prepare the accounts personally. Section 29 of the Trustees Act 1956 provides that a Trustee may employ and pay an agent to administer the Trust assets including the receipt and payment of money and the keeping and audit of Trust accounts. Unless Trustees have appropriate skills, or the affairs of the Trust are very simple, Trustees should engage qualified accountants to keep accounting records and to prepare periodic financial statements and tax and associated returns for the Trust. Section 29 states that a Trustee is not responsible for the default of an agent engaged pursuant to the power in section 29 if the agent is employed in good faith.
A Trustee has the duty to act personally in the affairs of the Trust. A Trustee cannot delegate his or her powers and discretions unless the delegation is authorised. However, a Trustee has a broad power to engage agents to assist in the execution of the Trust or the administration of the Trust property.
A Trustee must not fetter his or her discretions. The Trustees must act and exercise his or her powers at the appropriate time and with reference to the particular facts and circumstances at the time.
Where there is more than one Trustee the Trustees’ decision must be unanimous except where the Trust Deed provides for majority rule. If the unanimous decision rule applies in a particular case and one Trustee does not agree to the proposition before the Trustees, the status quo would remain and the Court would not intervene unless the failure of the Trustees to act is a breach of the Trust or if disagreement is so frequent and disruptive so as to be a hindrance to efficient administration.
Trustees are jointly and severally liable for their decisions. There is no room for a passive Trustee.
Subject to any specific conditions in the Trust Deed the Trustees may “invest any trust funds, whether at the time in a state of investment or not, in any property”. A Trustee must invest prudently, exercising the “care, diligence and skill that a prudent person of business would exercise in managing the affairs of others”. Where the Trustee has special expertise by reason of his or her profession, employment or business, the standard of care is extended to that which a prudent person engaged in that profession, employment or business would exercise in managing the affairs of others.
Matters which may be considered by Trustees when exercising their power of investment are as follows:Practical Issues
The following should be considered by the prudent Trustee: