Trust Act 2019: Trustee Duties
The Trusts Act 2019 aims to update trust law and make the law accessible to all involved, and came into play on the 30th January 2021.
The Act provided for an 18-month transition period from July 2019 to January 2021 to allow trustees and beneficiaries to become familiar with the new legislation and update their trust structures and deeds. The act now applies to all existing written trusts, as well as any new written trusts established. It can also apply to statutory trusts or other types of non-express trusts (constructive or equitable).
Blackwood Montagna breaks down the act and a trustee’s duties in the following article to ensure you are aware of:
• the duties and responsibilities of a trustee; and
• how to ensure you are fulfilling your obligations as a trustee.
A Trust, and a Trustee.
A trust is a legal relationship created when a person (a settlor) appoints their property to a person (a trustee) to hold and maintain for the benefit of a third party (the beneficiary). The trustee legally owns the property held in the trust and is responsible for it. The settlor can be both a trustee and a beneficiary, but they cannot be the only trustee and beneficiary.
For a trust to exist and be valid, there needs to be:
• identifiable beneficiaries
• specific and recognisable trust property
• the intention to create a trust
Trustees are responsible for managing the day-to-day functioning of the trust. This means maintaining the trust’s assets and distributing any capital generated to the trust’s beneficiaries. The trust deed drawn together when the trust is entered into outlines how this will be done.
What Are Trustee Duties?
Trustees are responsible for managing the trust and have encompassing control over the trust’s property and assets. This is a lot of power to have, and because of this, there are responsibilities attached to that power. As the trustee, you must maintain the trust’s property for the beneficiaries’ benefit. There are specific duties you must meet to fulfil that purpose.
The law imposes certain duties on trustees, but the trust itself will also have mandatory responsibilities. The trust deed is your first port of call for any information about the trust.
If you fail to meet your duties as a trustee, the beneficiaries can bring legal proceedings against you in the court. You have a fiduciary obligation to operate in the trust’s best interests, meaning that you should fulfil your duties in good faith because the trust entrusts you with a certain degree of power. When performing your duties, you should do so according to the trust’s context and objectives.
There are two types of duties given to trustees by the law. These are:
• mandatory duties; and
• default duties.
A settlor cannot modify or exclude these duties in the trust deed. These are the duty to:
• know the terms of the trust
• act according to the terms of the trust
• act honestly and in good faith
• only use the power given to you by the trust for proper purposes, and
• act for the benefit of the beneficiaries or to promote the permitted purpose of the trust
Trustees also have a duty to maintain good written records of the trust and anything relating to it:
• the trust deed
• any later variations of the trust
• any other core documents of the trust
• trust property
• trustee decisions
• any trustee removal or appointment, and
• any written contracts involving the trust
Trustees need to make available the trust’s basic information for beneficiaries, and if further details are requested by the beneficiaries, these should be provided. If not, the trustee needs to provide good reasoning as to why they won’t.
These are duties that the law sets out, but the settlor has the option of changing or excluding them entirely from the trust and should outline the modifications in the trust deed. If the changes or exclusions are not specifically noted, these duties still apply, and you can be liable if you do not meet them. This includes a general duty of care, as well as the duty to:
• invest prudently
• not to exercise your power for your own benefit
• consider how you use your power
• not limit a future trustee’s discretion
• avoid a conflict of interest
• act impartially
• not profit from your acts as trustee or act for a reward, and
• act unanimously
Please note that corporate trustees or directors of a company may have additional duties on top of the duties listed above.
Trustees have a degree of power as the trust property’s legal owner, and with that power comes certain duties and responsibilities. Generally, trustees need to act honestly and with the trust’s best interests in mind. If you would like more information or help with setting up a trust, or altering a trust, or clarifying your duties as a trustee, please don’t hesitate to contact the team at Blackwood Montagna for some confidential and trusted expert advice.