Duties of a trustee
Upon acceptance of his or her office, a trustee becomes subject to the duties of that office. Duties are imperative. They compel or prohibit a trustee from acting in a certain way. The duties of a trustee reflect the fiduciary relationship which he or she owes to the beneficiaries, and the trustee’s corresponding obligation to act in the best interests of the beneficiaries.
Duty to obey the terms of the trust
It is the trustee’s plainest and overriding duty to obey the terms of the trust. This is because a trustee is duty bound to give effect to the intention of the settler as expressed in the trust instrument, notwithstanding how seemingly insignificant such terms may appear. The duty of obedience qualifies virtually all other duties of a trustee. The trust instrument is the trustee’s “charter” by which he or she must constantly be guided. The failure to fulfil a duty prima facie renders the trustee liable for breach of trust.
The trustee will not be bound to carry out the terms of the trust instrument if:
- directed by the beneficiaries (being all of full age and capacity, absolutely entitled and unanimous) to this effect;
- an illegality will occur as a consequence of obedience; or
- the deviation is sanctioned by the court.
Duty to use diligence and prudence
In carrying out the trust in accordance with its terms, a trustee must take as much care of the trust property and affairs as an ordinary reasonably prudent business person would take of her or his own property and affairs. A higher standard of care is required from a professional trustee (such as a trustee company) which holds itself out as having special or particular knowledge, skill and experience, and which directly or indirectly invites reliance upon itself by members of the public in virtue of such knowledge, skill and experience.
Duty to account
The duty to account represents a necessary incident of the trustee’s personal obligation to hold and deal with the trust property for the benefit of the beneficiaries. Accounting by a trustee serves to monitor the trustee’s performance of her or his management of the trust property and obedience to the terms of the trust
Comprehensive reporting to, and monitoring by, the beneficiaries concerning the trust’s activities reduced the likelihood of trustees being able to perpetuate breaches of trust. The trustee’s duty to account also requires the trustee not to mix trust funds with her or his own moneys.
Beneficiaries’ right to information
As a corollary to the trustee’s duty to account, the beneficiaries are entitled to full information regarding the trust property to be furnished fully and not reluctantly by the trustee. Beneficiaries are also entitled to inspect trust documents to verify trustee’s representations concerning the financial position of the trust estate. There are three main limitations on the beneficiaries’ right to demand information, each of which is briefly discussed below.
No right to reasons
A trustee is under no duty to explain how the trust is managed, nor the reasons for particular decisions, subject to contrary intention contained in the trust instrument.
No right to non-trust documents
The beneficiaries’ right to inspect is limited to documents that are the property of the trust (“trust documents”). Documents prepared by the trustees for their own purposes which would not be required to be handed over to the beneficiaries on the winding up of the trust are not “trust documents”.
Information contained in this article is of a general nature and is applicable to the current law in New South Wales. It is not intended to address the circumstances of any particular individual or entity.
Advice from our experienced Estate Planning Team (on 02 4929 3995 or firstname.lastname@example.org) should be sought if there is doubt as to the applicability of this information to individual circumstances.