Practical tips for trustees dealing with breach of trust allegations

Being a trustee carries significant responsibilities and often involves managing high value assets and making complex decisions in the best interests of all the beneficiaries. While trustees generally strive to act with care and integrity, allegations of breach of trust can arise. Whilst such allegations can be stressful and complex, how trustees manage the trust and how they respond to allegations is crucial to maintaining trust, protecting the trust’s assets, and avoiding potential contentious proceedings.
 

The tips below should generally be adopted through the life of the trust and may avoid disputes arising in the first place.

1. Maintain clear and open communication
 

Good communication helps preserve relationships, fosters trust, and can prevent escalation into formal disputes. It is often the case that beneficiaries can become suspicious if there is a lack of communication or response when they request information.

While trustees are not required to disclose all information, such as their reasons for exercising discretion, consideration should be given to whether it is appropriate to disclose information voluntarily when requested. Whether or not the trustee should do so will depend on the circumstances of the case.

When an allegation of breach of trust occurs, the first instinct might be to become defensive or avoid engagement, however, trustees should try to:

• Engage promptly and transparently: Acknowledge the concerns raised and keep beneficiaries and other stakeholders informed about steps being taken when appropriate.
• Clarify misunderstandings: Sometimes allegations arise from miscommunication or lack of information. Providing clear explanations can help ease tensions.
• Be professional and respectful: Avoid confrontational or dismissive language; maintaining a cooperative tone can lead to constructive dialogue.

2. Keep thorough and organised records
 

One way to demonstrate that trustees are not in breach is by meticulous record keeping. Trustees should:

• Document all decisions and actions: Record the rationale behind key decisions, including meetings, votes, and consultations.
• Maintain financial records: Keep detailed accounts of all transactions (including income and outgoings) related to the trust. It also helps to use clear references when making payments. For example, using initials may seem useful at the time but it may be that some transactions are looked at many years later and the references may be difficult to understand over time.
• File correspondence: Save emails, letters, and notes that pertain to trust matters.

These records can demonstrate that trustees acted transparently and responsibly, and provide evidence that can be invaluable if allegations escalate to legal proceedings.

3. Engage in sound decision-making
 

Trustees are expected to act prudently and in the best interests of all the beneficiaries. To demonstrate this:

• Follow the trust deed and legal requirements: Always ensure decisions align with the terms of the trust and applicable laws.
• Exercise independent judgment: Avoid conflicts of interest and make decisions based on objective assessment.
• Consider risks and benefits: Evaluate potential outcomes and document the thought process behind decisions. Trustees should take relevant factors into consideration.
• Consult co-trustees: Where applicable, involve fellow trustees in discussions and decision-making to share responsibility.

Clear, well-reasoned decision-making supports the position that trustees acted within their duties and mitigates accusations of negligence or misconduct.

4. Obtain professional advice when necessary
 

Trust matters can be complex, and trustees are not expected to be experts in all relevant fields. Seeking professional advice is often necessary:

• Legal advice: Consult a solicitor specialising in trusts if allegations arise or if the trustees are uncertain about their duties.
• Financial advice: Engage accountants, tax or financial advisors to ensure proper management and compliance. This is particularly important if the trust assets are complex or substantial.
• Specialist advice: Depending on the trust’s nature (e.g., property, investments), obtain and consider advice from relevant experts before making decisions on how to deal with trust assets.

Obtaining and documenting professional advice shows trustees are proactive and committed to acting prudently.

5. Understand and adhere to trustee obligations
 

Fundamentally, trustees must be clear about their legal and fiduciary duties. These include:

• Duty of loyalty: Act in the interests of all the beneficiaries.
• Duty of care: Manage trust assets with reasonable care and skill. A professional trustee will be held to a higher standard.
• Duty to act impartially: Balance interests among different beneficiaries fairly.
• Duty to keep accounts and provide certain information: Ensure transparency and accountability.

By understanding these obligations, trustees can better anticipate potential issues and take preventive steps to avoid breaches.

Conclusion
 

Allegations of breach of trust can be daunting, but trustees who communicate well, keep thorough records, engage in sound decision-making, seek professional advice, and understand their obligations are better equipped to respond effectively. These practical measures not only help address allegations if they arise but also serve as a foundation for good trust governance, protecting both trustees and beneficiaries alike.

About the author

Laura Phillips TEP is a Legal Director in the Dispute Resolution team. She specialises in Contentious Trust and Estate Disputes and Court of Protection Disputes, and is experienced in dealing with complex cross jurisdictional trust disputes, trustee removal applications and allegations of breach of trust.