The Trust Document and Trustee’s Duties

What are a trustee’s duties?

The unique concept of a trust is the separation of the legal ownership by the trustees and beneficial ownership by the beneficiaries. Trustees have duties of honesty, integrity, loyalty and good faith to the beneficiaries of the trust. The trustees must always act in the best interests of the beneficiaries. They must observe the terms of the trust, exercise reasonable care and ensure the correct distribution of assets, act impartially between the beneficiaries and provide certain information to the beneficiaries when asked to do so.

What should a trustee look for in the trust document?

The trust document (whether by lifetime settlement or will) states who is responsible for looking after the gifted assets (the trustees) and who is to benefit (the beneficiaries) as well as any rules or conditions that they must comply with. The trustees have legal title to the assets in the trust and are responsible for administering the trust in accordance with its terms. The beneficiaries are able to benefit from the assets held in the trust. The trust document may also nominate a “protector” who is responsible for ensuring that the trustees operate the trust in accordance with its terms and the intent of the settlor. Trustees have various legal powers to administer a trust, the scope of which is set out in the trust. Some trusts are extremely prescriptive whereas other trusts allow the trustees to exercise their discretion on how best to allocate trust assets and income.

What about worldwide assets?

Additional consideration needs to be given in relation to worldwide assets. Not all jurisdictions recognise trusts. Moreover, certain jurisdictions impose forced heirship rules and/or are subject to matrimonial regimes that require property to be dealt with in a particular way. These regimes expose a trust holding applicable assets to potential challenges.

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