An independent trustee plays a key role in making sure that all trustees act impartially and in accordance with their Trust Deed, to the benefit of the beneficiaries. 

If you are the settlor, beneficiary, and trustee of your trust then an independent trustee is generally a vital addition to ensure the legitimacy of your trust – i.e. to help protect against claims by a creditor that the trust is a sham and should be broken into. 

Trustee Duties

Trustee duties are generally set out in the Trust Deed that governs a particular trust, as well as in the Trusts Act 2019.

Mandatory Duties

The Trusts Act includes mandatory trustee duties which must be performed by every trustee and which may not be modified or excluded by the Trust Deed.

The most important mandatory obligations are:

1. The duty to keep trust documentation.
2. The duty to provide basic trust information (as defined in the Trusts Act) to beneficiaries, along with any trust information requested by beneficiaries if the trustees consider it appropriate.
3. The duty to know the terms of the trust.
4. The duty to act in accordance with the terms of the trust.
5. The duty to act honestly and in good faith.
6. The duty to act for the benefit of the beneficiaries.
7. The duty to exercise your powers for a proper purpose.

 

Default duties

The Trusts Act also includes a number of default duties, which can be modified in the Trust Deed.  Whether or not any of the default duties should be modified will depend on the particular circumstances of your trust, and so should be discussed with your legal advisor when setting up your trust. 

The unmodified default duties are:

a)       A general duty of care.

b)       The duty to invest prudently.

c)       The duty to not exercise power for own benefit.

d)       The duty to consider the exercise of power.

e)       The duty not to bind or commit trustees to the future exercise of discretion.

f)        The duty to avoid a conflict of interest

g)       The duty of impartiality.

h)       The duty not to profit.

i)         The duty to act for no reward.

j)         The duty to act unanimously.

Trustees must consider the needs of the beneficiaries at all times.  They must also act within the terms of the Trust Deed.  If trustees act outside the terms of the Trust Deed, the beneficiaries have the right to bring Court action against them for breach of trust.

Trustees should ensure that the keep proper trust paperwork (such as having annual meetings, recording any funds coming in and out of the trust, and having all trustees sign all paperwork in relation to the trust). 

Trustee Liability and Indemnity

Many Trust Deeds will provide an indemnity for trustees against any losses that are not due to dishonesty, wilful misconduct, or gross negligence by the trustees.  Often a trustee is indemnified (i.e. paid back) by the trust for any losses they incur as trustee, provided they have not been dishonest, grossly negligent, or committed wilful misconduct. 

It is very important for a trustee to consider whether the trust has sufficient assets for that indemnity to be worthwhile.

Banks and other institutions providing credit and lending will generally require trustees to personally guarantee any loans to a trust, to ensure that they have the ability to chase the individual trustee for any debt of the trust, if the trust’s assets are insufficient to repay any debts.  For this reason, the lending paperwork should include a ‘limitation of liability’ clause for an independent trustee specifying that their liability is limited to the assets of the trust, to ensure that they are not personally liable beyond that. 

Banks may want all trustees to disclose their personal assets (even if they are an independent trustee) if they are lending to the trust, which an independent trustee would need to be comfortable with.

Trustees must understand the duties and liabilities connected with their role, and that is particularly for an independent trustee whose role is to act impartially in relation to the trust. 

The value of experienced legal advice when setting up a trust cannot be underestimated.  Independent trustees must be given the opportunity to obtain their own independent legal advice before agreeing to act.  If you are a wanting to set up a trust, or have been asked to act as an independent trustee, see your legal advisor for advice that suits your circumstances.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.