Trustee noun. A person having a nominal title to property that he holds for the benefit of one or more others, the beneficiaries. Trustees may be individuals or corporate bodies… A trustee must show a high standard of care towards his beneficiaries, must not allow his interests to conflict with those of his beneficiaries, and must not profit from his trust… Trustees have a wide range of powers and duties, including a duty to act equally between the beneficiaries and a power to advance money to them. In the exercise of their duties they are answerable to the court.

– Oxford Dictionary of Law

Legal jargon aside, there is a lot we can take away from the formal definition of the word “trustee” and the role this entails – they are subject to a number of important duties, which lawyers sometimes describe as “fiduciary” in nature. In simple terms, this means that trustees are in a position of trust and confidence, and they are obliged to act for the benefit of the beneficiaries named in the trust.

That fiduciary duty should not be underestimated, as the defendant learned in the recent case of Manton and others v Manton [2021] EWHC 125 (Ch). The case serves as an important reminder of the extent to which a trustee’s freedom to do what they want is limited by their duties, particularly if that conflicts with the interests of the trust.

In short, the case involved a trust which owned shares in a holding company, which owned two further companies. All those involved were trustees of the trust and directors of the companies. A dispute arose between them and the defendant to the claim, Paul, resigned and went instead to work for a competing company. It transpired that a number of existing customers took their business to him instead, resulting in loss to the holding company. The claimants took the matter to court and argued that Paul’s involvement with the new company constituted a breach of his duty not to put himself in a position where his personal interests conflicted with his fiduciary duty as a trustee.

The court decided that there was a plain and obvious risk that the trading company and, as a result, the trust, would suffer loss as a result of Paul’s decision, and he really should have considered the risk of a fiduciary conflict arising, had he considered his ongoing duties to the trust as a trustee. Just because he switched jobs did not mean that he was relieved of his trustee duties. He was in breach of the fiduciary “no conflict” rule. The court relieved Paul of his trusteeship.

The Trustee Act 2000 also lays down key areas of trustee duties and powers, such as a trustee’s duty of care imposed upon trustees, a trustee’s powers of investment, to appoint nominees and agents, to acquire land, and to be paid for work done as a trustee. Click here for the detail.

In addition to the lessons to be learned from the Manton case, trustees should also bear in mind the following:

Trust property: A trustee must get to grips with property which is held in trust (whether cash, land, or any other asset). They must take control of it and thereafter ensure its preservation.

Observe the terms of the trust: It is the trustees’ responsibility to familiarise themselves with the interests of the beneficiaries under the trust and the terms of the trust document.

Duty to act impartially between the beneficiaries: Trustees are under a duty to act in the best interests of the beneficiaries. One beneficiary must not benefit at the expense of another.

Duty to exercise reasonable care: A trustee must take “all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own”.

Duty not to profit from the trust: A trustee is not permitted (unless expressly authorised by the trust document) to obtain any profit or gain by reason of the fact that they are a trustee. Trustees must not place themselves in a position of conflict.

Duty to act personally: A trustee must act personally because an individual who is appointed a trustee has been personally chosen by the settlor (the person making the trust) for their particular expertise or knowledge of the beneficiaries and their affairs. The law does however permit delegation by trustees in certain circumstances.

Duty to act unanimously: If the trustees decide to exercise a power, their decision must be unanimous, but this is not to be confused with the exercise of a trustee’s duties which must be exercised irrespective of agreement between trustees.

Duty of confidentiality: Any information obtained by a trustee in confidence during the course of their trusteeship must be kept confidential.

Duty to disclose information: Beneficiaries must receive sufficient information about the trust assets.

Duty to keep accounts: Trustees should generally provide beneficiaries with the trust accounts upon request and need a very good reason to refuse to disclose them.

The question of a trustee’s compliance with their duties is extremely important – both for the trustee who incurs liability for breach of duty, and for the beneficiary who suffers the consequences.

Another key point to take away is that trustees are ultimately answerable to the court, which, in practical terms, means that beneficiaries have the right to issue court proceedings against a trustee for breach of duty and in the most severe cases, they may seek removal of a trustee from office and financial recompense for their losses.

It isn’t all doom and gloom – trusts do an important job of protecting property and can come with tax advantages which aren’t to be sniffed at.  Looking at things in the round, trustees may unknowingly comply with several of their duties by simply being a “good trustee”. Beneficiaries are unlikely to take issue with a trustee who is being open, fair and transparent with the beneficiaries. Unfortunately, though, the nuances of different assets, property and trust terms, together with competing needs and demands of beneficiaries, can make it extremely difficult to know the best way forward.

Trustees can, and indeed sometimes should, take professional advice to ensure they are doing their utmost to comply with their duties, not only doing right by the beneficiaries, but also reducing their risk of liability. There is good news there too; legitimate expenses incurred in running the trust are likely to be claimable from the trust. However, and as you might expect, where a beneficiary raises concerns about a trustee’s conduct, for which that trustee seeks professional advice with a view to defending the allegations made against them, the question of responsibility for the associated costs is not so straightforward and advice should be sought from a Contentious Probate Solicitor.

From the perspective of a beneficiary faced with a problem trustee, it pays to have some basic awareness of the duties owed to them and, if something does not sit right, legal advice should be taken promptly – most trust disputes can be resolved without the need for expensive court action, particularly if caught promptly and managed appropriately.

If you need legal help or advice, please contact our litigation team on our freephone 0800 8 60 62 65.

James Urquhart-Burton – Partner & Solicitor