A Brief Overview of Trustee Duties

The new Trusts Act 2019 came into force on 30th January 2021 to replace the Trustee Act 1956.

Prior to the new Act, trustees not only had to consult the old Trustee Act 1956, they also had to consult about 50 different pieces of case law in order to know their duties and discharge them properly. As a result, many trustees would not have been aware of their duties and obligations and unknowingly creating potential risk for themselves.

The new Act has brought all of this together into one place, in order to modernise and clarify trust law, codify the mandatory and default duties on trustees, simplify the core principles of a trust and provide mechanisms to resolve trust-related disputes.

It is now more important than ever that trustees ensure their duties and obligations are carried out, and that there is clear evidence to support that. With this new clarity of trustee obligations comes new expectations of standards of behaviour, which in turn brings greater responsibility for trustees to do their job properly. Ignorance is not a defence for not fulfilling trustee duties and obligations, such that trustees are personally responsible, and therefore personally at risk, if beneficiaries do not believe that they have carried these out properly.

The Trusts Act 2019 defines the five mandatory duties of trustees and ten default duties of trustees, along with adding three new duties required of trustees related to keeping core trust documents and providing information to beneficiaries.

Five Mandatory Duties: (sections 23 to 27). These cannot be modified or excluded by the terms of the trust.

1. To know the terms of the trust.
2. To act in accordance with those terms.
3. To act honestly and in good faith.
4. To act for the benefit of beneficiaries.
5. To exercise the trustee’s powers for proper purposes.

Ten Default Duties: (sections 29 to 38). These apply unless expressly excluded by the trust deed

1. To act with the care and skill.
2. To invest with the care and skill of a prudent person.
3. To not exercise their power for their own benefit.
4. To actively and regularly consider whether they should be exercising their powers.
5. To not bind or commit the trustees to a future exercise or non-exercise of their powers.
6. To avoid conflicts of interest.
7. To act impartially between beneficiaries.
8. To not make a profit from being a trustee.
9. To not take any reward for acting as trustee (but can be reimbursed for any legitimate expenses and disbursements incurred in acting as a trustee).
10. To act unanimously with the other trustees.

In order to discharge the duties above, trustees will need to:

• Meet regularly and record minutes – if the Trust will be actively trading, investing, acquiring assets or distributing funds, the trustees will need to meet regularly and record any decisions made.
• Prepare Annual Accounts – trustees must ensure that proper accounts are prepared each year by the Trust’s accountant. Even if the Trust is simply a passive investor or holder of property, proper books of account need to be prepared. This also ensures the trustees have a complete record of the trust’s property.
• File Annual Income Tax Returns – trustees are required to file income tax returns for the Trust when it’s involved in taxable activities (trusts with no income producing activities can apply to IRD for non-active status). Trustees are personally responsible for ensuring taxes are paid as and when required. Inland Revenue introduced legislation from April 2022 requiring trusts to make certain disclosures which can only be done correctly when financial statements have been prepared.

Three New Duties
1. Duty to hold documents (sections 45 to 48). Each trustee must keep a wide range of core documents relating to the trust and pass them on to at least one continuing or replacement trustee when they stop being a trustee. Previously, some documents could be destroyed after a period of time; now, all core documents must be kept for the duration of the trust.

Documents that must be held by each trustee include:

• The trust deed and any other documents that contain the terms of the trust
• Any variations made to the trust
• Records of any trust property – assets, liabilities, income and expenses, the extent of which is determined by the value and complexity of trust property
• Records of trustee decisions (resolutions and/or trust minutes)
• Written contracts entered into
• Accounting records and financial statements
• Documents of appointment, removal and discharge of trustees
• Any memorandum of wishes from the settlor
• Any other documents necessary for the administration of the trust
• Any of the above documents that were kept by a former trustee and have been passed on to the current trustee.

2. Duty to disclose basic trust information to beneficiaries

Under section 51, trustees are required to make available to every beneficiary the following basic trust information:

• That the person is a beneficiary
• The name and contact details of each trustee
• The occurrence of, and details of, each appointment, removal and retirement of trustee, as it occurs, and
• The right of the beneficiary to request a copy of the terms of the trust or trust information

Trustees are also required to regularly consider whether to make other information available. There are a number of factors trustees can consider (section 53) when deciding whether to make basic trust information available.

3. Duty to disclose trust information upon request to beneficiaries (section 52)
Trustees must, within a reasonable period of time, give a beneficiary information regarding the terms of the trust, administration of the trust or trust property that is reasonably necessary for the beneficiary to have, to enable the trust to be enforced.

Trustees can decline to provide the information in certain circumstances, having followed the factors listed out in section 53 along with the nature and context of the request.