Trusts and breach of trustee duties

Trusts and breach of trustee duties

Maybe you have bought a property jointly with your sibling and you each agreed what shares you might have in that property. Maybe you’ve opened a bank account to keep your child’s Christmas money safe. Maybe a friend or relative has passed away and named you as the executor of their estate. Maybe you’re looking after the pot for your office World Cup sweepstake. These situations might all seem quite different but they all have one thing in common: you’ve become a trustee of a trust, with all of the duties that that comes with.

What is a trust?

In very simple terms, a trust is an arrangement where one or more people are holding some property, item, or money on behalf of someone else. The people holding the property are the trustees and people they are holding it for are called the beneficiaries.

What are a trustee’s duties?

The trustees must look after the trust property carefully for the benefit of the beneficiaries. In doing so, the trustees must act unanimously (if there’s more than one) and always act in the best interests of the beneficiaries and not benefit themselves. We’ve set out the duties of trustees in more detail here. This is fine so long as all the trustees and beneficiaries agree but can be difficult if there is a disagreement.

What if there is more than one trustee and they can’t agree how to proceed?

Unless it specifies something different in a document that sets the rules of the trust, trustees have to act unanimously. If the trustees of a trust can’t agree as to how to deal with the trust, they have to ask a court to decide what to do. The court can consider the trustees’ positions, and listen to why they think the trust ought to be dealt with in a certain way, and then make a decision as to what should be done.

What if a trustee does something they shouldn’t?

Trustees are required to act in the best interests of the beneficiaries of the trust at all time. If a beneficiary is concerned that a trustee has done something they shouldn’t do, they can ask the court to intervene. The court has the power to make a decision as to how the trust should be dealt with but can also make decisions about the conduct of the trustees. The court can remove a trustee or can require them to personally pay damages to put right any losses to the beneficiaries of the trust.

What are some of the common breaches of trustees’ duties?

There are a number of more common breaches that might arise in the conduct of a trust. These are:

• Distributing trust assets to someone who is not entitled to them – the trustee might be favouring one beneficiary over others, or might be paying out assets when they are supposed to be holding them to generate income.
• Investing trust funds inappropriately – the trustee could take excessive risks with assets held on trust by placing the assets in a risky investment, or could be investing the assets in a way that ties them up for too long.
• Self-dealing – the trustee could be profiting from their management of the trust and their use of the trust assets in a way which they are not allowed to do.
• Breach of the duty of care and skill – the trustee might be negligent in the way they look after trust assets, for example investing without exercising reasonable care or not properly looking after a property that is held on trust.

Our dispute resolution solicitors at Ellis Jones can advise you if you have any concerns about the management of a trust or if you are a trustee worried about a potential dispute. Call us on 01202 525333 to discuss.