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The Trusts Act 2019 sets out five “mandatory duties” of trustees, which cannot be modified or excluded in any trust, and ten “default duties” which can be modified or excluded by the terms of the trust deed. These are generally accepted to be the existing duties of trustees – the Act simply categorises and codifies them. There are also three new duties imposed on trustees relating to keeping core trust documents and providing information to beneficiaries.
Setting out the mandatory and default duties in the Act is consistent with one of the stated purposes of the reforms, which is making the law of trusts more accessible. Also relevant is the context in which trustees are increasingly being held to account by both beneficiaries and the courts.
The mandatory duties
The mandatory duties (that is those duties that apply in every case and cannot be modified or excluded), set out in sections 23 to 27 of the Act, are:
- to know the terms of the trust
- to act in accordance with the terms of the trust
- to act honestly and in good faith
- to act for the benefit of the beneficiaries or to further the permitted purpose of the trust, and
- to exercise powers for a proper purpose.
The mandatory duties are those duties that are fundamental to the trust relationships, without which there is not a trust.
The default duties
The default duties, set out in sections 29 to 39 of the Act, are the other duties that may be modified or excluded (subject to certain limited exceptions) and these are:
- when administering a trust, to exercise the care and skill that is reasonable in the circumstances, having regard to any special knowledge or experience that the trustee has or that the trustee holds out as having and if the person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession (“the general duty of care”)
- when exercising any power to invest trust property, to exercise the care and skill that a prudent person of business would exercise in managing the affairs of others, having regard to any special knowledge or experience that the trustee has or that the trustee holds out as having and if the person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession
- to not exercise a trustee power directly or indirectly for the trustee’s own benefit
- to consider actively and regularly whether the trustee should be exercising one or more of the trustee’s powers
- to not bind or commit trustees to a future exercise or non-exercise of a discretion
- to avoid a conflict between the interests of the trustee and the interests of the beneficiaries
- to act impartially in relation to the beneficiaries and to not be unfairly partial to one beneficiary or group of beneficiaries to the detriment of the others (although it is expressly stated that this duty does not require all beneficiaries to be treated equally, although all beneficiaries must be treated in accordance with the terms of the trust)
- to not make a profit from the trusteeship
- to not take any reward for acting as a trustee (other than reimbursement for legitimate expenses and disbursements), and
- to act unanimously where there is more than one trustee.
Care must be taken modifying or excluding any default duty to ensure that in doing so the modification cannot be interpreted as an attempt to modify or exclude a mandatory duty. To the extent it may do so, the modification or exclusion will be invalid or may even lead a court to find that no trust was intended as the fundamental elements of the trust relationship are missing.
Principles overlaying the duties
Each of these duties is overlaid by the following principles:
- under section 4 of the Act, that every person performing a function or duty or exercising a power under the Act must have regard to the principles that a trust should be administered in a way that:
- is consistent with its terms and objectives
- avoids unnecessary cost and complexity, and
- the guiding principle in section 21 of the Act that in performing the mandatory and default duties, a trustee must have regard to the context and objectives of the trust.
The standard of care applicable
As noted above, a higher standard of care can apply to professional trustees and trustees who have special knowledge or experience. The higher standard is incorporated into both the general duty of care that applies to all matters of trust administration and the duty to invest prudently that applies to any exercise of the power of investment.
The higher standard of care for professional trustees may be excluded or modified in the terms of the trust.
New duties – keeping trust documents and disclosure to beneficiaries
The Act places three new specific duties on trustees. First, is the duty to keep, so far as is reasonable, the following documents listed in section 45 of the Act (including documents in these categories passed on by former trustees):
- the trust deed and any variations
- records of trust property that identify assets, liabilities, income and expenses (that are appropriate to the value and complexity of the trust property)
- records of trustees’ decisions
- written contracts
- accounting records and financial statements
- documents of appointment, removal and discharge of trustees
- letters or memoranda of wishes from settlors, and
- any other documents necessary for the administration of the trust.
Where there is more than one trustee, it is sufficient for one trustee to hold the documents and make them, or copies, available to the others, provided every trustee holds the trust deed and any variations to it. If this exception is to be relied on, the other trustees must ensure that proper arrangements are in place to safeguard the documents and to make them, or copies, available when asked. The documents are to be kept for the duration of the trusteeship and passed on to at least one replacement trustee on the retirement of the trustee.
The second and third new duties placed on trustees by the Act are the duty under section 51 to consider at reasonable intervals whether the trustee should make basic trust information available to the beneficiaries and the duty under section 52 to consider disclosing trust information to a beneficiary upon request. These information duties are considered in more detail in our second Brief Counsel in this series.
For specialist advice on any matter raised in this Brief Counsel please contact a member of our Private Client team.