When you are appointed to act as a “trustee”, you are being asked to take on the control and management of property, but for the benefit of other persons, called the beneficiaries. The beneficiaries are usually family members of the person who established the trust. The person who established the trust may have done so during their lifetime, in which case they are called the “settlor” and the trust is an inter vivos trust, or they may have directed that the trust be established on their death, often under their Will, in which case they are called the “testator” or “testatrix” and the trust is a testamentary trust.
The relationship that is created between you, as the trustee and the beneficiaries is called a “trust” because the person who established the trust, in essence, ‘trusts’ you to do right by the beneficiaries. The required confidence that this person had in you, often leaves them with the sense that they are bestowing an honour on you by appointing you as the trustee. Unfortunately, without a certain amount of due diligence to better understand the nature of this honour, you may soon discover that this is one accolade you would rather not add to your curriculum vitae.
Before you decide to accept the “honour” of being appointed a trustee, you may want to better understand the job that you are taking on. Here already is an adjective that may come as a surprise to you – acting as a trustee is a job. Like any job, it is not one that you must accept. Unlike most jobs, though, because there is little in the way of available training, once you accept, in all likelihood you will be learning as you go. Further, when you make bad decisions or mistakes, while in most jobs the worst case is you might lose your job, for a trustee bad decisions or mistakes come with the risk of potentially being personally liable or financially accountable. As a result, before you accept an appointment to act as a trustee, you may be well served by educating yourself about what the job entails. A qualified trust lawyer may be the best place to seek such advice. For now though, let me give you a few points to bear in mind.
Essentially being a good trustee boils down to three things:
- Understanding what you should and should not do as a trustee.
- Being transparent with the beneficiaries by communicating with them regularly.
- Engaging in appropriate risk management to protect yourself.
What Should a Trustee Do and What Should a Trustee Not Do
First, a trustee has to comply with the terms of the trust document that applies to the trust. This will require you to read the document and ensure that you understand what the purpose of the trust is (e.g. maintain and support a spouse, provide for the educational needs of grandchildren, manage property until someone reaches a certain age) and how you are supposed to make decisions.
In addition to the trust document, the law imposes some fundamental duties on trustees. They are:
- Duty of Loyalty – A trustee must act in the best interest of the beneficiaries, which requires a trustee to avoid all conflicts of interest.
- Standard of Care – A trustee must act diligently in administering the trust property in a manner that is consistent with the same degree of skill and care as that of a prudent person.
- Even-Handed – When there are competing interests among the beneficiaries, a trustee must treat all beneficiaries fairly. This does not necessarily mean equally. Rather, the trustee must remain balanced and impartial when making decisions that may impact one beneficiary at the expense of another.
Even articulating these fundamental duties helps to put in context the importance of understanding what it means to be a trustee.
Communicate with the Beneficiaries
Ultimately you are accountable to all of the beneficiaries of the trust. The best way to avoid critical attention is to keep the beneficiaries informed. This is generally best accomplished by:
- regularly providing copies of investment or other financial statements for the trust property;
- meeting with the beneficiaries on a regular basis, say annually;
- providing an annual update of the salient decisions taken by you during each year; and
- answering questions when posed.
In addition, it goes without saying that interacting with the beneficiaries in a manner that has regard to their personal interests and needs, is also important.
At the end of the day, a trustee is responsible for the decisions they make. That responsibility means they take on personal liability. Assuming you have engaged in all of the above best practices, you will want to ensure that you are otherwise protected. Ultimately this boils down to good record keeping, including developing a written strategy for the investment and ongoing administration of the trust property, as well as appropriate accounting records that track both income and capital receipts and disbursements. It may also involve seeking releases from the beneficiaries or the approval of the court, should the former not be possible.