Accepting a request to act as the trustee of a trust is an important decision, one which requires careful review of the duties and responsibilities a trustee will take on.
A decision to accept the trusteeship of a trust should not be accepted blindly. Under the case law of most jurisdictions, no one can be compelled to act as a trustee.
This blog examines some of the factors that should be considered before accepting a trusteeship.
Trustees Duties and Responsibilities
A trusteeship imposes a number of duties and responsibilities upon the trustee which were discussed in a previous Pearse Trust blog, Understanding Trustee Duties.
Any person or entity that transfers assets or value to a trust may be deemed to be a settlor of the trust. Trustees should be aware of the details of settlors, their personal circumstances, their intentions when creating the trust and any other estate matters that may be relevant to the trust.
Trustees have a fiduciary duty to act in the best interests of the beneficiaries when dealing with the trust fund. It is important for the validity of the trust that the trustee knows who the beneficiaries are, either as individual beneficiaries or from a class of beneficiaries, their relationship to the settlor and their current personal and financial circumstance. Ascertaining the needs of the beneficiaries and whether any of the beneficiaries has special needs is an important exercise before accepting an appointment as trustee.
Are there any other trustees acting as co-trustees and what are their areas of expertise? Is there a professional or corporate trustee appointed as co-trustee?
Once a new trustee accepts their appointment, legal title to the trust property will be transferred to them. A trustee should be aware of the nature and value of the property held in the Trust Fund. A potential trustee may not feel comfortable managing certain types of assets.
The trust may already have third party advisers, such as investment or tax advisors, so trustees should consider all of these relationships when considering their own role as trustee. In addition, a trustee may need to appoint new or additional advisers once they take up the role.
Where a trust is carrying on a business or owns shares in underlying companies carrying on a business, a trustee should consider the nature and performance of the business, particularly any existing and potential liabilities.
Trustees must avoid conflicts of interests when managing the trust property.
The trustee should familiarise themselves with the deed itself. The provisions of a trust deed should provide the details of the settlor(s), the beneficiaries, the trust period, the governing law, trustee powers and discretions, powers of appointment and provisions relating to decision making.
The trust deed should also enable trustees to assess the extent of their personal liabilities or indemnity as well as procedures for their proposed appointment and the retirement of the exiting trustees, whether trustees can be remunerated for their work and upon what conditions can they retire as trustee, amend the trust deed or wind up the trust.
Decision-making processes vary greatly among trusts. For example, where there is more than one trustee, the deed may require decisions to be unanimous or by majority.
The settlor may have appointed one or more Protectors of the trust who may hold certain powers over decisions proposed by the trustee.
Furthermore, trustees should know how often and where board meetings for the trust will be held and what level of record keeping and reporting will be required in the jurisdiction of the trust.
Taxation & Compliance
Trustees should consider whether their appointment as trustee has any tax implications for the trust. This may involve consideration of the residence and tax status of the settlor(s) and beneficiaries. A trustee should be satisfied with how the trust has been managed to date in terms of compliance with local record keeping requirements, tax regulations, and other reporting obligations.
Make a List
Potential trustees should consider all of the above factors and any factors specific to a particular trust when considering an appointment. Trustees routinely use checklists as guidance for obtaining such information and these are also very useful in the day-to-day management of a trust.