In their fiduciary role, trustees must act in good faith and in the best interests of the beneficiaries at all times. One of the main duties of trustees is to manage the trust efficiently which requires effective communication between related parties and due consideration of matters affecting the trust.
Manage the Trust Efficiently
Effective management systems should be in place to ensure that the appropriate decisions are made in a timely manner and taking into account the terms of the trust and the interests of the beneficiaries. This will assist trustees in the following areas:
- Monitoring and reviewing bank statements, investment reports, financial statements etc.
- Keeping proper records and accounts
- Considering requests from beneficiaries or other parties
- Discussing commercial and legislative developments that may affect the trust
- Keeping up-to-date on circumstances of the beneficiaries
- Effective communication with related parties such as co-Trustees, Protectors, lawyers and investment managers
- Establishing procedures for trustee meetings
Trustees have a duty to act personally. They must be involved in trust decision-making and act personally in the process. Beneficiaries or other parties should not dictate how discretionary trustee decisions are made.
It is crucial that the trustees of discretionary trusts exercise their discretionary powers of management and control of the trust. This was evidenced in the Fundy Settlement where the court applied "the central management and control test" to determine the residency of the trust.
Where there is more than one trustee, the trustees should communicate with each other on a regular basis. This also applies to corporate trustees or private trust companies with more than one director, even if the directors lived in different parts of the world. The holding of trustee meetings ensures proper management of the trust’s affairs and demonstrates effective control and management of the trust by the trustee. The frequency of meetings often depends on the size, activity and complexity of the trust.
Trustees must always exercise their powers and make decisions in accordance with the terms of the trust. The trust deed will often include provisions relating to the procedures for trustee meetings such as permitting meetings via telecommunications.
Where the trust deed is silent on a matter, all trustees must agree unanimously in order for a decision to be valid. In such cases, where one trustee makes a decision without approval of a co-trustee, the decision will be invalid unless subsequently ratified by the other trustee.
Minutes should be prepared to document a meeting and the decisions made by trustees at the meeting. In order for the decisions to be valid, the quorum and other procedural requiremetns need to be satisfied. The finalised Minutes should be circulated to all attendees and stored in the records of the trust.
Trustees have a legal duty to discuss, agree and document the activities of a trust. Failure to fulfil this duty may result in the trust being deemed to be a sham trust. Furthermore, the trust may be subject to the management and control test to determine tax residency so it is important that the trustees exercise their discretionary powers of management over the trust and document all decisions appropriately.
Professional trustees such as Pearse Trust will always ensure that regular trustee meetings take place to uphold the integrity of your trust and ensure that it is managed efficiently.