Understanding the vital role of a Trustee in Wealth Management

Trusts have long been essential tools in wealth management and estate planning. At the heart of any trust structure is the trustee, a key figure responsible for managing and administering trust assets. In this article, Nina Johnston delves into the multifaceted role of a trustee, exploring their fiduciary obligations, duties, and the powers outlined in the trust deed. Nina also clarifies the misconception (mostly from settlors/beneficiaries) that trustees should be capable of providing legal and tax advice, emphasising the importance of delegation in trustee powers.

The Fiduciary Obligations of a Trustee

A trustee is a fiduciary, a position that carries the highest legal duty of care and loyalty to the beneficiaries of the trust. Their fiduciary obligations include:

• Duty of Loyalty: Trustees must act solely in the best interests of the beneficiaries, prioritising their needs above all else
• Duty of Prudence: Trustees must exercise sound judgment and diligence when managing trust assets, making investment decisions, and executing the trust's objectives
• Duty of Impartiality: Trustees must treat all beneficiaries fairly, avoiding any favouritism or discrimination among them
• Duty of Accountability: Trustees are required to keep accurate records, provide regular reports to beneficiaries, and maintain transparency regarding trust matters
• Duty to Follow the Trust Terms: Trustees must adhere to the terms and provisions set out in the trust deed, ensuring that they are executed faithfully

Powers Outlined in the Trust Deed

The trust deed is a legal document that establishes the trust's framework, outlining the trustee's powers and limitations. These powers typically encompass:

• Asset Management: Trustees have the authority to invest, manage, and distribute trust assets according to the trust's objectives and the applicable laws
• Decision-Making: Trustees may make decisions regarding the trust, including investments, property management, and beneficiary distributions
• Appointment of Advisors: Trustees often have the power to engage professional advisors, such as lawyers and tax advisors, to assist in trust administration

The Role of Professional Advisors

While trustees have the power to appoint professional advisors, it is crucial to note that trustees are not necessarily legal or tax experts themselves. This common misconception can lead to significant misunderstandings. Professional advisors, such as lawyers and tax advisors, play a pivotal role in providing specialised independent knowledge and guidance in complex legal and tax matters which arise frequently in the context of trust administration.

Why Trustees Shouldn't Provide Legal and Tax Advice

• Lack of Expertise: Trustees are not typically legal or tax professionals, and their primary role is to manage trust assets and administer the trust in accordance with the law and trust deed
• Legal Liability: Trustees can expose themselves to legal liability if they offer legal or tax advice without proper expertise, potentially harming the interests of the beneficiaries

Imagine a scenario where beneficiaries within the class are within a dispute - how can a trustee remain impartial if they are providing legal advice to either party?

The Importance of Delegation

Delegation of trustee powers is paramount to ensuring the effective administration of a trust. Trustees should engage professional advisors when legal or tax matters require expertise beyond their scope. This not only protects the trustee from potential legal ramifications but also safeguards the interests of the trust and its beneficiaries. Some trustees may have in house tax or legal representatives, but these will typically be providing services under a separate engagement through a separate operating entity, thus maintaining the independence and providing their own professional indemnity insurance in the event of a claim.

The trustee plays a pivotal role in the successful management and administration of a trust. Understanding their fiduciary obligations, powers as defined in the trust deed, and the importance of professional advisors is essential for both trustees and beneficiaries. Trustees must recognise their limitations and seek expert guidance when legal and tax complexities arise, upholding their duty to act in the best interests of the trust's beneficiaries.

As the landscape of wealth management and estate planning continues to evolve, trustees must remain vigilant and proactive in fulfilling their obligations. By staying informed and seeking professional advice when needed, trustees can navigate the complexities of trust administration with confidence and integrity.

Equiom has extensive experience in trustee services globally, get in touch to find out how we can help with your trustee and fiduciary requirements.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained within this article without obtaining specific professional advice. Please contact Equiom Group to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.