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Trustee Duties and Responsibilities

Related Content: Breach of TrustEquityFair-Dealing and Self-DealingLegal Liability of Offshore Trustees and Trust CompaniesTrust
 

There is a fundamental requirement that the trustee should take full legal ownership and control of the assets.

The duties and responsibilities of trustees have always been onerous. In the last few years, a number of important court decisions have considerably increased their exposure.

The responsibilities of trustees are in relation to property held by them or under their control. A trustee must not make use of trust property for his private advantage and must account for profit made out of the trust.
The trustee is obliged to administer the trust property in the manner lawfully prescribed by the trust instrument (trust deed or settlement), or in the absence of specific provision, in accordance with equitable principles or statute law. The administration will thus be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the beneficiaries.
Trustees stand, broadly speaking, in the shoes both of the creator of the trust, who may be living or dead, and of the beneficiaries. Their powers of dealing with the property entrusted to them are to be gathered from the true construction of the trust instrument, if any, as supplemented or restricted by the principles of equity and by statutory provisions. In most countries, the court exercises ultimate control over all trusts. In the normal course, a trustee is not personally liable for tax. It is the trust’s assets that will be used to pay the taxes, not the trustee’s personal assets.

The trustees stand in a fiduciary relation and must hold the property or exercise the rights in a fiduciary capacity. In many relationships, e.g. partnership, a person stands towards another or others in a fiduciary relationship and may be deemed a trustee for some purposes.

The courts have over the centuries greatly elaborated principles laying down the rights, powers, and duties of trustees. In particular, high standards have always been demanded of trustees in respect of care for the trust estate, careful investment, strict accounting, fair apportionment between income and capital, duty to pay the right beneficiaries, and absence of personal profit or self-interest and trustees have frequently been held liable to repay to the trust losses caused by lack of care or other breach of trust. Trust property can be recovered from a third party who has obtained it unless he obtained a legal title, for valuable consideration, and without notice that his acquisition was in breach of trust.

The trustees’ duties and responsibilities are essentially:
- to take possession of and preserve the trust property;
- to be diligent and prudent in administering the trust property;
- to act personally;
- to be impartial as between beneficiaries;
- to keep accounts;
- to give information to the beneficiaries as required; and
- to invest the trust funds in the manner permitted by statute.

If in doubt, trustees are entitled to obtain the opinion of the court as to the right course of action, and they may have specific questions determined by the court.

The court now has wide powers to approve arrangements varying or revoking the trusts or enlarging the powers of the trustees.

While the duties and responsibilities of trustees have always been onerous, in the last few years, a number of important court decisions have considerably increased their exposure. Combining this with the fact that, by definition, the asset protection trust is operating in an area where litigants may be trigger happy, offshore trustees are now becoming very concerned at the potential risks, and finding it almost impossible to obtain insurance cover.

Many a client seeking an asset protection vehicle is horrified to find that he loses control of his hard-earned assets to some foreigner in a remote jurisdiction who could, in strict law, take decisions entirely independently of him.

Devices such as letters of wishes (letters of intent), trustees’ file notes, and special functions of the protector, are coming increasingly under attack as being nothing more than an extension of settlor control. Reporting requirements for settlors of offshore has made life very much more difficult for overseas trustees.

It follows that the attainment of the international tax planning or other objectives of an offshore trust set up in a tax haven or IOFC (international offshore financial center) may be vulnerable to the double risks of invalidity and/or non-recognition in the legal and fiscal contexts.

 
 
 
 
 
 

Know your Offshore Terms:

 
 
 

Joint Ventures Incentives

Favoured treatment may be accorded to companies engaged in certain joint ventures where they carry on such activities through the medium of limited partnerships or other tax-efficient partnerships. Joint ventures incentives may play a role in an international tax plan, since they may contribute toward closing the gap between high tax jurisdictions and tax havens or international offshore financial centers (IOFCs).
 

Citizenship and Passports

Many offshore persons need more than just residence in another country. Citizenship can be the critical problem—and usually a more difficult one—to resolve. The United States, for example, taxes on the basis of citizenship, and shedding U.S. citizenship may be a painful procedure. International tax planning can, in such cases, become a complicated exercise.
 
 
 
 
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