Being an Independent Trustee
It’s more onerous than you think
In recent years, there has been a significant increase in the number of Family Trusts being created. Prudent advice is that such Trusts should have, at least, one independent (that is non-beneficiary) Trustee.
Frequently, a friend or relative agrees to become the “independent” Trustee without understanding that it can be an onerous role.
The primary obligation of all trustees is to observe the terms of the Trust and to manage the Trust properly, efficiently and in the best interests of all the beneficiaries. To be able to comply with these requirements a trustee must:-
- Be familiar with the terms of the Trust Deed and the Trustee Act1956
- Know what the assets and liabilities of the Trust are and whether they are being managed or invested properly
- Know all of the beneficiaries, their ages, needs and personal circumstances
- Treat all beneficiaries fairly and impartially
- Maintain full trust records including financial accounts
- Act personally and not allow decisions to be delegated or fettered by others
Trustees owe a fiduciary duty to the beneficiaries, must act in good faith and because of this can be held personally liable to a beneficiary for a breach of trust. Simply “rubber-stamping” the decisions of the primary trustees is not sufficient to adequately fulfil the role of the “independent” trustee. Recent changes to the Trustee Act 1956 have placed an even more onerous responsibility on trustees by requiring them to exercise “care, diligence and skill that a prudent person of business would exercise in managing the affairs of others.”
Inder Lynch Trustee Company Limited
As an alternative to a friend or relative becoming the “independent” Trustee, we have created a separate Trustee Company to fulfil the role of the independent Trustee. It is an alternative that many clients have taken advantage of. It avoids placing undue responsibility on friends and family who may be uncomfortable by the legal duties imposed by the role. The main exception to using our Trustee Company for the purpose of being an independent Trustee is in the case of a “Trading Trust”. In most of these circumstances, we recommend the incorporation of a separate limited liability company for the purpose.
“Independent” Trustees can not just be a rubber stamp for the other trustees. They must take their role seriously or suffer the consequences.