Importantly the Act sets out 2 distinct types of duties:
Mandatory duties are those that cannot be modified or excluded by the trust deed; in particular, trustees must:
- know the terms of the trust and always act consistently with these
- act honestly and in good faith
- act always for the benefit of the beneficiaries
- ‘actively’ administer the trust – a passive ‘rubber-stamping’ approach is no longer acceptable
- exercise their powers for a proper purpose
In addition, Default duties may be modified by the terms of the trust but only where any such change is expressly explained to and acknowledged by the settlor, these include,
- a general duty of care
- avoiding conflicts of interest and importantly, that trustees do not act in their own interests
- all investments must be made prudently
- trustees must act impartially and unanimously towards beneficiaries
Furthermore, trustees can no longer rely on broadly worded clauses that provide Indemnities or Exclusions of Liability in their favour. Trust deeds can still provide such Indemnities or Exclusions but, again, only where these are specifically explained to and acknowledged by the settlor. Any such clauses that allow for dishonest, wilful, or gross misconduct are expressly invalidated.
Lastly, the new Act also introduces additional obligations for disclosure of 2 categories of information to be provided to beneficiaries;
- Basic information e.g their status as a beneficiary, their right to information, details of the trustees
- Trust information e.g most other trust documents including deeds, financial statements, assets and liabilities etc.
These disclosure requirements are subject to considerations such as confidentiality and the age of the beneficiaries.
In summary, to prepare for the pending implementation of the Act, trustees should now:
- Understand their new obligations
- Review all trusts for which they act
- Consider whether the existing trust deed remains adequate
- Collate all core documents to ensure these are available for reference by beneficiaries
As always, this document is intended as an introductory overview only and should not be taken as legal advice.
Now may also be a good time to review your Trustee Insurance cover, so please do not hesitate to contact us with any questions you may have.