Trustee Duties In Victoria
A trustee is a person or company responsible for administering a trust. Common trusts are superannuation funds, managed investment funds and deceased estates. The trustee has general and specific duties. In Victoria these duties are contained in the Trustee Act 1958.
Common law duties
There are duties which have arisen from court-decided law, the main one being that a trustee must act in the best interests of the beneficiary. Other common law duties for a trustee include a duty to:
- obey the terms of the trust;
- invest trust funds responsibly;
- keep trust property separate from their own;
- exercise powers in accordance with the trust (i.e. make decisions, and at an appropriate time);
- not delegate responsibilities, unless authorised by the trust terms;
- keep accurate trust records and account to beneficiaries;
- perform trustee duties without payment or compensation, unless authorised by the trust terms.
The Act specifies four main trustee duties, which align with common law duties. They are a duty to:
- exercise the powers of a trustee in the best interest of all beneficiaries of the trust;
- invest trust funds in investments that are not speculative;
- act impartially toward beneficiaries and different classes of beneficiaries;
- take advice.
The legislation sets out rules for trustee duties when it comes to investment of trust funds. The trustee must “exercise the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons”, whether or not the trustee’s profession, business or employment involves investing money on behalf of others.
When choosing an investment, a trustee must consider factors such as:
- the purposes of the trust and the needs and circumstances of beneficiaries;
- the diversification of investments;
- the nature and risk of investments;
- depreciation, appreciation and income;
- maintaining the value of the trust;
- the term of the investment compared to the likely duration of the trust;
- tax liability and inflation;
- associated costs;
- the results of a review of existing investments.
A trustee has the right to obtain independent and impartial investment advice and pay for this from trust funds.
The Act grants a trustee the power to sell, mortgage, lease, insure, repair or improve trust property in carrying out their duties. It also allows them to carry on a business using trust property. A trustee can use trust funds to reimburse themselves and pay all expenses incurred in executing the trust.
Appointing new or additional trustees
There are several scenarios where a trustee may be replaced or added. These are when a trustee:
- remains out of Victoria for more than a year without having delegated their trust responsibility;
- no longer wants to be a trustee;
- refuses to act as a trustee or is unfit to act;
- is a minor.
A person nominated by the trust, or a surviving or continuing trustee, or a personal representative of the last surviving or continuing trustee can appoint someone as a replacement trustee. The replacement trustee has all the same powers, authorities and discretions as an original trustee. If there is either a trustee company or at least 2 people remaining as trustees, a replacement trustee is not necessary.
A court can appoint new trustees if this is expedient or if it is inexpedient, difficult or impracticable to do this without the court’s help. In particular, a court can appoint a new trustee if an existing trustee is convicted of a serious crime, mentally unfit or bankrupt; or if an existing trustee is a corporation in liquidation.
There can be no more than 4 trustees for a trust for the sale of land. The restriction does not apply if the trustees hold the land for charitable, religious or public purposes.
Breaches of duties
The court can take action if a trustee breaches their responsibilities. In deciding the trustee’s liability, the court can consider:
- the nature and purpose of the trust;
- whether the trustee considered the factors (listed above) for investment, appropriate to the circumstances of the trust;
- whether the trust investments were made using an investment strategy in accordance with a trustee’s duty;
- the extent the trustee acted on independent and impartial advice of a person competent to give the advice.
If a trustee make an investment that causes a loss, the court can set off all or part of the loss against all or part of a gain from any other investment.
If a trustee commits a breach at the instigation or request of a beneficiary, the court can order the impoundment all or any part of the beneficiary’s interest in the trust.
The court also has the power to make order to compel a trustee to act when that trustee neglects or refuses to sell property, collect any income of any property, or to sue for or recover any property as required.
For advice or representation in any legal matter, please contact Armstrong Legal.