Trustee Of A Will
A trustee is a person responsible for administering a trust. Once an executor of a will has completed their duties, if a will has a trust within it or establishes a trust, the role of the trustee begins. The trustee has become the legal owner of any assets held in the trust and will manage those assets according to the trust terms.
A trustee should be someone the testator trusts implicitly, and could be a family member, friend, accountant or lawyer. The person will need to have or seek legal and tax knowledge to carry out the role.
Many testators nominate the same person to act as executor and trustee but it is possible to nominate a different person for each role. A will that contains a trust will initially refer to an executor, then to a trustee.
When a will creates a trust, the role of the trustee can continue for a period nominated by the testator. In some states, 80 years is the maximum period for which a trust is permitted to exist.
Some duties and powers are contained in the trust document, which is often the will itself, and will depend on the type of trust being administered. The trustee may be required to:
- preserve and manage estate assets for minor beneficiaries until they turn 18;
- preserve and manage estate assets for a beneficiary until they attain a specific age nominated by the testator;
- preserve and manage estate assets placed into a testamentary trust created on the death of the testator;
- administer accounts and lodge tax returns for trusts.
However, they must always:
- 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.
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.
Unless a trust document states otherwise, a trustee can invest funds in any form of investment, and at any time vary an investment. They 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, they 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.
A trustee has the power to sell, mortgage, lease, insure, repair or improve trust property. They can also carry on a business using trust property.
They can use trust funds to reimburse themselves and pay all expenses incurred in executing the trust.
The court can take action if a trustee breaches their responsibilities. In deciding their 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.