A recent court case in Wales involving a mother accused of stealing her daughters’ £50,000 inheritance while acting as a Trustee highlights the importance of appointing suitable Trustees and the possible consequences for Trustees’ in breaching their legal duties.
Trustees are appointed to hold and manage assets on behalf of others, commonly in a Will but also in respect of Trusts set up in a person’s lifetime. Trustees must abide by strict legal and fiduciary duties flowing from both the common law and statute law. In the Welsh case, Trustees appointed under a Will were accused of abusing their position and emptying a bank account intended to hold the Trust funds until a beneficiary came of age. The Trustees were tried and convicted and have been told to expect prison sentences. While this was a criminal matter, Trustees can face civil sanction including personal liability for breach of duty.
Trustees must act in the best interests of the beneficiaries, exercise reasonable care and skill, and avoid conflicts of interest. Aside from possible criminal sanctions in extreme cases, a failure to properly abide by their duties can lead to a finding of personal liability for any losses caused to the Trust by the failure.
Trustees must act impartially, setting aside their personal interests and where transactions affect them personally, they should excuse themselves from voting on the matter.
The Trusts and Succession (Scotland) Act 2024 seeks to codify and modernise Scottish Trust law and further guidance on this topic can be found here. The Act reinforces the existing principle that Trustees are expected to adhere to higher standards of accountability and transparency than would be the case if they were managing their own affairs.
Trustees are required to maintain accurate and comprehensive records of trust assets, transactions, and decisions. These records serve as evidence of the Trustee’s compliance with their duties and can be crucial in resolving disputes or inquiries. Engaging professional Trust advisers such as a Solicitors and Accountant will ensure that actions and transactions are recorded properly.
Trustees should seek professional advice when necessary and especially in matters pertaining to financial, tax and legal compliance. Doing so will help Trustees, in the event of any challenge, demonstrate that they have fulfilled their legal duties to the beneficiaries.
If you are a Trustee, or have been asked to become a Trustee and would like further advice, contact Thorntons’ Private Client team on 03330 430150.
