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06 Jun 2014

Dispute Resolution

Is your trust being betrayed?

Are you a trustee or a beneficiary of a trust? Are you sure the money is being managed properly? Trustees owe duties of skill and care in the administration of trusts under case law and, in certain circumstances, the Trustee Act 2000 (the “Act”).

Duty of care

A trustee must take all those precautions which a prudent man or woman of business would take in managing similar affairs of their own. This test is occasionally supplemented by the Act, which requires the trustee to act with reasonable skill and care. Any special knowledge or experience that is reasonable to expect from a person in a business or profession is considered by the court. A supplemental duty of care applies under the Act in some of the following circumstances: the exercise of powers of investment (including buying land) and insuring property.

Examples of breaches of trust by a trustee

1. Risking trust assets on only speculative, high risk ventures.

2. Distributing trust assets to a beneficiary who is not entitled to them.

3. Selling one of their own assets to the trust (self-dealing).

4.Investing in only very low yielding investments, without taking professional advice.Trustees have been given the powers of investment to make the most of the wide range of investment opportunities available in the modern market. However, that is not to say that trustees are given free reign to invest. They must act in accordance with certain criteria, devise a range of investments and take proper advice from a qualified individual.

What are the consequences of a breach of trust for the trustee?

A trustee must be able to provide a record of all trust transactions and justify each one. If they cannot, they can have a personal liability to pay compensation for all losses caused by their improper actions, or be forced to restore the relevant benefit or enrichment to the beneficiary. Taking example (4) above, the beneficiaries would be entitled to compensation if investments were made by the trustee into accounts yielding 1% annual interest when the trustee should reasonably have invested in accounts yielding 5% annual interest.

Can HardingEvans help you?

Do not let your trust be betrayed. We at HardingEvans can “health check” the trust arrangement to ensure your trust is being managed appropriately and, if it is not, comprehensively advise you of the specific consequences. We are happy to advise trustees and beneficiaries.

 

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