Fiduciary duties and trustees

Trusts of property and/or money are established for the benefit of its beneficiaries. The trustees of the trust owe what are known as ‘fiduciary duties’ towards the beneficiaries. Trusteeship is a serious legal responsibility, and a fiduciary duty is a fundamental duty of care owed by thetrustees to the trust’s beneficiaries.

Fiduciary duties are owed by all trustees by reason of their position, which imposes a duty of undivided loyalty and good faith towards the beneficiaries. The trustees are, therefore, required to suppress their own interests and fulfil their obligations with the beneficiaries’ best interests at heart.

The specific features of fiduciary duties

A trustee’s specific fiduciary duties towards the beneficiaries include:

  • to always act in accordance with the trustee deed;
  • not to make a profit from their position;
  • not to place themselves in a position where their own interest will conflict with their fiduciary duties;
  • not to act to their own advantage or the benefit of a third person without the beneficiary’s informed consent;
  • to properly invest trust property.

Acting in good faith

A trustee must act with utmost good faith. This requires a high degree of integrity and trust. The essence of a trustee’s fiduciary duties is that the trustee must always promote the beneficiary’s interests in according with the trust deed. Therefore, the trustee is required to do all in its power to comply with its obligations in a lawful manner, and to act in good faith in accordance with the interests of the beneficiaries.

No profit rule

A trustee must not profit from their position of authority. The rule extends to any funds which, even if unrelated to the original fiduciary position, result from an opportunity presented through their fiduciary position. It is clear that the essence of the rule is that trustees are prohibited from abusing their position for personal gain in any way.

If a profit is made by the trustee by virtue of his or her position, then that fact must be communicated to the beneficiary. The beneficiary then has the power to authorise the trustee to keep the amount as remuneration for their services.

Conflicts of interest

A trustee is under an obligation to fulfil its duties in accordance with the best interest of the beneficiary for whom it is holding the property. The role could be merely temporary, nevertheless, the obligations connected with that relationship require the trustee to be fully impartial and not distracted by his or her own personal gains and interests.

This means trustees must avoid any conflicts of interest between their own interests and those of the beneficiaries.

Personal benefit

A trustee is required to obtain the beneficiaries’ fully informed consent before engaging in actions which could benefit his or herself personally, or a third party. The essence of this rule provides for a frank and open relationship between trustee and beneficiary. This exists to reduce any risk of disputes arising from the trustee’s exercise of his or her duties.

Duration of the obligations

A trustee’s fiduciary duties arise out of the trust relationship between the parties. Therefore, the trustee’s obligations last only for the duration of the trust. When the trust ends, the trustee’s duties cease to exist. The trustee’s obligations could also be terminated by the occurrence of any specific event defined in the original trust settlement.

Breach of duty

If the trustee’s performance of fiduciary duties falls below the required standard, this can constitute a breach of fiduciary duty. If a breach is proved in court, an order could be made for any financial benefit gained by the fiduciary to be returned to the beneficiary on the basis that it would be unconscionable to allow them to retain the benefit.

However, a claim for breach of fiduciary duty can be resisted if the trustee can show that the matter was fully disclosed to the beneficiary prior to the conflict, or accruing of profit, and the beneficiary authorised it.

Article written by...
Lucy Trevelyan LLB
Lucy Trevelyan LLB

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Lucy graduated in law from the University of Greenwich, and is also an NCTJ trained journalist. A legal writer and editor with over 20 years' experience writing about the law.