Sunday 16th July, 2006

 

Role and duty of the trustee

 
 
 
 
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The Montreal Trust Company Act of 1915, in an early document of law was passed in the Parliament of Trinidad and Tobago. This allowed people to establish legal trust instruments in the interest of estates, companies and creditors.

We have previously examined basic trust arrangements and the types of trusts. Today, we will focus on the role and duty of the trustee.

Foremost, is the role of the fiduciary! A fiduciary can be an individual or an institution charged with the duty to act exclusively in the supreme interests of the beneficiaries of the trust, in accordance with the law.

This invokes the concept of total loyalty to the beneficiary within the relationship. In the case of an institution, there may be an appointment of named persons who will actually carry out the functions of the fiduciary.

The trustee is expected to preserve the property of the trust and defend actions against such property, as well as ensure that claims and entitlements of the estate are pursued with diligence.

All facts known to the fiduciary, relevant to any transactions must be fully disclosed to the beneficiaries. All accounts must be maintained according to acceptable accounting standards and must be available to the beneficiaries. In these relationships, it is not easy to delegate the responsibilities of the fiduciary to others.

The trustee cannot commingle his own property with that of the estate in the trust and cannot use the trust assets to make a profit for himself. However, he is charged with the responsibility to put the property to productive use in the interest of the beneficiaries. In other words, property should not be left idle or allowed to waste.

The trustee is expected to exercise the same degree of skill and prudence, in managing the assets, as though it was his own. Especially, he is prevented from self-dealing with trust assets.

This means that the fiduciary should not sell trust assets to himself, even if it is at fair market value. An exception may be when there is full disclosure and full participation by all parties, or by a decision of a court of law. If that is not the case then the beneficiaries can deem the sale transaction to be void.

If there are other trustees, there is the duty to communicate with all parties, and decisions on the use and distribution of assets must get a unanimous vote.

The trustee will distribute income and assets according to the terms and conditions, of the instrument.

If there are multiple beneficiates, there must be unbiased treatment and a willingness to hear complaints and to ensure that appropriate mediation is facilitated if there is a dispute, especially on the behalf of minors.

Some grantors (creators of the trust) include clauses that disallow beneficiaries from participating in certain discussions, in order to prevent conflict.

With respect to institutional instruments, it is possible for companies to establish common trust funds, into which assets from single and separate trust agreements can be invested, collectively. Commonly such arrangements also avoid taxation of the trust assets.

All actions of the trustee are subject to possible liability charges. Breach of the fiduciary responsibility is a subject for the courts. Some breaches of duty are clear, others may not be so.

For example, would it be a breech in our local market, when a fiduciary places a sizable sum of money in a savings account in order to “secure” the money via the deposit Insurance laws, when such an account is paying a return of less than 1.5 per cent per annum?

 

 

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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell