The Duties of Being a Trustee

Trustees can be appointed for any number of reasons, but whatever the purpose may be, the duties of a trustee are typically to hold the legal title of an asset or group of assets for another person. Trusts are made up of four components: the settlor who creates the trust, the trust and its assets, the trustee who is responsible for the trust, and the beneficiaries of the trust.  When a settlor creates a trust and appoints a trustee, they are in essentially “trusting” you to manage the assets appropriately for their beneficiaries.  This may seem like an honor or a privilege, but in reality, being named a trustee is a huge responsibility and can be a stressful position to uphold.

What You Need to Know

A trustee is a fiduciary in the eyes of the law and is expected to uphold a duty of loyalty and prudence and are personally liable for any breaches of his or her fiduciary duties.  The following are three key duties of a trustee:

  1. The Trust Deed: What You Should and Shouldn’t Do.

    It is your responsibility as a trustee to read and understand the trust documents. The documents should outline the purpose of the trust and how decisions about the trust should be made. The trustee is expected to comply with instructions set out in the trust document. It is critical that the trustee obey the guidelines set out for them as they will be held personally liable if there is a breach.

  2. Risk Management and Prudent Investing

    As mentioned above, a trustee is personally liable for the decisions they make with regard to the assets held in the trust.  It is in the trustee’s best interest to take up outstanding record keeping and decision-making practices.  In circumstances where investment decisions need to be made it is important that the trustee develops an investment plan that assesses both risk and the returns that will be associated with the portfolio. This plan is to be reviewed at least annually to make sure it aligns with the interests of trust.  In Canada, trustees are permitted to pass investment authority to an investment advisor as long as the choice of advisor is in the best interest of the trust and the advisor is prudent.  It is common for trusts to have a clause in the trust documents that appoint an investment advisor.

  3. Accountability to the Beneficiaries

    Finally, the trustee is first and foremost expected to act in the best interest of the beneficiaries. There are times that there may competing interests between the beneficiaries, but the trustee is always required to treat the beneficiaries fairly. This is referred to as the “Even-Hand” rule and it requires that trustee must remain impartial when making decisions that could affect two beneficiaries differently.

The Bottom Line

It is important to have an in-depth understanding of what your position as a trustee could entail. Accepting the position of a trustee should not be a decision that should be treated lightly.

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This information is designed to educate and inform you of financial strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a Qualified Financial Advisor.