Many of us have acted as an Executor and/or Trustee under a Will. Not so many of us are aware of the onerous obligations we have in those positions.
An Executor is obligated to execute the terms of a Will in strict accordance with the deceased’s (“the testator’s”) instructions. A trust under the Will (“the testamentary trust”) only arises if expressly declared by the testator. A common event which sets up a testamentary trust is when children are to receive their share of the estate at a certain age and they have not reached that age when the testator dies. The executor then becomes a trustee with the responsibility to administer the estate (“the trust fund”) until it can be paid out to those beneficiaries.
Reality Check for Trustees obligations under a Will
The overriding obligations imposed on trustees are called fiduciary obligations. They sit as an umbrella over everything a trustee does.
They can be summarised as follows:
Firstly, trustees must never put themselves in a position of conflict between their duty as trustees and their personal interest. They cannot profit from their role as trustees. So for example, without specific authorisation or the consent of all beneficiaries, it would be unusual for trustees to buy property from or sell property to the estate. Trustees for their work. (Out of pocket expenses are another matter).
Secondly, trustees have a duty to act in good faith and in the interests of the beneficiaries. At its most basic this obligation means trustees cannot sell the estate’s property and pocket the proceeds.
Thirdly, trustees cannot delegate their powers and must act personally. Al trustees should be consulted about matters and agree before taking action.
Further Do’s and Don’ts
So what do trustees do? They must completely manage and administer the trust fund. More specifically:
Trustees must be acquainted with the terms of the trust and all associated documentation. This is not as difficult when the trust is set up under the terms of a Will. Any specific instructions in that Will must be adhered to.
Trustees are bound by powers given to the trustees under the Trustee Act 1956 with any specific powers mentioned in the will.
Trustees must act impartially between all beneficiaries and different classes of beneficiaries. So, if the estate has income beneficiaries (“…to pay all income to my wife during her life..”) and capital beneficiaries (“…and after her death to divide the balance equally among my children…”) the trustees would be unwise to invest all the estate funds in high income, low capital growth investments.
And lastly, trustees must keep proper accounts and full records of all their decisions.
So if you are a trustee/executor of a Will, you have fiduciary obligations which will guide all your actions and a specific duty to manage and administer the trust in a competent manner. If you are in any doubt about your obligations and duties, seek professional advice.
DISCLAIMER: All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.