Fiduciary duties of Executors & Trustees – what you need to know
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Fiduciary duties are those responsibilities we have to look after the best interests of others.
What are Fiduciary duties?
Fiduciary duties are those responsibilities we have to look after the best interests of others (in short!). It is not something that is unique to the role of executor or trustee. So, for example, a company director will have fiduciary obligations to their company and shareholders, and a professional advisor will hold a fiduciary position with their client.
At the core of a fiduciary role is the notion that the best interests of others will override all else, not least our personal views or needs as the holder of the fiduciary post. In the context of trust and estate administration, trustees and executors are deemed to have a responsibility to deliver the ‘best interests’ of the beneficiaries, and they must demonstrate impartiality, loyalty, and integrity in that. In particular, they should always avoid a potential ‘conflict of interest’ (ie something that might hinder their ability to abide by those broad principles).
In this article, we’ll explore the core fiduciary duties of trustees, explaining what they mean in practical terms and how trustees and executors can ensure they stick to the rules.
The core Fiduciary duties of Executors/Trustees
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LOYALTY – acting in best interests of the beneficiaries
Trustees must always act in the best interests of the beneficiaries of the trust or estate. This means things like:
- Self-serve – making decisions that benefit the beneficiaries, not themselves.
- Independence – avoiding any actions that could unfairly favour one beneficiary over another (unless the trust allows it).
- Prudent management – ensure that trust/estate assets are managed prudently and used for their intended purpose.
This applies to all executors/trustees – whether they are professionals or ‘lay’ family members.
Example: If a trustee is managing a discretionary trust for grandchildren, they cannot decide to withhold funds from one child simply because they personally (subjectively) disapprove of their lifestyle choices unless the trust expressly permits that.
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MANAGING ASSETS – duty of care
Trustees/executors are responsible for safeguarding assets and must exercise a high standard of care when managing them. The level of care required depends on the trustee’s experience:
- Professional trustees (eg solicitors or financial advisors) are held to a higher standard and must use their expertise to manage assets prudently.
- Lay trustees (family members or friends) must act carefully but can seek professional advice if needed.
The Trustee Act 2000 provides a statutory duty of care, requiring trustees to make sensible investment decisions, regularly review things, and consider the longer-term interests of the beneficiaries.
Example: If a trustee ignores a valuable investment portfolio and fails to review or rebalance it, they could be liable for any financial losses suffered by the trust.
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CONFLICT OF INTEREST – avoid avoid avoid!
Trustees & executors cannot allow a situation to arise where their own personal position or interests might (or do) impact their general duties to the fiduciary position. This sits of course with the notion of a loyalty to the beneficiaries. Courts take a particularly dim view of executors/trustees allowing conflicts to impact their conduct.
Common conflicts include:
- self-dealing – a trustee cannot buy trust property for themselves unless the trust allows it.
- favouring personal interests – if a trustee is also a beneficiary, they must ensure they act fairly towards all beneficiaries.
- using confidential trust information for personal gain – a trustee should never use their position to secure a financial advantage.
- disputes between executors/trustees – if for example executors/trustees fall out there is immediately the potential for that relationship to overshadow the need for fiduciary loyalty and independence.
If a conflict arises, the trustee(s) should:
- disclose it to the other trustees and beneficiaries.
- Make change to remove the conflict; failing which they can
- seek legal advice or court approval if necessary.
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IMPARTIALITY – between all beneficiaries
Where multiple beneficiaries have different interests (eg some entitled to income and others to capital), trustees must balance their needs fairly. This means:
- making decisions that do not unfairly favour one group over another.
- considering all beneficiaries’ circumstances before distributing funds.
- Sticking strictly to the terms of the trust.
Example: A trust might provide income to a widow for life, with the remaining capital passing to children on her death. The trustee must make sure the investments generate sufficient income for the widow, whilst also looking to protect or maximise the children’s inheritance.
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RECORDS – keep accurate records
Trustees must maintain proper records of trust decisions, finances, and distributions. Beneficiaries often have a right to request information, so good record-keeping is essential.
Key responsibilities include:
- keeping detailed accounts of income, expenses, and investments.
- recording key decisions and the reasons behind them.
- providing beneficiaries with relevant information about the trust when requested.
Failing to keep accurate records can lead to disputes and, in extreme cases, legal action.
Example: A trustee who makes discretionary distributions must document why a decision was made to prevent future challenges from disgruntled beneficiaries.
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TERMS OF THE TRUST/WILL – must be followed
A trustee cannot act beyond the powers granted by the trust deed or will. If they do, their actions may be legally invalid. Trustees/executors must:
- fully understand the will/trust
- adhere to any restrictions on distributions, investments, or trustee decisions.
- seek clarification or legal advice if unsure.
Example: If a trust specifies that capital cannot be distributed until a beneficiary turns 30, a trustee cannot override this simply because they believe the beneficiary is financially responsible.
Beneficiaries and/or fellow executors/trustees can take legal action if they believe a trustee has acted improperly. It’s important to know the rules.
What happens if a Trustee breaches their duties?
If an executor or trustee fails to uphold their fiduciary duties, they can be:
- personally liable – for financial losses suffered by the trust.
- removed – by the court.
- Regulatory redress – if the executor or trustee is for example a solicitor they may also be subject to regulatory investigation and/or even punitive measures
Beneficiaries and/or fellow executors/trustees can take legal action if they believe a trustee has acted improperly.
Final Thoughts
Fiduciary duties are at the heart of estate and trust administration. They aim to deliver objective and independent conduct (over personal gain or influence), thereby protecting the ‘best interests’ of all beneficiaries.
Whether you are a professional trustee, a family member appointed under a will, or a beneficiary wanting to understand your rights, knowing these duties helps ensure trusts function as intended.
If you have any questions or queries around any of the issues in this article, do post a question below, hop over to our forum to share thoughts there, or get in touch with one of the team here at QLAW.
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