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Trustee Duties
A trustee is conferred many duties when administering trusts. These obligations ensure the trustee acts to a high standard throughout their dealings with the trust.
A trustee is held liable if he breaches a duty or exercises a power he does not have. Liability here means the trustee pays equitable compensation to the trust fund for any losses caused due to their breach of duty. For instance, a trustee failing to properly supervise the trust fund which results in a loss of funds is liable to the beneficiaries.
Trustee Defences to a Breach of Trust
Still, there are many defences available to trustees when facing liability for a breach of trust. For example, the trustee may assert there is a lack of causal link between the breach of duty and the loss to the trust fund. Causation is integral to the breach, so its absence can allow trustees to escape liability.
Additionally, the Limitation Act 1980 imposes a six-year statutory limitation period when bringing an action against trustees. Though, it is important to note that any fraudulent breach of trust, namely dishonesty, is not subject to the limitation period.
Providing trustees with protection from liability is controversial as they voluntarily assume the role. Hence, many believe they should be fully responsible for any errors made whilst administering the trust. In particular, trustee exemption clauses are the most debatable form of protection.
Trustee Exemption Clauses
Usually, when appointed, trustees firstly check whether there is an exemption clause included within the trust deed. This clause excludes the court from finding the trustee liable for a breach of trust.
In the past, family members administered trusts. Presently, trustees are usually banks who are paid significantly large sums of money to manage trust funds. Controversy is sparked when they exclude their liability whilst still being paid.
Should exemption clauses be allowed?
The foundation of equity rests upon the principles of fairness and conscience. It is asserted by many individuals that exclusion clauses disrupt these values because they wrongly allow trustees to escape responsibility for any errors made or duties breached.
Contrastingly, trustees are subject to numerous duties. For example, they must act with reasonable care, invest the trust fund, and obey the terms of the trust, to name a few of their duties. Therefore, some individuals agree with trustee exemption clauses because they help trustees to avoid penalisation when making errors, especially if the trustee is a family member or friend of the trust creator, rather than a paid professional.
Conclusion
As professionals increasingly take on the role of a trustee, it is likely trustee exemption clauses will continue to operate despite the criticism received. They promote flexibility within equity by allowing courts to decide whether a specific exclusion clause can be held as valid or not. Hence, they are useful in a multitude of circumstances when identifying the fairest outcome regarding a trustee’s liability.
By Ava Edwards, a student at Southampton University.
