The law imposes strict obligations and rules on trustees including a duty to account for any benefits the Trustee may have gained directly or indirectly from a Trust. This goes beyond fraudulent abuse of position by a Trustee.

There is a basic rule that a Trustee may not derive any advantage directly or indirectly from a Trust unless expressly permitted by the Trust; for example, where he is a professional Trustee and the Trust provides specifically for a right to make reasonable charges for services. However, full disclosure of the basis and amount of charges is required.

The Trustee of an “Irrevocable Trust” has sole discretion over Trust assets. Your selection of your Trustee must be a carefully planned decision. The significant item to remember is that an “Irrevocable Trust” gets the assets completely out of your (the Grantor’s) name and in return you get:

The most important rule relating to the duties of a Trustee is that requiring them to obey the directions in the Trust deed both with regard to the interests of the Beneficiaries (i.e. who is entitled to what) and with regard to the administration of the Trust (managing the Trust property). Trustees are also subject to very strict standards as to the way in which their powers and discretions may be exercised.

The courts regard a Trust as creating a special relationship which places serious and onerous obligations on the Trustees. Thus the law regards the special “Fiduciary” relationship of a Trust as imposing stringent duties and liabilities on the person in whom confidence is placed – the Trustees – in order to prevent possible abuse of that confidence. A Trustee is therefore subject to the following rules:

1. No private advantage – A Trustee is not permitted to use or deal with Trust property for private direct or indirect advantage. If necessary the court will hold him personally liable to account for any profits made in breach of this obligation.
2. Best interests of Beneficiaries – Trustees must exercise all their powers in the best interests of the Beneficiaries of the trust.
3. Act prudently – Whether or not a Trustee is remunerated he must act prudently in the management of Trust property and will be liable for breach of Trust if, by failing to exercise proper care, the Trust fund suffers loss.

In the case of a professional, the standard of care which the law imposes is higher. Failure to exercise the requisite level of care will constitute a breach of Trust for which the Trustee will be liable to compensate the Beneficiaries. This duty can extend to supervising the activities of a company in which the Trustees hold a controlling interest.

In cases of substantial assets, you may add one other safety measure, “the Trust Protector.” The Trust Protector’s sole function is to hire and fire Trustees, at will and without explanation.

Grammar notations: please note that I have capitalized words such as Grantor, Revocable Living Trust, Trust, Beneficiary, Trustee for easier reading and emphasis on these words. Grammatically, they should be in lower case.