Agreeing to act as a trustee rarely feels like a legal appointment at the time. It is usually a favour to a friend, a parent, or a business associate, and the paperwork tends to arrive long after the decision has been made.

English law, however, treats the position seriously. Whoever holds assets on trust becomes their legal owner while enjoying none of the benefit, and every decision taken must ultimately be justified to the people entitled under the settlement. Where a trustee falls short, the courts can order them to make good the resulting loss from their own resources – which is why understanding the scope of the role matters well before any dispute arises.

What a trustee actually does

Legal title to the trust fund sits with the trustee; the beneficial interest belongs to the beneficiaries named in the will or trust deed. That separation of ownership is the source of every obligation discussed below.

Day-to-day responsibilities vary enormously depending on what the fund contains. Someone administering a modest cash portfolio faces a very different workload from a person managing farmland, a share in a trading company, or a portfolio of let residential property. Common tasks include:

• Identifying and safeguarding all assets belonging to the fund.
• Reviewing how those assets are invested and whether the mix remains suitable.
• Distributing capital or income in line with the terms of the settlement.
• Meeting income tax, capital gains tax, and inheritance tax obligations on time.
• Maintaining accurate accounts and answering reasonable questions from those entitled to benefit.

Trusteeship is not a passive role. Doing nothing is itself a decision, and one for which a trustee can be held accountable.

The core obligations owed to beneficiaries

Acting in the beneficiaries’ best interests

Every power conferred on a trustee exists for one purpose: advancing the interests of those entitled under the settlement. Personal preference, family politics, and sentiment about particular assets carry no weight. Where a decision cannot be explained by reference to beneficiary benefit, it is vulnerable to challenge.

The statutory duty of care

Section 1 of the Trustee Act 2000 requires such care and skill as is reasonable in the circumstances, taking account of any special knowledge the individual has or holds themselves out as having. A solicitor or accountant appointed partly for their expertise is therefore judged more stringently than a lay family member.

This standard applies to investment, acquisition of land, appointment of agents, and insurance decisions, among other functions. Professional trustees cannot plead inexperience; equally, lay trustees cannot rely on their lack of knowledge if they never sought help.

Balancing competing interests fairly

Many settlements create a life tenant entitled to income and remaindermen entitled to capital. Their interests pull in opposite directions – income-producing assets favour one group, growth assets the other. Holding the balance even between them is a distinct obligation, and preferring whoever happens to be most vocal is a recognised route to litigation.

Avoiding conflict and personal gain

No trustee may profit from the position or place themselves where duty and self-interest collide, a rule that applies equally to company directors. Principles running from Keech v Sandford through Boardman v Phipps remain firmly in place. Purchasing an asset from the fund, granting oneself a tenancy, or channelling work to a connected business will all attract scrutiny, however commercially sensible the arrangement appears.

Remuneration follows the same logic. Sections 28 and 29 of the 2000 Act permit payment in defined circumstances, and many professionally drafted instruments contain an express charging clause, but entitlement should never be assumed.

Record-keeping and disclosure

Beneficiaries are generally entitled to see trust accounts and documents recording how the fund has been dealt with. Following Schmidt v Rosewood Trust, disclosure is a matter for the court’s supervisory jurisdiction rather than an absolute right, yet trustees who resist reasonable requests tend to fare badly. Contemporaneous notes explaining why each significant step was taken are the single most effective protection against later criticism.

Investment obligations under the Trustee Act 2000

Wide investment powers came with corresponding safeguards. Before exercising them, and periodically afterwards, trustees must consider the standard investment criteria in section 4: whether a particular investment is suitable, and whether the portfolio is appropriately diversified given the size and purpose of the fund.

Section 5 goes further, requiring proper advice unless it is reasonable to conclude none is needed. That threshold is low, and dispensing with advice on a fund of any substance is difficult to defend. Reviews should happen at sensible intervals rather than only when something goes wrong.

Retaining a single asset – often a former family home or a legacy shareholding – is where problems most commonly begin. Concentration is not automatically a breach, but a trustee who has never asked whether it remains appropriate has little to say when challenged.

What the courts have decided

There has been significant case law in recent years regarding the duties and liabilities of trustees when faced with decisions regarding whether to sell or retain land, incur expenditure on repairs or to take legal action (Brudenell-Bruce v Moore [2014], Jeffrey v Gretton [2011], Cotton v Earl of Cardigan [2014] and Page v West [2012]).

Notably, in Brudenell-Bruce v Moore [2014] a beneficiary with a 49% share in the trust was unhappy with how the trustees had managed the trust’s assets. This beneficiary brought a number of claims against the trustees for allowing a building (forming part of the trust’s assets) to fall into disrepair, failing to re-let a property and allowing a non-beneficiary of the trust to live rent free in one of the properties. Both trustees were found to be in breach of trust, with one trustee ordered to repay the remuneration he had received as trustee and removed as trustee.

Removal and repayment together illustrate how far the court will go. Loss of office is not reserved for dishonesty; serious mismanagement and a breakdown in workable relations can be enough.

In Jeffrey v Gretton [2011] we were reminded that trustees are held to the standard to be expected of a reasonable, prudent man of business, meaning they need to review trust investments and to seek professional advice if they are unsure on whether to sell trust assets (e.g. land or property).

That case concerned a dilapidated house retained and renovated over several years while values stagnated. Criticism attached less to the eventual outcome than to the absence of any structured decision-making along the way.

Cotton v Earl of Cardigan [2014] arose from a long-running dispute over the Savernake estate, where the court sanctioned a sale opposed by the beneficiary in order to clear liabilities threatening the fund as a whole. Preserving an asset for its own sake carried no weight against the financial position. Page v West [2012], by contrast, examined the consequences of trustees pursuing litigation without adequate protection, a reminder that the costs of a failed claim can land personally on those who brought it.

Read together, these decisions point in one direction. Courts rarely second-guess a commercial judgment reached through a proper process, yet they intervene readily where no process existed.

Additional obligations where the fund includes land

Trustees of land hold the powers of an absolute owner under section 6 of the Trusts of Land and Appointment of Trustees Act 1996, subject to duties that do not apply elsewhere. Section 11 requires consultation with beneficiaries of full age holding an interest in possession, so far as practicable, and giving effect to their wishes where consistent with the general interest of the fund.

Disagreement can be resolved under section 14, which allows any trustee or person with an interest to apply for an order. Judges weigh the factors set out in section 15, including the purposes for which the property is held and the welfare of any minor occupying it. Applications of this kind frequently arise when one branch of a family wishes to sell and another wants the property retained, the same deadlock that affects co-owners outside a trust.

When personal liability arises

Breach of trust triggers an obligation to restore the fund to the position it would have occupied had the breach never happened. Compensation is measured by reference to that loss rather than by any gain the trustee made, and there is no requirement to prove dishonesty – a genuine mistake made carelessly is sufficient.

Several features of this exposure catch people out:

• Liability is joint and several, so a claimant may recover the full sum from whichever trustee is most easily pursued.
• A passive trustee who leaves everything to a co-trustee can still be liable for failing to supervise.
• Delegation under Part IV of the 2000 Act does not transfer responsibility; agents must be selected carefully, given proper written policy where required, and reviewed.
• Personal assets are at risk, since indemnity from the fund is lost where the trustee has acted in breach.

Claims frequently surface years later, typically when a beneficiary reaches majority, a life interest ends, or a professional adviser reviews historic accounts.

Defences and protective steps

Exposure is rarely absolute. Well-drafted instruments often contain exemption clauses, and Armitage v Nurse [1998] confirmed these can validly excuse everything short of dishonesty – though they will be read narrowly.

Other routes include:

• Section 61 of the Trustee Act 1925, under which the court may relieve a trustee who acted honestly and reasonably and ought fairly to be excused.
• Informed consent or acquiescence by an adult beneficiary of sound mind, which bars that individual from later complaining.
• The limitation defence in section 21 of the Limitation Act 1980, subject to the well-known exceptions for fraud and for property retained by the trustee.
• Directions from the court under the Public Trustee v Cooper jurisdiction, sought before a momentous or contentious decision is implemented.
• A Beddoe order, obtained in advance of litigation, confirming that costs may properly be met from the fund.

Applying to the court in advance costs far less than defending a claim afterwards, and the protection it provides is difficult to dislodge.

Options open to a dissatisfied beneficiary

Anyone entitled under a settlement who suspects mismanagement should begin by requesting the accounts and an explanation of the decisions in question. Disputes often dissolve once the reasoning becomes visible.

Where concerns persist, remedies range from an account and inquiry through to compensation, tracing of misapplied property, and injunctive relief. Replacement of a trustee may be achieved under section 36 of the Trustee Act 1925, by the court under section 41, or through any express power in the instrument itself. The guiding principle from Letterstedt v Broers remains the welfare of the beneficiaries rather than punishment of the individual.

Reducing the risk before problems develop

Most claims trace back to omissions rather than deliberate wrongdoing. Practical measures that make a real difference include:

• Reading the instrument properly at the outset and identifying exactly which powers exist.
• Recording the reasoning behind significant decisions at the time they are made.
• Obtaining written valuations and investment advice, then acting on it or documenting why not.
• Reviewing the portfolio at regular intervals rather than waiting for a beneficiary to ask.
• Insuring, repairing, and letting property on commercial terms, with any departure explained.
• Communicating openly with everyone entitled to benefit, including those with future interests.

It is a trustee’s paramount duty to generally provide the greatest financial benefits for present and future beneficiaries, but, as case law shows, it is not always easy to know how best to do this and proper advice from reputable experts is essential.

If you feel you would benefit from guidance, as a beneficiary or trustee, please contact the Private Client department at Stone Rowe Brewer LLP. 

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An up to date will is essential for making the transition of your passing bearable for those around you. By amending your will through a codicil you can save your family and friends any potential disputes after your passing.

The importance of creating a will 

Despite it being the only way to make sure your wishes are carried out after your death, there is still a significant portion of our population in the UK without one. In the UK around 59% of adults don’t have a will and a total of 5.4 million are unaware of how to create one. The importance of creating a will is that you have the ability to control exactly where your possessions go. Creating a will is truly the only way to protect your estate in its entirety when you pass.

This is why we want to raise awareness and understanding of wills

By raising awareness we can impart our knowledge to some of those 5.4 million adults and strive to increase both awareness and understanding of the importance of a will. 

Specific amounts and items cannot be controlled unless documented by a will. For those with a will in place, the process is simple and lets you share the inheritance with family, friends or even those you wish to inherit some of your assets.

Those who die without a will leave their assets to the rules of intestacy. Intestacy is a complex process that leaves all possessions to only close family members and partners. 

Rules of intestacy complicate inheritance 

The worst-case scenario for those without a will starts the process of intestacy. This is a list of people who have no right to inherit without a will:

• Unmarried partners 
• Lesbian or gay partners (not in a civil partnership) 
• Carers 
• Close friends 
• Those related by marriage

By law, your assets cannot be passed onto these figures without a documented will. If you die with no surviving family members The Crown will claim your estate, this is known as a bona vacantia.

Other important benefits of having a will 

For those with kids or pets they love. A will gives you the choice to decide where you want them to go where you die. If your child is a minor you can nominate a guardian so you can have peace of mind when you pass that they are safe without you there. Similarly, you can name a beneficiary for your pet. In both circumstances, you can leave funds behind to aid them with the future care of your pet or child.

You can also support your favourite charities by leaving behind a monetary donation or passing belongings on too. This allows you to support your favourite causes even past your death.

Perhaps the biggest area that having a will affects is reducing any future family disputes. Your will is legally final and prevents disagreements about what assets are given to who.

Amending your will

Any time a major personal event occurs we recommend changing your will or considering doing so. A reliable timeframe is to have your will reviewed at least once every five years. 

Without amending your will through a codicil you could miss out on leaving significant portions of your estate or assets. Additionally, you may find who you wish to inherit your estate may change throughout your life. Therefore it is invaluable to keep your will updated through the use of a codicil.

What is a codicil?

If you already have a will then this is relevant to you. So what is a codicil? In simple terms, it is a document that allows you to alter the outcome of your will. Without having to create a whole new will, you can have a codicil made to supplement your original will. Without a codicil, a new will would have to be created in its entirety.

Why choose a codicil?

Codicils consequently are typically cheaper than having to write a new will. In spite of this, the document is still fully legally binding.

How we can help you create a will

You can speak to a member of our staff on 020 8891 6141. Through them, you can create your first will or change your current will.

You can find more information on our expert private client team, they have the specialist knowledge to give you the first-class legal service you need. Through their services, we aim to reduce your inheritance tax and present solutions to any concerns you have surrounding your will. So don’t hesitate to get in contact with SRB today. 

The events of the last year have of course given rise to well-documented stories of personal tragedy and hardship. However, there has been one unintended consequence of the situation that has started to receive more attention as we progressively move towards a more normal time.

Official figures have shown that gross savings as a proportion of disposable income for 2020 was 16.3%, a record, up from 6.8% in 2019. Whilst the pandemic has clearly impacted adversely on many, for some, not spending on travel and leisure, or eating out or commuting means money has been put aside. Much of this money is in current accounts waiting for a “longer term home”. If you are one of the lucky ones and do not intend to immediately spend this surplus, an alternative option may be to consider “gifting”. For those of slightly more mature years, if you have accumulated surplus money, you can consider making gifts of money up to your £3000 annual allowance. This can be to family or friends who may have experienced greater hardship in the Lockdown. You may decide to be more generous with a gift of more than £3000 and make a PET (potentially exempt transfer). Such gifts are not subject to inheritance tax if the donor survives for 7 years or more following gifting.

We are always happy to advise on these delicate matters and help to ensure that you document your decisions correctly as you seek to be generous with family or friends.

When a Will is made it can be difficult to predict what changes may happen to a family in the future, and it is even harder to predict changes in the law. Fortunately, all is not lost if a Will is no longer fit for purpose, or if the opportunity to mitigate tax liability has apparently been missed.

Deeds of Variation make it possible to rearrange where an estate goes after death so that inheritance tax liability is mitigated for beneficiaries, such as children or spouses.

They can also be used when someone dies without having made any, or any valid, Will (death intestate). Current rules mean that if a husband or wife dies without a Will, then the surviving spouse may be put at an unintended disadvantage in terms of what they inherit and a Deed of Variation can be used to redirect inheritance.

Following a 2015 HMRC review of Deeds of Variation, they were found to be an unobjectionable method of tax mitigation and so a family’s wealth can still be dealt with in the most efficient manner without the need for a new Will.

If you feel you would benefit from guidance on making or changing a Will, or would like to know more about Deeds of Variation in general, please contact the Private Client department at Stone Rowe Brewer LLP on 0208 891 6141 or by email at a.spall@srb.co.uk.