Trustee legal risks and liabilities
The role of a trustee (and including an executor administering an estate) is a potentially complex and onerous one. There are numerous considerations, potential risks and liabilities.
Trustees are subject to a very high “fiduciary” standard and duty of care, both under the common law and to a separate statutory duties of care (e.g. Trustee Act 2000) and there are many risks that can lead to liability for a trustee.
If you have been asked to become a trustee, we would be happy to advise you. If you are already a trustee and are concerned about an issue and your potential legal liability, we are experienced in this area and can help. If a dispute or claim has already arisen, our team have the experience to help. Please do get in contact.
See also our main service page on trusts.
Breach of Trust
All trustees, regardless of the wording of the trust document, must meet the standard test:
The test is not what an ordinary prudent man of business would do if they had only themselves to consider, but what they would do if they had a moral obligation to provide for others.
On consideration, it quickly becomes apparent that a breach of trust can arise easily. Any act, or omission to act, which is deemed to be not in compliance with the wording of the trust, or trust law will amount to breach of trust.
Personal Liability of Trustees
Obligations arise out of the duties the trustee takes on for the organisation they are appointed by. These are personal liabilities which come with being a trustee. By accepting the very role of trustee, you are agreeing to do the task appropriately and to a high standard.
A person who is appointed as a trustee assumes the liabilities of a trustee and that liability exposes the trust assets and potentially their own personal assets to those liabilities. Liabilities can be financial, but also of a compliance nature.
Therefore, it is very important for trustees to seek professional guidance in areas they require.
As mentioned above, it is important to appreciate that trustees bear considerable responsibility both for their actions and the actions of the organisation they represent.
Making a perceived error on a seemingly minor decision can create a risk of legal proceedings, compensation claims, or official investigations being directed towards them personally.
These claims can be financially crippling to defend, which is why trustee indemnity insurance is so popular and an important consideration. There are various policies, but typically they will cover the legal costs and expenses of defending against disqualification as a trustee, investigations or related proceedings.
Without trustee indemnity insurance in place, the trustee themselves may have to pay the costs to defend the claim out of their own personal wealth – which can be financially devastating. Therefore insurance of this type is considered a prudent personal choice for a trustee, and many charities insist their trustees have such cover.
Charity Trustees legal risks
The overriding duty of all charity trustees is to advance the purposes of their charity as well as several basic responsibilities.
As well as acting in the beneficiaries’ best interests, trustees for charities face even higher level of scrutiny, as they must also bear in mind:
- the furtherance of the charities aims
- the public care aspect.
- the management and care of the charity’s staff and volunteers
- the conservation and protection of the charity’s physical assets
Anyone considering taking up such a role will want to know what legal obligations, responsibilities and potential liabilities are involved.