What makes a good trustee?
A trustee’s role is a complex mix of duties, responsibilities and potential liabilities, and in spite of what some clients might think, is not to be undertaken lightly!
Briefing - 01/02/2015
By drawing on my experiences during a 25 year career in the trust industry, including my mistakes, I will summarise what I think makes a good trustee.
Academic understanding of the role of trusteeBy suggesting that this is a pre-requisite, which I think it is, I am not suggesting that only Oxbridge scholars should apply. Some of the best trustees I know have few formal qualifications but a wealth of experience, appropriate characteristics and a willingness to learn. Trustees must however fully understand their fiduciary responsibilities or they will place themselves at considerable risk. Total reliance on professional advisers is likely to increase the chances of referring to them when something has gone wrong and not before. A trustee's education process may begin at college or on formal trust courses, but for others it is more beneficial being mentored by those with a wealth of knowledge and experience in the industry, who can set the trustee responsibilities in the context of real problems; in my view, there is no better way of realising the scope of some trust issues and how to deal with them.
Familiarity with the trust documentationIt is essential that a trustee is totally familiar with the trust documentation, which most commonly will include the original trust document, and in the case of discretionary trusts, the letter of wishes. It is also necessary, and sometimes rather overlooked, that the settlor fully understands the implications of the documentation that he or she is signing, including, in particular, the implications of any indemnity or exoneration provisions incorporated within the trust. Once the trustee relationship has been established it is all too easy to forget the terms of the trust, which can lead to unfortunate mistakes. Only recently I was advising in a situation where the trust administrator, having read the trust documentation as far as the overriding power of appointment, had concluded that he was dealing with a discretionary trust whereas in fact a quick review of the following clauses would have confirmed that, subject to the exercise of the overriding power, the trust was in fact conferring an interest in possession on the settlor. In a similar vein, it is all too common to find that where a protector is appointed, the trustees act without obtaining the protector's consent, and many distributions later, have to consider notifying the insurers and in some cases incurring considerable professional costs. Generally however it is, in any event, crucial that the trustees fully understand their role and responsibilities as fully set out in the trust, taking particular care to note any unusual provisions. Those responsible for the trustee relationship should in turn ensure that all those working on the trust are aware of the principal provisions, and keeping a computer note to try and avoid inadvertent slip ups is always advisable.
Good communicationAt the root of most trustee litigation is a failure to communicate. Whilst the student of trust law may consider it a very dry subject, the reality is of course that it deals with people, their money, aims, aspirations and objectives. It is therefore essential to be a good communicator, which includes being a good listener. I often tell my colleagues to pick up the phone rather than email, and not just because the intention of an email can so often be misinterpreted but also because almost invariably one will glean something from a conversation which will add to the reservoir of knowledge on your settlor and beneficiaries. By way of example, if a beneficiary suddenly announces that he or she is having more than routine marital problems, this should be recorded on the file and particularly borne in mind if, for example, an unexpected and unusual request is then received to exclude a beneficiary from the beneficial class, make a substantial distribution to a beneficiary or even wind up the trust. The trustees in such circumstances are on notice that considerable care will be required and possibly advice sought. A routine conversation with a client will in all probability cover everything from detailed tax analysis, trust problems from a legal perspective, and family dynamics, which might include everything from comments about the educational successes or failures of the younger class of beneficiaries, the lame horse and the elderly aunt who is perhaps enjoying her sherry too much!
A good trustee must have empathy with people and without this I think it is impossible to be truly good at the role. A solid trustee relationship with his beneficiary will inevitably involve disclosure of significant personal detail, understanding as to why a beneficiary might be acting in the way that he or she is, an ability to be firm but fair in delivering good or bad news, whilst being able to explain to the beneficiaries that notwithstanding that you as trustee wish to build up a trusting relationship with them, this does not equate to always saying "yes". Too many allegations of breach of trust have their roots in old style trusteeship where sometimes relations between the settlor and the trustee became just too cosy so that the trustee found themselves compromised and sometimes unable to refuse what they would otherwise have accepted to be an inappropriate course of action.
A good trustee forgets the younger generation at his peril! There are good reasons why parents in particular do not want younger beneficiaries to be prematurely aware of trust funds from which they may benefit, however do not forget their rights and the possible risks of not communicating with them soon enough. In my experience most parents can be persuaded of the potential benefits of letting their children know about the respective rewards and responsibilities of wealth. In some cases trustees can (together with appropriate parental input) succeed in getting messages across where the parents know they will not. Establishing a solid relationship with the next generation of beneficiaries also heightens the chance that they will not seek to remove you simply because you have been too closely associated with their parents.
Being a good facilitatorIt is very important for a trustee to understand at what point he requires the support of professional advisors, whether it be on the subject of tax, property matters, investment matters or any other areas in most cases generated by the composition of the trust fund. The beneficiaries will, depending on the extent to which they themselves may already have such contacts, require the trustee to be a good facilitator in bringing together professionals who can reasonably be expected to advise the trustees accurately and concisely and in a manner which the beneficiaries will themselves fully understand. It is sometimes quite literally a case of horses for courses, so that in certain instances a trustee might instruct a particular tax counsel because of his very specific area of expertise, whilst in other areas a trustee might pick counsel because they are a very good communicator and fully able to explain to the beneficiaries very detailed aspects of tax law in a way in which both the trustees and beneficiaries understand.
Of independent mindThis really echoes some of the comments above, but is worth a separate reference as it is crucial that the trustee is able to stand quite independently from the settlor and/or any of the beneficiaries to make up his own mind on any particular issue without feeling either compromised or in any way bound to support a particular beneficiary's course.
Using initiativeSettlors and beneficiaries will nearly always welcome a trustee who takes initiative. If it is apprehended that tax changes might impact on one or more of the beneficiaries (take the recent changes to the French tax code, the anticipated changes arising from FATCA, rebasing for UK capital gains tax purposes for example) then the beneficiaries will expect that their trustee is at least aware of these proposed changes even if they cannot advise on them personally. Trustees are, however unreasonable it sometimes seems, expected to be ahead of the game and be able to apprehend problems by reference to statutory changes, changes in the family dynamic, and generally.
Having a balance of various skill setsIn my experience, a trustee is expected to have a reasonable level of legal knowledge, be relatively tax conversant (at least have an idea when there may be tax implications for a settlor or beneficiary), numerate, and to have some understanding of investment matters. In reality of course it is most unlikely that a trustee will excel in each area, however, they will be expected to be in a position to comment fairly authoritatively on each matter, quite possibly with a colleague's assistance, and wherever they feel they cannot do so, to apprehend this quickly and ensure that advisers with the appropriate skill sets are appointed.
When my teenage son recently asked me whether I would recommend a career in professional trusteeships it did not take me long to suggest that there may well be many other careers far less challenging, but when trusteeship works well it is in fact a very fulfilling role indeed.
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