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What is a trustee and what are his/her responsibilities?

A trustee is a person who has control over the assets of a trust without having access to assets held in the trust. The trustee is appointed by the trust, the settlor (the party who sets up the trust) or the courts. Trustees must be mentally competent but they don’t necessarily have to be of the age of majority. Common law places fiduciary obligations on trustees, but the provisions in the trust indenture (document setting up the trust) can override some of these obligations. Five primary duties are imposed on the trustee by the common law:

  • A trustee cannot be seen to be in conflict of interest with the beneficiaries. A trustee cannot profit from actions taken as a trustee even if the profit causes no harm to the beneficiaries. A trustee cannot acquire trust property or enter into contracts with the trust. If a breach of trust occurs, the trustee can be compelled to hand over any improper gains to the beneficiaries.
  • The trustee must take reasonable and proper care to prudently manage trust funds.
  • Generally speaking, a trustee is not entitled to delegate his or her duties. The rationale for this is that if the responsibility to manage property for the benefit of others is accepted, then the trustee has no right to shift this duty to others. This strict rule has been relaxed in two ways. First, the trustee can employ an agent when it is “reasonably necessary or in conformity with common business practice as judged by an ordinary prudent business person administering his or her own affairs”. Secondly, a trustee will not be responsible for any loss caused by the agent’s errors or dishonesty if the agent’s actions were that of an ordinary prudent businessperson in the same circumstances.
  • Trustees are required to act impartially in dealing with the trust assets for the benefit of all the beneficiaries i.e. investments can not be made that will favor the interests of the income beneficiaries to the detriment of the capital beneficiaries or vice versa.
  • Upon termination of a trust, the trustees must deliver the assets of the trust to whoever is entitled to receive them (beneficiary, the settlor, the settlor’s heirs or another party specified in the trust agreement).

The responsibilities and powers of a trustee are outlined by the individual Provincial Trustees Acts.