Should you ever act as a trustee in a will or deed and, if so, what are the potential risks and consequences?
A friend or client informs you that they trust you implicitly and wish to put a family financial arrangement in place immediately or to come into effect on their death. He or she asks you to become a trustee in the trust documents or in their will in addition to acting as an executor. Being very willing to assist and without really considering the potential consequences you agree. The financial settlement documents are completed or the client dies and you then take office thereby accepting the very considerable responsibilities that follow.
Go forward 1 – 20 years. Are you left to regret that decision? Many do and rue the day that they agreed to become a trustee. Trust disputes can test the resolve of even the most resilient or knowledgeable office holders and expose that person to potential personal financial liability. Trustees can and often are held personally liable for their decisions and held liable to pay legal fees.
In Alsop Wilkinson v Neary  1 WLR 1220,  1 All ER 431, problems in relation to disputes relating to trusts were recognised as falling into three possible categories. These are  trust disputes,  beneficiary disputes or  third party disputes. If these definitions are alien to you then it might be just as well to consider these issues before you agree to take office.
Disputes over trust assets are on the increase, as are actions to replace or remove trustees. Decisions you have taken in good faith could be exposed to difficult, complex and morale-sapping arguments, questioning your actions and resulting in court involvement. A dispute is very likely to be expensive to resolve. You agreed to act as trustee in good faith but you now start to regret your decision even though you feel you have done all that was expected of you. Will you be allowed to retire as trustee and be afforded an indemnity in relation to your actions and the legal fees you may be exposed to?
In the event of a disagreement or claim involving the trust the actions of the trustees will vary depending on the type and nature of the dispute, the rights and any claims of the beneficiaries or those seeking to claim against the trust. In the above case, Mr Justice Lightman commented that if a trust dispute arose the trustees ought to consider remaining neutral, but if they chose to become embroiled in litigation that they may end up paying legal costs from their own resources. Trustees may not be entitled to an indemnity from trust funds. There has been some criticism of this approach but it is not the intention of this article to address it here. The aim of the article is to alert the reader to the dangers of agreeing to take office in the first place.
Many of the readers of this article will be aware that a trustee can be in breach of his/her duty to the beneficiaries when, for example, he/she is in breach of any express terms of the trust or exercises his/her powers, discretions or duties other than with absolute integrity and honesty. The duty requires a trustee to be a “man of business” when it comes to looking after the assets of the trust. Amongst the many other duties the trustee must bring trust property under his/her control; acquaint themselves with the property and terms of the trust; act impartially where there are competing beneficiaries; pay only those entitled and not delegate their powers unless entitled to do so. The list of potential disputes is almost endless and will depend on the facts raised by a dispute.
As indicated above it is very important to realise that breaching any of the duties could result in personal liability. Above all the trustee must always observe the requirement to exercise due diligence. It is no excuse to say that one or other of the trustees was responsible for an act or omission. There is both collective and individual responsibility and there is very often a requirement that the trustees act unanimously. This can cause considerable problems where personal representatives or trustees disagree amongst themselves or one or more take little part in protecting or administering the trust. An important question to consider at the outset is whether you can you work with the other trustee(s) or those that might replace them in the future.
What if a trustee finds him/herself in a situation where a breach of trust has occurred? Is the trustee without any protection or remedy?
As mentioned above, trustees are expected to exercise discretion in relation to the assets of a trust and there are authorities which indicate that if a trustee has acted in good faith the court ought not to interfere in the exercise of that discretion. However, the law in this area is not entirely straightforward and much will depend on the facts. There is a potential defence available under the now repealed s.30 of the Trustee Act 1925, in relation to acts or omissions occurring prior to the 1st February 2001. The trustee may be afforded a defence in the form of exoneration clauses in the trust documents and there may be a Limitation Act 1980 defence available.
In addition, a trustee may be afforded a defence under s.61 of the Trustee Act 1925. This provision can relieve a trustee from personal liability where the trustee has “acted honestly and reasonably, and ought fairly to be excused for the breach of trust …”. S.61 came into being due to a problem in the Victorian era attracting people to act as trustees and first became part of our law following enactment of s.3 of the Judicial Trustee Act 1896. It is important to note that s.61 is a defence of last resort and in order to establish this defence an unfortunate trustee might have to engage in weighty, serious and debilitating litigation which will require costs protection. It has also been suggested that s.61 is unlikely to assist the modern day paid professional who willingly takes on the role.
Further, S.61 is not seemingly without its limits as the recent case of Dreamvar (UK) Limited v  Mishcon De Reya  Mary Monson Solicitors Limited (2016) EWHC 3316 (Ch) has shown. This decision related to the sale of a property by a fraudulent seller. The court found that whilst Mishcon De Reya was not negligent and had acted honestly and reasonably, it had acted in breach of trust and was not permitted relief under s.61 of the Trustee Act 1925. The unfortunate law firm was ordered to repay the money received by the fraudulent seller for seemingly no better reason than they were insured. The indications are that this decision will be appealed but it currently exposes a limit on the protection afforded by s.61.
Anyone consenting to act as a will trustee or trustee of a settlement must ensure that they do so with their eyes wide open in relation to the duties, responsibilities and personal risks to which they are potentially exposing themselves. The duties and responsibilities are such that should a trustee wish to later retire they might find this very difficult and, in the event of a dispute, they could be a party to a claim one, five or 20 years into the future – long after taking office or retiring as a trustee. The moral – think hard and know the risks before you agree to act as a trustee!