Rights, Duties and Liabilities of Trustees

When an individual or institution is entrusted with the responsibility of managing assets or property on behalf of another party, they are designated as a trustee. This role carries significant legal obligations and potential liabilities, as trustees are bound by a fiduciary duty to act in the best interests of the beneficiaries they serve.

Who is a Trustee?

A trustee is an individual or a legal entity, such as a company, appointed to manage and administer property held in a trust. Trustees are legally obligated to act in the best interests of the beneficiaries, according to the terms specified in the trust agreement.

They must be capable of holding property and competent to contract. Trustees have the choice to accept or disclaim their role, which can be expressed explicitly or implied through their actions. It is common for a trust to have multiple trustees, allowing shared responsibilities and diversified management of the trust’s assets.

What are the Rights of a Trustee?

The rights of a trustee are integral to the effective management and administration of a trust. These rights are designed to empower trustees to fulfil their duties while protecting their interests and ensuring the trust operates efficiently.

1. Right to Reimbursement

Trustees are entitled to reimbursement for expenses legitimately incurred in the administration of the trust, including costs related to maintaining or defending the trust’s assets.

2. Right to Indemnification

Should trustees incur liabilities or losses while acting in good faith and within the scope of their authority, they have the right to indemnify themselves from the trust property.

3. Right to Seek Judicial Guidance

Trustees can seek direction from the courts regarding the trust’s administration, providing legal clarity on their actions and decisions.

4. Right to Access Trust Documents

Trustees have the right to possess and access the trust deed and all related documentation necessary to manage the trust effectively.

5. Right to Delegate

Although personal duties must be carried out by trustees themselves, they have the right to delegate certain tasks that are administrative in nature, where permitted.

6. Right to Compensation

Trustees can receive fair compensation for their services, as specified by the trust deed or as agreed upon by the beneficiaries.

Duties/Liabilities of a Trustee

The duties and liabilities of a trustee as stipulated under the Indian Trusts Act, 1882, encompass a broad range of responsibilities designed to ensure the faithful execution of trusts in accordance with the intents of their creators and the interests of the beneficiaries. The duties of trustees are critical as they define the legal and moral framework within which trustees must operate.

1. Execution of Trust

Trustees are legally bound to execute the trust as per the terms specified in the trust deed. This includes adhering to the directions given by the author of the trust at its inception. The trustees must carry out these instructions faithfully unless they are impractical or illegal. This duty ensures that the trust operates strictly within its intended purpose and legal boundaries.

2. Acquaintance with Trust Property

Trustees must have a thorough understanding of the trust property, including its nature, location and condition. They are also expected to take all necessary steps to secure the property. This duty is crucial for the proper management and preservation of the trust’s assets.

3. Protection of Title to Trust Property

It is the responsibility of trustees to defend any challenges to the title of the trust property. This involves taking appropriate legal actions to affirm and protect the property’s title, thereby safeguarding the assets against claims or disputes that could undermine the trust’s holdings.

4. Prohibition against Setting Up Adverse Titles

Trustees must not establish any title in the trust property that is adverse to the interest of the beneficiaries. For instance, a trustee should not sell trust property to themselves, their relatives or associates as it conflicts with the beneficiaries’ interests and undermines the foundational trust principle.

5. Maintenance of Trust Property

Trustees are required to care for the trust property with the same diligence an ordinary prudent person would use for their own property. The law shields trustees from liability for any loss that might occur provided they have exercised such due diligence.

6. Conversion of Perishable Property

If the trust property includes assets that are likely to deteriorate or depreciate over time, trustees have the duty to convert these into more stable forms, typically cash, to prevent loss of value. This is especially important when the trust benefits multiple successive beneficiaries.

7. Impartiality among Beneficiaries

In cases where a trust is set up for multiple beneficiaries, trustees must distribute the benefits derived from the trust property equitably, without showing favouritism. This duty is essential for maintaining fairness and equity among the beneficiaries.

8. Protection from Adverse Beneficiaries

Trustees must take steps to protect the trust property from any beneficiary who threatens or commits actions detrimental to the trust or other beneficiaries. This includes preventing any harm that could potentially affect the interests of the trust or its equitable administration.

9. Maintenance of Books and Accounts

Trustees are required to maintain accurate and detailed records of all transactions related to the trust property. These records should be available to beneficiaries upon request, ensuring transparency and accountability in the administration of the trust.

10. Investment of Trust Money

If the trust property includes cash that is not needed immediately, trustees must invest this money in secure and specified financial instruments. The Indian Trusts Act, 1882, lists acceptable investment vehicles such as government securities, railway stocks, government company debentures and units from the Unit Trust of India.

Powers/Rights of a Trustee

The Indian Trusts Act, 1882, grants trustees a variety of rights and powers essential for the administration and preservation of trust property, as well as for fulfilling the purposes of the trust. These rights not only empower trustees to effectively manage the trust, but also ensure that they can undertake their responsibilities while safeguarding their own interests and those of the beneficiaries. Below, we detail these rights and powers conferred upon trustees.

1. Right to Title Deed

Trustees are entitled to possess the title deeds and other documents related to the trust’s creation and the trust property. This is crucial for maintaining clear records of the trust’s assets and ensuring their proper management.

2. Right to Reimburse Expenses

Trustees have the right to be reimbursed for all expenses incurred in the execution, preservation and protection of the trust property, as well as in the support of the beneficiaries. This ensures that trustees are not financially disadvantaged while performing their duties.

3. Right to Recollect Overpayment

If a trustee overpays a beneficiary by mistake, they have the right to reclaim the excess amount. This can be collected directly from the beneficiary’s interest in the trust property or, if necessary, from the beneficiary personally.

4. Right to Indemnity from Breach of Trust by a Gainer

If a breach of trust results in gain for an individual, the trustee has the right to indemnify themselves against this gain, unless the trustee is also complicit in the breach. This right protects the trust from losses due to unauthorised actions that benefit others.

5. Right to Seek Court’s Opinion

Trustees can petition the court for opinions, advice or directions concerning the management of the trust property. This is a valuable right that allows trustees to act in complex situations under judicial guidance, ensuring legality and propriety in their actions.

6. Right to Settle Accounts

Upon completion of their duties, trustees are entitled to have the trust accounts audited and settled. They can also receive an acknowledgement that no further benefits are due to beneficiaries, thus formally concluding their responsibilities.

7. Right to Sell Trust Property

Trustees have the power to sell trust property according to the terms of the trust deed or through suitable means such as public auction or private contract. This power is vital for the proper management and financial health of the trust.

8. Right to Vary or Rescind Sale

Trustees can alter the terms of a sale or cancel it and they can resell the property if necessary. This flexibility is important for adapting to changes in market conditions or correcting any issues in the initial sale.

9. Power to Manage Investments

Trustees can manage the investments of the trust, including selling current investments and reinvesting in more suitable avenues. However, if a beneficiary is competent to contract, this power can only be exercised with their written consent.

10. Power to Apply Trust Property for Minor Beneficiaries

Trustees can use trust income for the maintenance of minor beneficiaries, covering expenses like education, healthcare and other essential needs. This power ensures that the trustee can provide for minors’ welfare until they come of age.

11. Power to Compound

Trustees can resolve disputes related to the trust property through compromise, abandonment or arbitration. This power allows them to handle conflicts in a manner they deem fit, potentially avoiding costly and prolonged legal battles.

12. Trustees to Continue with Trust if One of Several Trustees Dies or Disclaims

If one of multiple trustees dies or disclaims the trust, the remaining trustees can continue to manage the trust property. This ensures continuity in the administration of the trust, although this power is subject to any specific conditions set forth in the trust deed regarding the number of trustees required.

Conclusion

The duties and liabilities of trustees form the foundation of trust law. They ensure that trusts are managed with integrity, with the beneficiaries’ best interests at heart. For a trustee, understanding these responsibilities is crucial for the successful administration of a trust. Given their complex nature, trustees often seek professional advice to navigate the legal landscape, mitigate risks and avoid the potential pitfalls of their role.

The responsibilities of a trustee are both broad and deeply rooted in legal precedents and statutes, most notably the Indian Trusts Act, 1882. The Act clearly outlines the expectations and requirements of trustees, serving as a guiding framework for their conduct and accountability. Through their actions, trustees embody the principles of fiduciary duty, stewardship and ethical management, which are essential for maintaining the sanctity of the trust mechanism.