Trustees owe a fiduciary duty to the beneficiaries which includes a duty of loyalty, honesty, integrity, good faith and transparency. They must act in the interests of all of the beneficiaries and cannot seek to or realise gain from their position as Trustee nor from having knowledge of the Trust assets.
This does not necessarily mean that the Trustees have to have deliberately acted dishonestly or fraudulently and could well be inadvertent and the result of a well intentioned action. In Keech vs Sandford , a Trustee held a lease on the profits of a market on Trust for a minor. Before the expiration of the lease, the Trustee asked the lessor for a renewal on behalf of the minor but was refused. The Trustee then took the lease in a personal capacity and since the Trustee is not allowed to benefit from his position it resulted in a Constructive Trust on behalf of the minor.
Any Trustee who purchases Trust property or who attempts to sell property to the Trust will be treated with suspicion and the sale and/or purchase may be voidable at the option of a beneficiary (regardless of whether the purchase was at market value or not). A Trustee should make a full disclosure and the beneficiaries must seek independent advice and explicitly agree to the transaction [Wright vs Morgan . The rationale for this is because the Trustee effectively acts as both vendor for the beneficiaries and purchaser (or vice versa) and is a direct conflict of interest. This is known as the Self-Dealing rule and was confirmed more recently in Fenwick v Naera . The fair dealing rule also applies to Trustees, though this is less harsh since there are effectively two people who are party to the sale and / or purchase: the beneficiary who is selling their beneficial entitlement and the trustee who is purchasing it (or vice versa). Again, the Trustee must be able to evidence that he has not taken advantage of his position.
A Trustee (even a professional) is not entitled to charge fees unless he is authorised to do so and in doing so will need to account for it to the beneficiaries, see Robinson v Pett . Section 29 Trustee Act 2000 makes provision for a Trust Corporation to charge but this does not extend to all professional trustees and it is therefore vital that the Trust Instrument contains an express charging clause or else you may find yourself in breach of your fiduciary duties. This would also include incidental unauthorised profits, such as a bribes or commission payments as was the case in Williams v Barton , whereby a Trustee had a contract with a brokerage firm under which he received a commission on work for clients that he had introduced to them
In addition, a Trustee cannot compete directly with any business of which he is the trustee. In Re Thomson , an injunction was enforced to stop the Trustee from setting up a Yacht brokerage in the same town as one which was an asset of a Trust.
It is important to realise that the same fiduciary duties extend to a Trustee de son tort, i.e. someone who conducts themselves as if they were a Trustee and 'intermeddles'.
For further details on your duties as a Trustee, click here.