Acting as a trustee is often seen as an honour. It usually means someone trusts you to look after their assets and carry out their wishes. However, many people don’t realise that becoming a trustee also brings important legal responsibilities. If a trust is not administered properly, trustees can, in some circumstances, be held personally liable for any losses.

Whether you have recently been appointed as a trustee under a will or are helping to manage an existing family trust, understanding your duties from the outset can help you make informed decisions and avoid costly mistakes.

This practical guide explains what trustees must do, how to make sound decisions, and when it is sensible to seek professional advice.

What Does a Trustee Actually Do?

A trustee holds and manages assets on behalf of beneficiaries. The framework is set out in the trust deed (or will) and supported by a combination of statute and case law.

At its simplest, the trustee’s role is to:

  • Follow the terms of the trust
  • Act in the best interests of the beneficiaries
  • Manage assets prudently
  • Act impartially between beneficiaries

In simple terms, the trustee has legal ownership of the trust assets, but those assets must always be managed for the benefit of the beneficiaries. This distinction is fundamental to trust law.

Core Legal Duties of Trustees

Trustee duties arise from general trust law and the Trustee Act 2000, which modernised trustee responsibilities in England and Wales.

  1. The Duty of Care

A cornerstone of the role is the statutory duty of care. Trustees must exercise “reasonable care and skill” in the circumstances.

  • A professional trustee (for example, a solicitor) is held to a higher standard than a lay trustee.
  • A lay trustee must act as a reasonably prudent person managing someone else’s affairs.

  1. The Duty to Act in the Beneficiaries’ Best Interests

Trustees must act solely for the benefit of the beneficiaries and not themselves. This is a fundamental fiduciary obligation and should underpin every decision a trustee makes.

  1. Avoiding Conflicts and Personal Profit

Trust law imposes strict rules:

  • No conflict of interest
  • No unauthorised personal profit

This principle is longstanding. In Boardman v Phipps [1967], a trustee was required to account for profits made, even though the actions were taken in good faith.

  1. Duty to Invest Prudently

The Trustee Act 2000 introduced a general power of investment, but this is subject to safeguards:

  • Consider suitability of investments
  • Diversify where appropriate
  • Keep such investments under regular review
  • Obtain professional advice where necessary

  1. Duty to Act Jointly

Trustees must act together unless the trust deed says otherwise. Decisions are usually unanimous, and each trustee remains responsible for the overall administration of the trust.

Decision-Making in Practice

Trustee decisions should never be informal or undocumented.

Good decision-making involves:

  • Reviewing the trust deed carefully
  • Considering the needs of all beneficiaries
  • Assessing risk, particularly with investments
  • Recording the reasoning behind decisions

Practical example:
A trust holds funds for two children, one needing immediate educational support and another with long-term needs. Trustees must balance these interests fairly and in line with the terms of the trust rather than favouring one beneficiary without justification.

Record Keeping: A Critical (and Often Overlooked) Duty

Proper records protect both the beneficiaries and the trustees themselves. In many disputes, the absence of records is the central issue.

Trustees should maintain:

  • Full details of trust assets and transactions
  • Bank statements and investment records
  • Tax returns and supporting documentation
  • Records of distributions to beneficiaries
  • Minutes of trustee decisions

HMRC expects trustees to retain financial records such as bank statements, dividend vouchers, and details of income and tax paid.

Accurate records demonstrate that trustees have complied with their duties and reduce the risk of disputes or allegations of mismanagement. They can also help avoid misunderstandings between trustees and beneficiaries and provides valuable evidence if decisions are ever challenged.

Tax and Regulatory Responsibilities

Trustees are personally responsible for ensuring that the trust complies with tax obligations.

Key requirements include:

  • Registering the trust with HMRC where required
  • Filing annual Self- Assessment tax returns (SA900)
  • Paying income tax, capital gains tax, and potentially inheritance tax
  • Providing beneficiaries with tax information

Failure to comply can lead to penalties, and trustees can be held personally liable.

Common Pitfalls for Trustees

Even well-meaning trustees can make mistakes. Common issues include:

  • Failing to understand the trust deed
  • Making decisions without proper consideration or advice
  • Poor record keeping
  • Conflicts of interest (particularly in family trusts)
  • Failing to review investments

In more serious cases, trustees who misuse funds, fail to account properly or act outside their legal powers may face legal claims and be required to repay losses personally.

When Should Trustees Seek Professional Advice?

Trustees are not expected to know everything. In fact, the law recognises that there will be situations where obtaining professional advice is the sensible course of action.

Professional advice is particularly important when:

The Trustee Act 2000 specifically recognises a duty to obtain proper, professional advice in certain circumstances, particularly around investment decisions.

Seeking advice is not a weakness or lack of knowledge. It is often an important part of acting responsibly and demonstrating that you have taken reasonable steps when carrying out your duties as a trustee.

A Practical Approach to Administering a Trust

A well-run trust typically follows a structured approach:

  1. Understand the trust document
  2. Identify and secure all assets
  3. Register with HMRC (if required)
  4. Maintain accurate accounts and records
  5. Review investments regularly
  6. Communicate appropriately with beneficiaries
  7. Take professional advice where needed

Regular trustee meetings, even for family trusts, are good practice, with decisions clearly documented.

Speak to the Experts at Ison Harrison

Trust administration can be complex, particularly where valuable assets, tax considerations, or family dynamics are involved. Whether you are a newly appointed trustee or dealing with an established trust, clear legal guidance can help you fulfil your responsibilities and avoid costly mistakes.

At Ison Harrison Solicitors, our experienced wills and probate team provides practical, tailored advice on:

  • Trustee duties and decision-making
  • Trust administration and compliance
  • Tax obligations and reporting
  • Resolving trustee or beneficiary disputes

If you would like guidance on your role as a trustee or advice on administering a trust, our team would be happy to assist. Contact us for a no-obligation discussion on 0113 284 5000 or email mail@isonharrison.co.uk. or on administering a trust.