Duties, Powers and Rights of Trustees in WA

1. What legislation governs the affairs of a Trustee? Trusts Act 1962 (WA)

2.

What are the duties of a Trustee? Duties are imposed on Trustees by the trust instrument (a trust instrument includes a Will), the Trustee Act 1962 (WA) and by the court. The trustees duties arise from the fiduciary relationship between the Trustee and the beneficiaries and that relationship imposes a duty always to act in good faith and in the interests of the beneficiaries of the trust. A trustee in breach of his or her duties may be held personally liable for any losses caused by the breach. In circumstances of breach the trustee may be required to restore the trust to the position it would have enjoyed if the breach had not occurred. Trustees must ensure that the documents of title of the trust property are kept in a safe place and safeguarded against unauthorised access. The important and recognised duties of trustees can be grouped in several categories:

(a)

Duty to preserve and invest trust property A trustee is obliged to invest trust money and the trust document may sometimes prescribe the type of investments the trustee may make. Nevertheless the investments should not be speculative or hazardous in nature. The trustee must act with reasonable care, diligence and prudence when making and managing investments and must exercise this duty in a manner that is authorised by the trust instrument, statute or court order. (i) The duty to preserve the trust property principally means the capital of the trust. The trustee will thus be concerned to ensure that the capital value of the trust is maintained, and protected against inflation where possible. (ii) The trustee should also secure the best income return from the trust assets, provided that the capital is not put at risk in the process. (iii) The relevant trustee legislation in Western Australia states that without limiting the matters that a trustee may take into account when exercising a power of investment, a trustee shall, so far as they are appropriate

to the circumstances of the trust, have regard to (a) the purposes of the trust and the needs and circumstances of the

beneficiaries; (b) (c) the desirability of diversifying trust investments; the nature of and risk associated with existing trust investments

and other trust property; (d) the need to maintain the real value of the capital or income of

the trust; (e) (f) (g) (h) (i) (j) the risk of capital or income loss or depreciation; the potential for capital appreciation; the likely income return and the timing of income return; the length of the term of the proposed investment; the probable duration of the trust; the liquidity and marketability of the proposed investment

during, and on the determination of, the term of the proposed investment; (k) (l) the aggregate value of the trust estate; the effect of the proposed investment in relation to the tax

liability of the trust; (m) the likelihood of inflation affecting the value of the proposed

investment or other trust property; (n) the costs (including commissions, fees, charges and duties

payable) of making the proposed investment; and (o) the results of a review of existing trust investments.

(iv) A trustee must obtain advice from a qualified independent financial advisor for the investment of trust funds or the management of the investment if reasonably required in the circumstances. The reasonable costs of obtaining the advice are payable out of trust funds.

(b)

Duty to obey the terms of the trust deed or Will A trustee must obey the terms of the trust and to give effect to the intentions of the creator of the trust.
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In several circumstances the trustee will not be bound to carry out the terms of the trust instrument: i) If directed by the beneficiaries being of full age and capacity, absolutely entitled and unanimous; ii) If an illegality will occur as a consequence of obedience; iii) If the deviation is sanctioned by the court.

(c)

Duty to keep accounts and supply information i) A trustee must keep an account of his receipts and payments and produce them in a timely, faithful and accurate manner to the beneficiaries when properly requested. A trustee is under no obligation to explain to the beneficiaries how the trust is managed or the reasons behind a decision related to the trust. ii) Requirements to fulfil this duty may vary however a trustee: a. Should keep an up to date information about the beneficiaries; b. Should keep up-to-date information about the schedule of assets and liabilities of the trust. c. Should maintain an up to date and separate income and capital accounts iii) The trustee would be advised to engage an accountant to prepare the accounts and tax returns for the trust.

(d)

Duty to consider A trustee of a discretionary trust (including a testamentary trust) is under a duty to consider when to exercise his or her discretion and depending upon the nature of any particular discretion, whether to exercise it at all. A trustee is not generally required to give reasons for the exercise of their discretion as trustee.

(e)

Duty to act impartially A trustee must not act in such a way as to favour one class of beneficiaries at the expense of another. Therefore if there is a dispute between beneficiaries the trustee must remain neutral. The duty is particularly relevant in circumstances when the trustee holds property to pay income to certain beneficiaries and at the end of the interest
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of those beneficiaries transfer the income producing asset to different beneficiaries. In these circumstances the trustee must act impartially between beneficiaries, particularly in matters concerning the distribution of the income and capital of the trust, unless otherwise authorised by the trust.

(f)

Duty to pay correct beneficiaries A trustee should not overpay a beneficiary. If an overpayment occurs than it is the trustees duty to recover the overpayment from the overpaid beneficiarys share of the trust fund or from future receipts of income to which that beneficiary would otherwise be entitled. The duty to recover the overpayment is subject to the control of the court. In Western Australia some relief is statutorily afforded to the Trustee under s 124 of the Property Law Act 1969 (WA).

3.

What are the powers of a Trustee? Source of powers Powers are usually given to the Trustee by the trust instrument. Powers may be conferred on Trustees also by Trustee legislation or by the court. In Western Australia the powers conferred by legislation are usually subject to the terms of the trust instrument.

(a)

The power to delegate A trustee has a duty to act personally, and if a trust has more than one trustee then all trustees must also act unanimously.

Appointment of an Agent A trustee who is under a duty to act personally may nevertheless employ agents to transact business or administer trusts if it is reasonable to do so. A Trustee shall not be responsible for the default of any such agent employed in good faith and without negligence: s 53(1) Trustee Act 1962 (WA).

Delegation during absence or infirmity In Western Australia if a Trustee has left or is about to leave the State or is about to become, by reason of physical infirmity, temporarily incapable of performing

all his duties as a trustee then that Trustee may appoint a delegate: s 54(1) Trustee Act 1962 (WA). A delegate may exercise all the trusts, powers, authorities and discretions that that appointing trustee may have exercised. In Western Australia a trustee is not liable for the delegates default if the delegation is made in good faith and without negligence: s 54(4) Trustee Act 1962 (WA).

(b)

Power of sale The Trustee Act 1962 of Western Australia confers upon every Trustee the power to sell trust property, subject to contrary intention in the trust document. The Trustee has also the power to postpone the sale subject to some exceptions.

(c)

Powers of management In Western Australia the Trustee Act 1962 has given Trustees some powers of management: i) The Trustee has the power carry on a business on the death of a testator: s 55 Trustee Act 1962 (WA); ii) The Trustee has the power to make improvements and repairs to trust property: s 30 Trustee Act 1962 (WA); iii) The power to insure the trust property: s 46 Trustee Act 1962 (WA).

Additional powers of management will usually be contained in the trust instrument.

4.

What are the rights of a Trustee?

(a)

The right of reimbursement and indemnity A trustee who incurs reasonable expenses on behalf of the trust is entitled to reimbursement from the trust property: s 71 Trustee Act 1962 (WA).

(b)

Right to seek advice and directions of the court Every Trustee in Western Australia has a statutory right to seek the opinion, advice or direction of the court if in doubt about their powers or duties under the trust or if they have questions about the management and administration of the trust property. A Trustee who submits to the court all relevant facts will be protected if they
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act in accordance with the courts advice or direction.

(c)

Trustee Remuneration Trustees and executors are not generally entitled to a fee from the trust or estate unless they are professional advisers and the Will authorises them to charge a fee. The Court may order a commission to be paid to any person who is, or has been, a Trustee for the services performed. The maximum commission allowed under the legislation is 5% of the gross value of the trust property: s 98 Trustee Act 1962 (WA).

5.

The liabilities of a Trustee A trustee who breaches the terms of the trust or Will is liable to make good any loss suffered by the trust.

Relief of trustees from liability Trustee who acts properly and is not in breach of trust is entitled to be indemnified out of trust assets for any debts, losses or liabilities: s 71 Trustee Act 1962 (WA). The court has statutory power to relieve the trustee in whole or in part from personal liability for the breach, if the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach of trust.

6.

Does the Trustee have to accept the appointment? No person is bound to accept the obligations of a trustee and any nominated executor can disclaim the role. However, if the nominated trustee accepts the trust, they cannot then disclaim it or retire from the role except by the proper procedure.

These above notes are of a general nature and do not constitute legal advice. The notes are based on the authors interpretation of the law as at the date the document was prepared. Clients contemplating establishing a trust should obtain specific legal advice.