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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 aWill), the
Trustee Act 1962 (WA)

and by the court. The trustee’s duties arise from the

fiduciary relationship between the Trustee and the beneficiaries and that relationshipimposes
a duty always to act in good faith and in the interests of the beneficiaries of thetrust.A trustee
in breach of his or her duties may be held personally liable for any lossescaused by the
breach. In circumstances of breach the trustee may be required to restorethe 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 maysometimes prescribe the
type of investments the trustee may make. Neverthelessthe investments should not be
speculative or hazardous in nature. The trusteemust act with reasonable care, diligence and
prudence when making andmanaging 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 capitalvalue of the trust is maintained, and protected
against inflation where possible.(ii)

The trustee should also secure the best income return from the trustassets, provided that the
capital is not put at risk in the process.(iii)

The relevant trustee legislation in Western Australia states that withoutlimiting the matters
that a trustee may take into account when exercisinga power of investment, a trustee shall, so
far as they are appropriate

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to the circumstances of the trust, have regard to
—

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 (a) the purposes of the trust and the needs and circumstances of the beneficiaries;(b) the desir
ability of diversifying trust investments;(c) the nature of and risk associated with existing trus
t investmentsand other trust
property;(d) the need to maintain the real value of the capital or income of the
trust;(e) the risk of capital or income loss or depreciation;(f) the potential for capital appreciat
ion;(g) the likely income return and the timing of income return;(h) the length of the term of t
he proposed investment;(i) the probable duration of the trust;(j) the liquidity and marketabilit
y of the proposed investmentduring, and on the determination of, the term of the
proposedinvestment;(k) the aggregate value of the trust estate;(l) the effect of the proposed in
vestment in relation to the taxliability of the
trust;(m) the likelihood of inflation affecting the value of the proposedinvestment 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 financialadvisor for the investment of trust funds or the
management of the investmentif reasonably required in the circumstances. The reasonable
costs of obtainingthe 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 intentionsof the creator of
the trust.

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In several circumstances the trustee will not be bound to carry out the termsof 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 producethem 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 t
he trust is managed or the reasons behind a decisionrelated to the trust.ii)

Requirements to fulfil this duty may vary however a trustee:a.

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Should keep an up to date information about the beneficiaries; b.

Should keep up-to-date information about the schedule of assetsand liabilities of the trust.c.

Should maintain an up to date and separate income and capitalaccountsiii)

The trustee would be advised to engage an accountant to prepare theaccounts and tax returns
for the trust.
(d)

Duty to consider
A trustee of a discretionary trust (including a testamentary trust) is under aduty to consider
when to exercise his or her discretion and depending uponthe 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 atthe expense of
another. Therefore if there is a dispute between beneficiariesthe 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