Trustee Appointments and Conflict of Interest
In the world of trusts and trust funds, it is crucial for trustees to discharge their duties properly. Special rules apply when the interests of the individual trustee may conflict with decisions they make about the trust, leading to severe penalties if trustees don’t act in the best interests of beneficiaries.
This responsibility extends to the appointment of individuals who play significant roles within the trust. If trustees appoint friends or acquaintances, conflicts of interest can arise, potentially breaching their fiduciary duty and compromising the trust’s integrity.
In this article, we explore the importance of avoiding such conflicts, who can be a trustee, and what to do if there is a conflict of interest.
Can trustees appoint other trustees?
The trust deed may set out who can appoint trustees. If not the Trustee Acts set out who has the power to appoint; usually it will be the current trustees. In identifying candidates, trustees should look at points such as their skills, whether an individual has the time and capacity to take on the role (if they are not a professional) and whether they are ‘of good standing’ (considered honest and respectable).
Trustees can also appoint professionals such as financial advisers, stockbrokers, estate agents, solicitors, accountants and surveyors. In appointing a professional, issues such as costs, relevant experience and reputation should be carefully considered. If the individual is selected because they are a friend or acquaintance of the trustee then a conflict of interest may well arise.
Taking Care When Appointing a Trustee
Care should be taken when picking a trustee as they must act in accordance with the provisions of the trust and in accordance with many obligations and duties imposed on trustees by law. If the trustees do not know what their duties and obligations are they must seek professional advice. They will be personally liable for any loss to the trust if they do not comply with their duties.
If a trustee is appointed to suit the interests of another trustee a conflict of interest is likely, making the trustees personally liable for their decisions.
If the beneficiary believes there is mismanagement and misuse of trust assets they can bring a claim against the trustees for any financial loss as well as the ability to have them removed as trustees. Such claims can be lengthy and expensive for all parties.
What if a trustee appoints their friends?
Where appointments need to be made, trustees need to take care to avoid appointing friends and acquaintances or they could breach this rule. Where they do, they could be held personally liable for any resulting loss to the trust.
If beneficiaries are concerned that a trustee has a conflict of interest and has appointed a friend to a position, they are advised to take steps to remedy the situation without delay as there are time limits within which action should be taken.
When does a trustee have a conflict of interest in an appointment, and what constitutes as a ‘friend’?
If a trustee has a personal relationship with someone they are considering appointing, they are likely to be considered to have a conflict of interest. Where the appointee is known to the trustee, they may be reluctant to do certain tasks such as making the decision to terminate an engagement or ask difficult questions at some stage during the appointment.
There are strict rules about how trustees can be paid. Unless the trust deed says otherwise, only necessary and proper expenses can be claimed. A trustee who is a professional might be able to charge to either time but only if the trust deed provides for this. Even if trustees fees are allowed, if it is being paid to a friend of a trustee then beneficiaries will be open to challenge this.
What to do if a trustee appoints or is going to appoint friends or acquaintances
If a trustee has appointed or is planning to appoint friends or acquaintances who will benefit from the trust fund, this is likely to be a conflict of interest and a breach of the trustee’s duty.
If you are the beneficiary of a trust or trust fund, and you are concerned about whom the trustees propose to appoint you can notify the trustee of your concerns, making sure all of the trustees are aware of your objections. If the trustees fail to agree, then you should seek legal advice without delay.
If they have already been appointed, you can ask them to resign as trustee. If they refuse, then the next step would be for you to seek legal advice to find out what your options are and what is the most cost-effective means of proceeding.
How we can help if you suspect trustee conflict of interest
Our expert trust solicitors can advise you on the best course of action if you believe that a trustee has appointed a friend to carry out work on behalf of the trust.
We can write to the trustee and the individual in question explaining why the appointment is inappropriate and requesting that it be revoked.
We are often able to resolve matters without the need for litigation. Where necessary, we can notify those concerned that legal proceedings will be taken if a satisfactory conclusion is not reached and prepare a robust case on your behalf.
For more information about Trusts and Trust Funds, read our other blog post – 7 of The Most Common Questions About Trusts and Trust Funds