UK: Being A Trustee Can Be Dangerous

Last Updated: 21 November 2007
Article by Andrew Dalgleish

Acting as a trustee of a trust can have serious risks for the persons who act as trustees. The risks arise from a variety of sources, some of which are mentioned here.

Ordinary civil liability

Trustees dealing with investment or business affairs are bound by contracts that they enter into in the same way as individuals. It is possible for trustees to contract expressly as trustees so that a creditor of the trust can only look to the trust assets to satisfy his debt. If this is not done however then the trustees are personally liable to the extent of their individual assets.

Trustees are also liable for delicts or non contractual wrongs such as the liability of an occupier of land for certain injuries to persons who are lawfully on the landowner's ground.

Tax liabilities

Trustees are liable to meet the tax charges in respect of the trust property. If the trustees have distributed too much to beneficiaries and retained insufficient amounts to pay taxes that are due then HM Revenue & Customs will look to the trustees personally to pay up.

There are also cases where the trustees can be liable for tax charges in circumstances over which they have no control. Sometimes it is possible to hold over capital gains on the transfer of assets to beneficiaries on the termination of a trust or advance of assets to a beneficiary. If gains are held over there is no tax charge on the winding up of the trust and the beneficiary takes over the historic acquisition cost of the trustees. The beneficiary will pay tax on the whole gains if he sells subsequently. However, if the beneficiary becomes non UK resident within 6 years of the end of the tax year when the trust is wound up, then the tax charge is triggered. If the beneficiary does not pay the tax (which he might not if he has become non resident) then the trustees can be forced to pay personally.

This is a known problem so the trustees would be well advised to retain assets sufficient to meet a tax charge for the 6 year period.

Criminal liability

Trustees may be held criminally liable for wrongs as well. In a recent case (Aitkenhead -v- Fraser) trustees owned a landed estate. They employed a gamekeeper who, during the course of his work, had an accident on a quad bike and subsequently died. The trustees were charged with failing to maintain a safe system of work contrary to Health & Safety Regulations and they were convicted.

In contrast to civil liability, the trustees were not personally liable for the criminal acts of the trust. Trustees cannot be imprisoned for a crime committed by them as trustees. Any penalty must be a financial one and can only be recovered out of the trust funds and not from the trustees' personal assets. The conviction is against the trustees collectively in their trustee capacity and not in their individual capacities. The conviction should not appear in any list of previous convictions relating to an individual trustee.

Liability to beneficiaries

Besides the risk of liabilities to persons outside the trust, the trustees have significant obligations in relation to beneficiaries. The trustees must take proper care of the trust fund, invest and manage it in an appropriate way and account for their intromissions. Failure to meet the required standard may result in a breach of trust or accounting claim.

Such claims could conceivably arise in relation to any conviction of the trustees in the circumstances of the case mentioned above. If the trustees have failed to carry out the required standard of employee safety as a result of which a financial penalty is imposed on the trust, it is not inconceivable that the beneficiaries might take issue with that. The situation here is not clear, but certainly personal failings by the trustees acting as such can lead to attempts by beneficiaries to recover any loss which they ultimately suffer.

What can trustees do?

Insurance can cover some risks such as employment claims or occupiers liability.

Some risks can only be dealt with by careful management, by reviewing policies and procedures, by avoiding activities such as trading or employment which may be more likely to give rise to problems and by being aware of potential issues. The risks can be mitigated further by taking appropriate advice on carrying out the trust affairs.

A person thinking of acting as a trustee should consider seriously the risks in relation to the particular trust involved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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