Practical considerations for trustees during COVID-1915 May 2020 // Insights
Private Client Solicitor Zoe Pearse looks at the fiduciary duties of trustees, and examines the scope of a lay trustee throughout this pandemic.
The UK continues to battle the COVID-19 outbreak and whilst it is envisaged, and hoped, that the lockdown restrictions will be gradually relaxed, it is clear that the ramifications will last for many more months, if not years, to come.
In a world where remote working, social distancing, a declining global stock market and falling property prices have become unwelcome day to day realities for us all, one group of individuals who will undoubtedly be affected are trustees.
With this in mind, trustees should, now more than ever, be aware of their fiduciary duties to the beneficiaries of a trust. The precise scope of these duties will vary depending on whether the trustee in question is a professional or a lay trustee. This article focuses primarily on lay trustees and some of the key considerations to which they ought to pay attention are outlined below.
Duty of Care
Trustees are expected to take reasonable care in actions and decisions which they take. In particular, they owe a statutory duty of care to the beneficiaries under Section 1 Trustee Act 2000. The law states that trustees are expected and required by law to take such care and skill as is reasonable ‘in all the circumstances’. This is particularly the case when trustees exercise their power to invest, as detailed below.
The duty of care is also enshrined under common law. The general principle is that when administering a trust, trustees should exercise the same skill and care as an ordinary prudent man of business would in conducting his own affairs.
The statutory and common law duty of care will continue to apply to trustees despite the current circumstances. Trustees cannot use the COVID-19 pandemic as an excuse for not exercising reasonable care and skill when performing their duties.
A key element of a trustee’s role will involve the investment of trust funds. Trustees must strike a balance between preserving capital and also providing a reliable income stream for the beneficiaries.
It is a sad reality that future investment will be hampered, and that the current value of trust funds will be impacted by the COVID-19 crisis. If the trust fund consists of a share portfolio, that portfolio is highly likely to fall in value as the stock market declines. With property, this may also see a decrease in value. Furthermore, the beneficiaries’ rental income may be reduced for a period of time if the occupants of the trust property are having difficulty paying their rent, and alternative arrangements may need to be made.
It is often sufficient for trustees to review investments annually but, in the current circumstances, trustees should be proactive and carry out review much more regularly. They should consider the impact on investments now and review these with the trust financial advisor or investment manager to minimise the risks. They should discuss and determine if any change of strategy regarding investments may be worthwhile, in order to protect the beneficiaries both now and in the future.
Accounting and reporting to beneficiaries
Trustees have a duty to keep the trust accounts up to date and to provide clear and accurate accounts to the beneficiaries when called upon. Similarly, trustees must usually comply with beneficiaries’ requests for information and answer any queries they may raise within a reasonable time frame.
Now is a time when beneficiaries may be feeling particularly nervous and apprehensive about trust property and investments. Consequently, trustees may find themselves inundated with queries from beneficiaries. It is important that trustees deal with any such requests for information in a clear and concise manner in order to be transparent and provide full disclosure to the beneficiaries.
So how do trustees communicate effectively with each other and the beneficiaries despite the current restrictions in place across the UK?
Trustee meetings which are usually held face to face will, where possible, have to be conducted ‘virtually’ over FaceTime, Skype or Zoom. Here, it is important to circulate a meeting agenda to all trustees along with any documentation which may need to be reviewed in advance of the virtual meeting in order to maximise the time the trustees have to discuss the trust business. As with a face to face meeting, it is important for meeting minutes to be taken and kept as an accurate record of what was discussed at the meeting along with any decisions made by the trustees.
Further to this, it may also be prudent for trustees to review all the trustee meeting minutes and resolutions to ensure they are up to date and accurate. It is vital to document any key decisions or review of investments in the trust fund (whether or not any action is taken as a result of such decisions or reviews) to demonstrate that the trustees have been proactive and are considering the beneficiaries’ best interests under the current circumstances.
As we have seen, the beneficiaries have rights and may call upon such information from the trustees. Ensuring that all the housekeeping is in order will help trustees to avoid any criticism from beneficiaries should they question the actions of the trustees in the future.
The information provided in this article is for general guidance purposes only and trustees should always take professional legal advice in relations to their duties and any decisions/courses of action which they take.
If you have any questions regarding this article or trusts in general, please get in touch with your existing Seddons’ Private Client contact or Head of Private Client, Stuart Crippin, at email@example.com, or on 0207 725 8056.