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General, Trustee liability

The importance of the envelope

A recent discussion on the main sources of trustee liability highlighted again, the importance of appreciating the subtleties inherent in the role of trustee.  The case under consideration revolved around three trustees, one of whom was a professional trustee, who decided to invest a substantial sum of trust money.  Enquiries were made, advice taken from a suitably qualified professional and finally, without undue haste or speed, the trustees made what proved to be a professionaly advised but nevertheless ultimately catastrophic investment. 

Fast forward to the present.  The trustees are sued by beneficiaries, somewhat disgruntled by the diminution of the trust’s assets.

To the casual observer the trustees looked to be sitting pretty.  The trustees  had recognised their limitations, sought professional advice, and acted on it. 

End result – the trustees were found to have acted in breach of trust and accordingly were personaly liable to redress the loss to the trust.

How can that be? you might ask.  And a fair enough question too.  The answer, like the devil, is in the detail.  The trustees recognised they needed help.  So far so good.  The trustees got help.  Good decision.  Advice taken was acted on.  This is where it all turned to custard.  Trustees are allowed, and often actively encouraged to seek assistance as required.  However, and it is a very big HOWEVER – the trustees must not delegate their decision making.  The trustees on receipt of advice must still make their own decision about what to do.  That is where the wheels fell off for this group of trustees – although the seeking and receiving of advice was demostrably provable, the trustees could not evidence that the trustees themselves had then actually made the decision to act on the advice.  It is not enough to show that a decision was made through the incontrovertable fact that the recommended investment was made.  The lacuna in the chain of evidence was anything that showed that the trustees actually considered the advice and formed their own view rather than just inplementing the adviser’s advice.  Scratch notes on the back of an envelope evidencing a meeting and that the trustees had turned their minds to the matter would have likely been sufficient.

This may seem impossibly oblique.  It isn’t, but the distinctions can be subtle, although enormously important.  It’s a tricky, tricky business being a trustee and it is not for the faint hearted.   Many trustees are not up to the job, and some of the smartest ones will soon, if they have not already, appoint a professional to carry out the job and shoulder the risk.  Preferrably a professional with a good level of professional indemnity insurance.

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