Being a Trustee is not to satisfy Ego, but…
Concept of Trust:
In law, a trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a “settler,” “trustor” or “grantor” who transfers property to a “Trustee”.
The Advantages of trust may include avoidance of court intervention with regards to a person’s assets. It creates opportunity for planning for future events that may affect the property, with possible reduction of future tax liability. It helps the control of what could happen to assets after death or dissolution.
Concept of Trust under Nigerian law:
An unregistered body or association is not recognized under Nigerian Law. The Companies and Allied Matters Act (CAMA) provides that where one or more trustees are appointed by a Community or other people, bound together by a common custom, religion, worship or nationality for the promotion of specific religious, educational, literary, scientific, community development, cultural or other charitable purpose, such trustees are required with due authorization of its members to apply to the Corporate Affairs Commission for Registration as a body corporate.
It is the law that from the date of registration or incorporation, the Association becomes a body corporate with perpetual succession and a common seal, the power to sue and be sued in their corporate name and the power to hold and transfer, assign or otherwise dispose of any property or interest belonging to or held for the benefit of the association. Section 603(1) of CAMA governs incorporated Trustees in Nigeria.
A Trustee is a person appointed to hold trust property and in the case of an active trust, to administer it to the benefit of the beneficiaries. The trustee may be an individual, a company or a public body. There may be a single trustee or multiple co-trustees. The Trustee is given legal tittle to the trust property but holds that property for the trusts beneficiaries.
Things to do before accepting the role of a Trustee:
A decision to accept the Trusteeship of a trust should not be accepted blindly. Under the case law of most jurisdictions, no one can be compelled to act as a Trustee.
Trustees should be aware of the details of the settlors, that is, the person or entity that transfer assets or value to a trust. Trustees should know the personal circumstances, the settlors’ intentions when creating the trust and any other matters that may be relevant to the trust.
It is important for the validity of the trust that the Trustee should know who the beneficiaries are, either individual beneficiaries or from a class of beneficiaries, their relationship to the settlor and their current personal and financial circumstances, also ascertaining the needs of the beneficiaries and whether any of the beneficiaries has special needs in an important exercise before accepting an appointment as trustee.
Trustee should also find out if there are other Trustees acting as co-trustees and their area of expertise.
Trustee should also be aware of the nature and value of the property held in trust fund, because the trustee must avoid conflict of interest when managing the trust property.
Trustee should also familiarize themselves with the deed itself. The provisions of a trust deed should provide the details of the settlor(s), the beneficiaries, the trust period, the governing law; trustee powers and discretions, power of appointment and provisions relating to decision making.
Trustee should also consider whether their appointment as trustees has any tax implication for the trust and compliance with tax regulation and local record keeping requirement.
Trustee should also find out the decision making process in a trust where there is more than one trustee. The deed may require decisions to be unanimous or by majority.
In addition, trustees should know how often and which board meetings for the trust will be held and what level of record keeping and reporting will be required in the jurisdiction of the trust.
General duties of a trustee:
Trustees have a lot of duties (some of which are fiduciary) in nature. A Trustee:
Is duty bound to carry out the expressed terms of the trust instrument. A trustee is duty bound to act in accordance with the terms of the trust upon which he or she holds trust property and commits a breach of trust if he or she departs from the terms of the trust .However a trustee may act otherwise than in accordance with the terms of the trust if all the beneficiaries being legally competent and together absolutely entitled, direct the trustee to do so (or so content) if any question arises as to the constitution of the provision of the trust, the trustee must approach the court for determination of the question.
He should defend the trust and prudently invest the trust assets.
In Cowan v Scargill (1985) Ch 270, an English trust case concerning the scope of discretion of Trustees to make investments for the benefit of their members. The case strengthened the argument that Trustees cannot ignore the financial interest of the beneficiaries. The court in that case held that: “the starting point is the duty of trustees to exercise their powers in the best interest of the present and future beneficiaries of the trust, holding the scale impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount. They must, of course obey the law; but subject to that they must put their beneficiaries first. When the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interest of the beneficiaries are normally their best financial interest. In the case of a power of investment, as in the present case, the power must be exercised as to yield the best return for the beneficiaries, judged in relation to the risks of the investment in question; and the prospects of the yield of income and capital appreciation both have to be considered in judging the return from investment.”
The trustee must be impartial among beneficiaries; the trustee must act impartially between individual beneficiaries as well as between different classes of beneficiaries.
He or she must account for actions and keep beneficiaries informed; these include a duty to inform beneficiaries as to their entitlements under the trust and other matters concerning the trust.
The trustee must neither delegate his or her duties nor make profit; he may however charge fees for services to the trust. He or She must administer the trust in the best interest of the beneficiaries.
He or she carries a fiduciary responsibility and liability to use the trust assets according to the provisions of the trust instrument (and often, regardless of their own or the beneficiaries’ wishes). Trustees may find themselves liable to claimants, prospective beneficiaries or third parties in the event that a trustee incurs a liability (for example in litigation or for taxes under the terms of a lease) or for their excesses.
Trustees are generally held to be “prudent persons” standard in regard to meeting their fiduciary responsibilities. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment.
The “prudent person” or “prudent man” rule written by a Judge in the American State of Massachusetts, Samuel Putnam (1768-1853) directs Trustees “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of the capital to be invested.”
Liabilities of a Trustee:
A trustee is personally liable for any debt incurred when acting as a trustee, regardless of whether the trustee can benefit personally from the trust. Any limitation of liability must be expressly stated; simply entering into contract or agreement as a trustee is generally insufficient to ensure limitation of liability.
A trustee is also personally liable for court cost in addition to other costs.
Failure by the trustee to discharge obligations in the trust deed to the required standard, or at all, can result in trustees being personally liable. In addition, in certain circumstances, liability can be incurred for the activities of fellow trustees.
Removal of Trustee from a trust:
A Trustee can be removed. The power to remove a Trustee rests with several people. The beneficiaries or the people to whom the trust assets are left to, can remove the Trustee if given removal power in the trust deed. If not, the beneficiaries must ask the probate court to remove the trustee by showing good cause. A Trustee may also ask for removal if he knows that the Trustee obligations cannot be met. Trust documents may also assign specific individuals with power to remove a Trustee.
Failure to abide by specific trust terms:
Besides the obligations set out by law, a trust deed or document can outline specific directions that a trustee must follow. If the trustee fails to meet these outlined directions, the beneficiaries can remove the trustee if given removal power or can petition the probate court for removal.
Failure to meet obligations:
One of the most important duties of Trustees includes fiduciary duties. This means that the trustee must act prudently to ensure that none of the trust assets and property goes to waste or devalues. Failure to do so through either negligence or refusing to act may necessitate removal. The probate court determines whether the trustee failed to meet his obligations and appoints a new trustee if wrong doing is found.
Self-dealing and conflict of interest:
Trustee must make financial decisions in the best interest of the trust and the beneficiaries. Any implication of self-dealing or acting in a manner to enrich oneself may require the removal of the trustee. Fiduciary duties require the trustee to act in the interest of the beneficiaries. Acting on other persons’ behalf while carrying out the terms of the trust violates the Trustee’s duties as this may cause conflict of interest and gives cause for either the beneficiary or probate court to remove the trustee.
Probate courts understand that the law cannot outline very reason why a Trustee must be removed from a trust. As such beneficiaries can petition the court for removal upon the showing of good cause for removal. This gives beneficiaries and trustee an opportunity to state their reasons as to why the current situation necessitates the removal of the Trustee.
Advice to Trustees:
A Trustee must know how to handle both money and people. A person’s job as a trustee will be infinitely easier and far more effective if, right from the start, a cordial relationship is established with the trust beneficiaries.
Trustees should get in touch with the beneficiaries early once they have been appointed as a trustee and should communicate well and often with beneficiaries. They should educate them about your role as Trustee.
Trustees should help beneficiaries to form realistic expectations of how long it will take to administer the trust and should not hide the trust document or assets from them. They should keep very good records and never use trust assets personally. Lastly, if you pay yourself compensation, be prepared to justify the charges and services you have provided for the trust.
In conclusion, being a Trustee is not a matter for fulfilling one’s ego but a matter for exercising responsibility, prudence, fairness and compliance with provisions of the Law.