26/03/26
Being appointed as a trustee is a big responsibility. Effectively navigating the challenges ahead of you is vital to ensuring you manage the trust diligently and that you act in the best interests of the beneficiaries.
Finding the right path to deal with any issues is easier said than done. In this article, we take a deep dive into the common problems trustees face, how best to deal with them, and what you can do to help avoid them altogether.
What is the role of a trustee?
In the UK, a trustee of a trust is legally responsible for administering the trust for the beneficiaries of that trust.
As a trustee, you will:
Need to observe the terms of the trust – Learning the terms of the trust is of the utmost importance for trustees.
Trustees must carefully review and understand the terms of the trust, as adherence to the trust deed is fundamental to the proper administration of the trust. The deed sets out the scope of the trustees’ powers, duties, and any limitations on their authority. Trustees are obliged to act in accordance with these provisions at all times. They may also be required to address queries, challenges, or competing assertions from beneficiaries or third parties who believe they have a greater entitlement or interest in the trust than is supported by the trust instrument. Careful reference to the trust deed, together with appropriate professional advice where necessary, is essential in resolving such matters appropriately.
Record and provide information – One of the most important aspects of a trustee’s role is to keep accurate records for the trust. A trustee needs to be able to provide any and all relevant information to beneficiaries when it is requested, though they are not obligated to do so by law, and the sharing of information can be at the trustee’s discretion. Indeed, utilising their discretion to ensure information is, and is not given, is a crucial part of the role.
Act impartially – When distributing trust income or capital to beneficiaries, a trustee must exercise their discretion impartially and in good faith. They must not favour one beneficiary over another without proper justification, nor administer the trust in a way that unfairly prejudices or disadvantages any party.A common practice in trust deeds is to put, in writing, that a trustee must act for the benefit of all and try to be as balanced as possible in the case of competing interests.
Act unanimously – If there is more than one trustee, which there often is, you will all typically have to agree on a course of action before it is carried out. This is a normal part of administering a trust, and it is common for all trustees to confer with each other before decisions are made to ensure decisions are made collectively and in the best interests of the beneficiaries.. It is important to note that although this is general practice, it can be stated in the trust deed that trustees do not need to all agree unanimously before action is taken.
Distribute assets in-line with the trust deed – The specific wording of the trust is crucial. Trustees have to ensure that they carry out the distribution of trust assets in accordance with the exact instructions of the trust. Rights of can vary significantly from one trust to another.. It is common for trustees to seek legal aid if they are unsure how to carry out their role within the instructions listed in the deed and what their obligations are.
What are the common challenges faced by trustees?
Being a trustee isn’t all sunshine and rainbows. Unfortunately, there are often times when trustees face difficult or awkward events in relation to the trust they are managing.
Ambiguities in the trust deed – Trust documentation should be clear and concise. If documents are poorly drafted this open them be up to wide interpretation, which can cause significant difficulty. Differing interpretations of trusts deeds can create conflict between beneficiaries or even between beneficiaries and the trustees.
Beneficiary disputes – These typically arise where beneficiaries’ expectations differ from the actual provisions of the trust deed. Disagreements may concern the interpretation of entitlement, the exercise of trustee discretion, or the overall administration of the trust. Beneficiaries may allege that the trust is being mismanaged, that discretion is being exercised improperly, or that they are not receiving a fair or proportionate share in accordance with the terms of the deed.
Mismanagement of finances – A trustee is responsible for investment of trust funds to ensure that those investments are prudent and for the benefit of the trust and its beneficiaries. If a trustee does not diversify investments or causes a big loss in income, disputes can again arise.
Changes in appointed trustees – Beneficiaries may seek the removal of a trustee where they believe the individual is unsuitable, has acted in breach of trust, or is failing to administer the trust properly. Disputes can also arise upon the appointment of new trustees, particularly where beneficiaries question the validity of the appointment, the process followed, or the potential impact on the administration and management of the trust.
Breaches of duty – Being a trustee means you have a fiduciary duty to act in the best interests of the beneficiaries and the trust. Mismanagement of assets and finances can occur through wilful misconduct or simple negligence on the behalf of the trustee. Where a trustee fails to meet the required standard of care or acts outside the scope of their authority, disputes and potential claims for breach of trust are likely to follow.
How can trustees deal with beneficiary disputes?
When a dispute occurs, it is uncomfortable for all involved. Being able to navigate the problems that come your way as a trustee is paramount. The last thing you want is to makes matters worse!
So, what can you do as a trustee when conflicts occur? They could be complex or emotionally charged. Luckily there are many options available to you to resolve them, including using us here at CTT as a support mechanism to help guide you with these disputes.
Valuable tools to consider, include:
Negotiation and open communication – Establishing clear, open dialogue between the parties is often the most effective first step in resolving trust disputes. Many disagreements stem from misunderstandings, differing expectations, or a lack of transparency around decisions. Proactive communication, timely disclosure of relevant information, and a willingness to engage constructively can often clarify issues early and prevent matters from escalating into formal disputes or litigation.
Alternative Dispute Resolution – If negotiation fails there are other options such as ADR. This is when a confidential and binding resolution is reached privately through arbitration. A good preference if parties do not wish to be under public scrutiny, such as in a court case.
Legal advice – Before taking any formal steps, it is advisable to seek advice from a solicitor or specialist experienced in trusts. Early guidance can help clarify the parties’ rights and obligations, assess the merits of any potential claim, and identify the most appropriate course of action. Specialist advice is particularly important to ensure that the trust is administered in accordance with the terms of the deed and the relevant legal and fiduciary duties. You may contact CTT or another suitably qualified trust law professional to discuss your circumstances in detail.
Court intervention – If no agreement can be reached, there is always intervention through the courts. Not an ideal scenario, due to the length of time and costs involved, but one that is there none-the-less. Courts in the UK have the power to remove trustees, instruct how a trust should be managed, and the ability to order any financial compensation for losses to be reimbursed.
Our top 5 strategies for effective trust administration
Preventing a problem before it occurs is better than having to deal with an issue down the road. As a trustee, ensure you keep the following in mind.
Make sure you understand and follow the trust deed & trustee duties
Pretty straightforward. As a trustee, you will be expected to be familiar with your duties and the trust documentation. As a trustee you must act within the guidance set out in the Trustee Act 2000. It is best practise to keep up to date with any legislation changes, especially those pertaining to investment of funds.
Ensure you keep clear and accurate records
There are many disputes which are easily avoided by keeping clear records for the trust. These records ensure transparency between trustee and beneficiary and are also essential for tax compliance. Make sure to keep any correspondence, asset valuations, and detailed accounts.
Maintain effective communication with beneficiaries
As mentioned above, being transparent with beneficiaries helps to resolve disputes before they happen. They are only human, and it can be natural to jump to conclusions when you are kept in the dark, leading to misunderstandings. Try to be as clear, consistent, and transparent in your communications with beneficiaries as possible.
Ensure proper tax compliance and reporting
Be aware of the tax obligations the trust is under. Plan ahead for things like Inheritance Tax bills (particularly periodic charges), file tax returns promptly, and register the trust with the Trust Registration Service. This is especially important because many trustees misunderstand their obligations when it comes to tax, leading to issues that could have been easily avoided.
Invest prudently and in line with the Trustee Act 2000
Trustees must take appropriate steps to be stewards of the trust; invest wisely and appropriately following a reasonable investment strategy. This usually involves following the standard investment criteria of suitability and diversification. We would always advise that you seek guidance unless already well-versed in the world of investment.
For more information about how CTT helps you as a trustee in administering a trust, don’t hesitate to get in contact today, we’ll be able to point you in the right direction and give you expert guidance on best practice to deal with the challenges of running a trust.
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