What is a Breach of Trust?

A breach of trust occurs when a trustee fails to comply with the terms of the trust or the duties of a trustee.

Trustees are jointly and severally liable for breach of trust to their beneficiaries where the breach has resulted in a loss.

Common allegations of breach of trust include:

(i) distributing assets to a beneficiary not entitled to them under the trust deed;
(ii) acting in their own best interests rather than in the interest of the beneficiaries;
(iii) investing trust assets in a way not permitted;
(iv) breach of their fiduciary duty, common law or statutory duty of care.

What are trustee’s duties?

Examples of Trustees duties include:

• to exercise reasonable care and skill
• to comply with the terms of the trust document
• to act impartially between beneficiaries
• to invest in authorised investments
• to act in the best interests of the beneficiaries
• to avoid conflicts of interest
• to act in good faith and with honesty and integrity
• to inform beneficiaries of their position and provide such information concerning the trust as they are entitled to
• to keep proper records and accounts
• to not profit from the trust

What is the standard of care owed by a Trustee?

The statutory duty of care is found at Section 1 of the Trustee Act 2000. A trustee must exercise such care and skill as is reasonable in the circumstances, having regard in particular:

1. to any special knowledge or experience that he has or holds himself out as having, and;

2. if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.

The common law duty of care is to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide. This duty is derived from Learoyd v Whiteley (1887).

What are the possible defences to a breach of trust claim?

An Exemption clause: An express clause in the trust deed may protect a trustee from loss or damage incurred by their actions.

Delay: If there is an unreasonable delay on the part of the claimant in pursuing a breach of trust claim and that delay has given rise to prejudice to the trustee’s position, then the court may use its discretion to not permit the claim to proceed.

Limitation: The limitation period, which is the statutory time period allowed for making any claim for breach of trust, is 6 years. The limitation period for claims in a deceased person’s estate is 12 years. However, there is no such period applicable limiting the period a claim can be brought in the instance of fraud and/or recovery proceedings.

Beneficiary consent: It is a defence for a breach of trust if a beneficiary of full age and capacity and not subjected to undue influence has assented to or concurred with the breach. It is not necessary for the beneficiary to have benefited from the breach.

Statutory relief under Section 61 of the Trustee Act 1925: The court may relieve a trustee wholly or partly from personal liability for a breach of trust if the trustee is found to have acted honestly, reasonably and ought fairly to be excused for the breach and for failing to obtain court directions.

What is the extent of liability for breach of trust?

If a trustee is found to have acted in breach of trust then they can be required to restore the trust fund to the position it would have been in had the breach not occurred.

How can we help?

At Gosschalks, we act for trustees, executors, personal representatives and for individuals claiming against estates, or other interested parties. If you have any questions arising from this guide please do not hesitate to contact the author, Allanah Hutchinson (amh@gosschalks.co.uk), or any member of our Contentious Probate Team on 01482 324252.