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The word trustee is a legal term that refers to a holder of property on behalf of some other beneficiary. A trust can be set up either to benefit particular persons, or for any charitable purposes (but not for non-charitable purposes): typical examples are a will trust for the testator's children and family, a pension trust (to confer benefits on employees and their families), and a charity. In all cases, the trustee may be a person or company, whether or not they are a prospective beneficiary.
General duties of trustees
Trustees may be appointed by operation of law, when their powers will arise by common law or by statute. For example, a person who knowingly takes possession of trust funds will be liable as a trustee; and a joint holder of property may be a statutory trustee for sale.
Trustees can only act jointly and unanimously, unless provision is made for voting, a quorum or delegation. Their powers to delegate their decisions are limited. In case of difficulty an application to the Court must be made.
The trustee is entrusted with the administration of the trust property, and may be given additional discretionary powers to select beneficiaries. With respect to most private trusts, the trustee holds legal title to the trust property, is the representative of the trust, and has the capacity to sue and be sued on behalf of the trust.
Necessary traits of trustees
The responsibilities of a trustee can be onerous, although honest trustees are normally indemnified out of the trust assets. A trustee carries the fiduciary responsibility and liability to use the trust assets according to the rules of the trust instrument (and often regardless of his own or the beneficiaries' wishes). The trustee may find himself liable to claimants, prospective beneficiaries, or to third parties. In the event that a trustee incurs a liability (for example, in litigation, or for taxes, or under the terms of a lease) in excess of the trust property he holds, he may find himself personally liable for the excess. Thus, at least in theory, a member of a small charity committee could unwittingly risk his family assets.
Trustees are generally held to a "prudent person" standard in regard to meeting their fiduciary responsibilities, though investment, legal, and other professionals can be held to a higher standard commensurate with their higher expertise. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment. It is common for lawyers to draft will trusts so as to permit such payment, and to take office accordingly: this may be unnecessarily expensive for small estates.
In the case of charitable or other trust corporations, the company itself is a trustee and the term "Trustee Board" is frequently used of the board of directors. The company holds the trust property and liabilities separately from the individual trustee-directors, and confers limited liability on them. The members of the board are generally known as trustees, although they remain liable as directors under company law, and as directors are naturally responsible for their acts and omissions in directing the charity. For practical purposes, the members of the board perform the duties of trustees, but the powers of the charity are delegated and exercised subject to the charity's procedural articles or regulations.
Other uses
Many other corporations call their governing boards a board of trustees, though in those cases, they act as a board of directors. To some extent, the fiduciary duties of a director to the company are comparable with those of a trustee.
In the case of UK charities, a trustee is an unpaid volunteer who undertakes fiduciary responsibilities on behalf of the charity, subject to the provisions of Charity Law, a branch of trust law, and the Charities Act 1993. For charity trustees, the Charity Commission often has concurrent jurisdiction with the Courts. Many UK charities are also limited liability companies registered with Companies House, in this case the trustees are also Directors of the company and their liability is limited. This is the preferred model if the charity owns property or employs people.
Trustee is also a term used for a prison inmate who has special work-related privileges, usually as a result of good behavior.
Bankruptcy Trustee
In the United States, if a person is adjudged a bankrupt, a trustee will be appointed to hold legal title to the property of the debtor and to perform other duties required by the bankruptcy laws. See United States Trustee for additional information about trustees in US bankruptcy law.
UK Legislation
- Trustee Delegation Act 1999 specifically covers matters to do with land.
- Trustee Act 1925
- Trusts of Land and Appointment of Trustees Act 1996
- Trustee Act 2000
- Charities Act 1993
See also
References
Management | Corporate governance | Equity | Wills and trusts | Legal occupations
"Trustee"