A trustee is a company or a person responsible for administering a trust, including a deceased estate. In New South Wales, the Trustee Act 1925 sets out trustee’s duties.

A trust can have up to 4 trustees. A court or a trust-appointed person can replace, add or remove a trustee.

Common law duties

A trustee’s main duties which have arisen from case law include a duty to:

• act in the best interests of the beneficiary;
• obey the terms of the trust;
• keep trust property separate from their own;
• invest trust funds responsibly;
• only delegate responsibilities if authorised by the trust terms;
• exercise powers in accordance with the trust (i.e. make decisions, and at an appropriate time);
• perform trustee duties without payment or compensation, unless authorised by the trust terms; and
• keep accurate trust records and account to beneficiaries.

Trustee duties

The main trustee duties specified by the Trustee Act, which align with common law duties, are a duty to:

• invest trust funds in investments that are not speculative or hazardous;
• take advice;
• exercise the powers of a trustee in the best interest of all present and future beneficiaries of the trust; and
• act impartially toward beneficiaries and different classes of beneficiaries.

Investment of trust funds

The Trustee Act sets out rules for a trustee regarding investment of trust funds. The trustee must “exercise the care, diligence and skill that a prudent person would exercise in managing the affairs of other persons”, whether or not the trustee’s employment, business, or profession involves investing money on behalf of others.

When choosing an investment, things a trustee must consider include:

• the diversification of investments;
• the purposes of the trust and the needs and circumstances of beneficiaries;
• the nature and risk of investments;
• maintaining the value of the trust;
• depreciation, appreciation and income;
• the term of the investment compared to the likely duration of the trust;
• associated costs;
• tax liability and inflation; and
• the results of a review of existing investments.

A trustee has the right to obtain impartial and independent investment advice and pay for this from trust funds.

Trustee powers

The Trustee Act allows a trustee to carry on a business using trust property It grants a trustee the power to mortgage, sell, lease, repair, insure or improve trust property to carry out their duties.

A trustee can use trust funds to pay all expenses incurred in executing the trust and to reimburse themselves.

Changing the trustee

A trustee may be replaced or added when a trustee:

• remains out of NSW for more than a year without having delegated their trust responsibility;
• remains out of NSW for more than 2 years;
• refuses to act as a trustee or is unfit to act;
• no longer wants to be a trustee;
• is removed under a power stated in the trust;
• dies; or
• is a corporation that is dissolved.

A person nominated by the trust, or if there is no such person, then a surviving or continuing trustee, or a legal representative of the last surviving or continuing trustee, can appoint a replacement trustee. The replacement trustee has all the same authorities, powers and discretions as an original trustee.

A court can appoint new trustees if it is expedient, or if appointing a new trustee is inexpedient, difficult or impracticable without the court’s help. A court can appoint a new trustee if the existing trustee is mentally unfit, is convicted of a serious crime, or is bankrupt, or is a corporation in liquidation.

A court will remove a trustee if it is satisfied this is it in the beneficiaries’ interests or to secure trust property and ensure the trust runs efficiently. Reasons include that the trustee has acted unfairly toward beneficiaries or has engaged in misconduct, or when trustees are in conflict. The court’s authority is protective rather than punitive.

Breach of duty

The court can take action if a trustee breaches their responsibilities in carrying out their duties. In deciding the trustee’s liability, the court can consider:

• the purpose and nature of the trust;
• whether the trust investments were made using an investment strategy in accordance with a trustee’s duty;
• whether the trustee considered the factors for investment, appropriate to the circumstances of the trust;
• the extent to which the trustee acted on independent and impartial advice of a person competent to give the advice.

If a trustee’s investment causes a loss, the court can set off all or part of the loss against all or part of a gain from another investment.

If a trustee commits a breach on the request of or at the instigation of a beneficiary, the court can order that all or any part of the beneficiary’s interest in the trust be impounded.

The court also has the power to make an order to compel a trustee to act when they neglect or refuse to:

• sell property;
• collect any income of any property, or
• sue for or recover any property as required.

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