Trustee Duties and Responsibilities: A Complete Guide

Accepting an appointment as trustee is not a ceremonial honour. It is a legal role carrying substantial personal obligations, and in some circumstances, personal financial liability. Yet many individuals — whether family members nominated by a relative or professional advisers asked to step in — take on the role without fully understanding what it requires. This guide sets out the core duties, practical obligations, and key risks every trustee should understand before accepting, and every settlor should consider when choosing trustees.

What Is a Trustee?

A trustee holds legal title to trust assets and manages those assets for the benefit of the beneficiaries, in accordance with the terms of the trust deed and applicable law. UK trusts are governed primarily by the Trustee Act 2000, the Trustee Act 1925, and the equitable principles developed by centuries of case law.

Trustees can be individuals or corporate bodies. Professional trustees — typically trust companies, law firms, or specialist corporate trustees — carry regulatory obligations and often professional indemnity insurance. Lay trustees — family members or friends — have the same legal duties but may lack the expertise, resources, or insurance to discharge them effectively. This mismatch between obligation and capability is one of the most common sources of trust disputes.

Fiduciary Duties: The Foundation

All trustee duties flow from the trustee's position as a fiduciary — someone who acts on behalf of another party in a position of trust. The core fiduciary duties are:

Duty of loyalty. Trustees must act in the interests of the beneficiaries, not their own interests. Conflicts of interest must be avoided or, where unavoidable, fully disclosed and managed. A trustee who profits personally from trust business — by, for example, purchasing a trust asset at an undervalue — will generally be required to account for any profit made.

Duty to act in accordance with the trust deed. Trustees must adhere to the terms of the trust document. Any exercise of discretion must be genuinely discretionary — trustees cannot simply follow the instructions of the settlor if to do so would be to act as a mere puppet (a "sham trust" is ineffective at law and can cause the trust assets to be treated as remaining in the settlor's estate).

Duty to act unanimously. Where there are multiple trustees, decisions must generally be taken unanimously unless the deed provides otherwise. This does not mean all trustees must sign every document, but all must genuinely participate in decisions.

Duty to consider the interests of all beneficiaries. A trust with both income beneficiaries (entitled to income now) and remainder beneficiaries (entitled to capital later) requires trustees to balance competing interests. Prioritising yield for income beneficiaries at the expense of capital growth would disadvantage the remainder, and vice versa.

The Statutory Duty of Care

The Trustee Act 2000 introduced a statutory duty of care requiring trustees to exercise the same care and skill as a reasonably prudent person would exercise in managing the affairs of another. For professional trustees, the standard is higher: they are expected to exercise the care and skill that their profession or business would normally bring.

This duty applies to investment decisions, the appointment of agents and custodians, insurance, and the exercise of certain statutory powers.

Investment Powers and Obligations

Under the Trustee Act 2000, trustees have a general power of investment allowing them to make any kind of investment as if they were the absolute beneficial owner — unless the trust deed restricts this.

However, this broad power comes with obligations:

Standard investment criteria. When investing, trustees must have regard to the suitability of the investment for the trust (given its size, nature, and duration) and to the need for diversification. A trustee who concentrates all trust assets in a single stock, no matter how apparently strong, will struggle to defend that decision if the investment fails.

Investment review. Trustees must review investments at regular intervals and consider whether they remain suitable. "Set and forget" is not an acceptable approach. The frequency of review should reflect the nature of the assets and market conditions.

Obtaining advice. Before exercising any power of investment, trustees must obtain and consider proper advice from a person they reasonably believe to be qualified — unless it is reasonably concluded that advice is unnecessary in the circumstances. Proceeding with a significant investment without taking advice is a breach that may expose trustees to personal liability.

Ethical and ESG considerations. Trustees may take account of ethical and non-financial factors in investment decisions, provided they do not risk significant financial detriment to the beneficiaries. This is an evolving area: modern trust deeds increasingly include explicit ESG clauses.

Delegation and the Use of Agents

Trustees may delegate investment management and certain other functions to agents. When delegating, trustees must:

• Ensure the agency agreement is in writing
• Prepare a policy statement setting out how the agents should exercise their delegated powers
• Review the performance and compliance of agents regularly

Delegation does not relieve trustees of responsibility. If trustees fail to supervise an agent appropriately and loss results, they remain personally liable.

Record-Keeping

Trustees are required to maintain adequate records of all trust transactions, decisions, and correspondence. Specifically:

• Trust accounts should be prepared annually, showing assets, liabilities, income and expenditure
• Minutes or records of all trustee decisions — including investment decisions, distribution decisions, and any exercise of discretionary powers — should be maintained
• All correspondence with beneficiaries, advisers, and HMRC should be retained
• Asset valuations should be recorded at regular intervals

Poor record-keeping is one of the most common failures identified in trust disputes. When a disgruntled beneficiary challenges trustee decisions, the first thing their lawyers will request is the decision-making record.

HMRC Reporting Obligations

UK trusts with tax obligations must register with HMRC's Trust Registration Service (TRS). Since 2022, this requirement was significantly expanded: most UK express trusts — and some non-UK trusts with UK tax obligations or UK assets — must register, regardless of whether they have any tax to pay.

Tax reporting obligations include:

Self-Assessment. Trustees must file a Trust and Estate Tax Return (SA900) annually if the trust has taxable income or capital gains. The filing deadline is 31 January following the relevant tax year for online returns.

Income tax. Trusts are taxable at specific trust rates. Discretionary trusts pay 45% on income (39.35% on dividends) above a small standard rate band. Interest in possession trusts broadly pay basic rate tax.

Capital gains tax. Trustees pay CGT on gains within the trust. The annual exempt amount for trusts was reduced significantly and has been further restricted for trusts sharing an exempt amount (where a settlor has created multiple trusts).

Inheritance tax ten-year charge. Discretionary trusts are subject to a periodic IHT charge every ten years on the value of the trust fund above the available nil-rate band. Exit charges apply when assets leave the trust. Trustees must calculate and report these charges to HMRC. From April 2027, new rules apply to pension trusts — professional advice is essential in this area.

30-day reporting. Certain trust transactions, including significant disposals of UK assets, may require prompt reporting.

Trustee Liability

Trustees are personally liable for breaches of trust. If a breach causes loss to the beneficiaries, the trustees must make good the loss from their own resources. Key points:

• Liability is joint and several among all trustees, meaning each trustee can be sued for the full loss
• A trustee cannot generally shelter behind the decision of co-trustees — each must act independently and raise objections to decisions they believe are wrong
• The trust deed may include a trustee exclusion clause limiting liability, but such clauses cannot exclude liability for fraud, wilful misconduct, or in some cases gross negligence
• Trustees who act on qualified professional advice, document their decisions, and review investments regularly are in a far stronger position than those who act intuitively without documentation

Practical Steps for Newly Appointed Trustees

Before accepting appointment, a prospective trustee should:

1. Read and understand the trust deed
2. Review the trust's existing assets, liabilities, and tax position
3. Establish whether any previous trustees have outstanding obligations to account
4. Ensure a current investment policy statement is in place
5. Identify and engage appropriate investment advisers, tax advisers, and legal advisers
6. Consider whether professional trustee indemnity insurance is needed

If you are a lay trustee alongside professional co-trustees, do not assume the professionals will handle everything. Your duties exist regardless of the expertise of your co-trustees.

International Considerations

Many trusts established by internationally mobile families involve non-UK assets, non-UK trustees, or non-UK beneficiaries. Where a trust has an international dimension, additional considerations arise:

• Residency of trustees determines in which jurisdiction the trust is resident for tax purposes. Moving trustees offshore can affect UK tax treatment, but only where the trust was not UK-resident to begin with — simply moving trustees abroad does not remove existing UK tax charges.
• Foreign reporting obligations may apply, including CRS/FATCA reporting of trust accounts to foreign tax authorities.
• Forced heirship rules in civil law countries may restrict what a trust can achieve in relation to assets in those jurisdictions.

Rules change. Professional advice should be obtained whenever the trust's circumstances change materially, a new trustee is appointed, or assets are added or removed.

How Global Investments Can Help

At Global Investments, we work with internationally mobile families and HNW clients for whom trusts form a central part of their wealth and estate planning structures. Our advisers can assist trustees in understanding their investment obligations, constructing appropriate investment policies, and connecting you with specialist legal and tax advisers who can handle reporting, TRS registration, and compliance. If you are considering whether a trust is the right structure for your circumstances, or if you are a trustee seeking a second opinion on your obligations, we invite you to contact our team.

This article is for general information only. Trust law, tax rules, and reporting requirements can change. All trustees should take qualified legal and tax advice specific to their circumstances. Investments within trusts can fall as well as rise in value, and past performance is not a guide to future returns.