How a Trustee's obligation to be 'diligent & prudent' may affect you
Trustee obligations
If you have agreed to act as a trustee, there are some very strict obligations that you have to comply with.
You must:
- be familiar with the terms of the trust
- strictly comply with the terms of the trust
- be impartial and fair to all the beneficiaries
- invest trust money only as authorised by the trust deed or otherwise as the law allows
- be diligent and prudent in carrying out your duties
- not delegate your duties to anyone else, without authorisation
- act unanimously with the other trustees
- not profit from the trust
- pay trust money to the right people
- keep full and clear accounts
- supply certain information to the beneficiaries when requested
Sum insured house insurance
One of the duties we have highlighted above is the duty to “be diligent and prudent in carrying out your duties”. A recent reminder of this has come in the form of “sum insured” insurance.
Most trustees of trusts that own a house will by now have had to update their insurance from “total replacement” to “sum insured”. The practice seems to have been that insurers have suggested a sum, and anecdotally it appears that most homeowners are simply accepting that sum.
However, what would the “prudent and diligent” trustee homeowner do?
At the barest minimum, trustees should undertake a “Cordell” calculation, using a comprehensive online calculator that gives an estimate of the cost to rebuild a home. These, however, will not take into account vagaries of a particular site. It is therefore prudent to consider engaging a Valuer or Quantity Surveyor who will produce an accurate estimate of the cost of rebuilding a particular property, including the costs of demolition/removal, clearing and preparing the site, council and architect’s fees, service, and building costs.
If this seems a bit “over the top”, remember that the standard is not “what would I do”, but “what would someone who is careful and cautious do”.
Conclusion
The “core duties” of a trustee are not currently set out in any one document, though the Law Commission has suggested in its recent report that they ought to be.
You can also download a copy of our trust booklet.
If you have any queries about your role as a trustee, please contact one of our trust specialists.