Project on

‘DUTIES OF TRUSTEE’
SUBMITTED TO
Mr. Ajay Singh Sir
Asst. Professor
‘Trust and Equity’

SUBMITTED BY
Kavya Sahu
Roll no. 16001124
BA LlB 8th SEM
 DECLARATION
We Kavya Sahu, Roll no.16001124 Of BA-LlB 8 TH SEM of Guru Ghasidas University, do
hereby specially declare that this project is my original piece of work and I have not copied
this project from any source without due acknowledgement. I am highly incepted from the
author of the books that I have referred in my project as well as all the writers of the articles
and the owners of the information taken from the website for it. It is only because of their
contribution and proper guidance of my faculty adviser Asst Prof. Mr. Ajay Singh sir Jain sir
that I was able to gather light on the subject.

Kavya Sahu
Roll no.16001124
Acknowledgment
I using this opportunity to express my deepest appreciation to all those who
provided me the possibility to complete this project work.

I pay my specially gratitude and warm thanks to my teacher Asst. Prof. Ajay
Singh sir for his aspiring guidance, invaluably constructive criticism and
friendly advising during the project work.

I would like to extend my sincere thanks to my respective senior and dear friend
for sharing their truthfully illumination view on a number of issues and topic
related to this project.

Least but not the last I would also like to thanks my parents who supported me
economically a lot in finalising within the limit time frame. So could present it
so well.
CERTIFICATE
I am glad here to submit this project on ‘DUTIES OF TRUSTEE’

as a part of my academic assignment. The project is based on Research

Methodology. It further studies meaning. Sources and Method of research and
methodology and further discusses the interview method. I hope this would be
significant for academic purpose as well as prove information to all readers.

Here though I declare that this paper is an original

piece of research and all are borrowed text and ideas have been duly
acknowledged
Kavya Sahu
Roll no.16001124 Faculty Sign
BA LlB 8TH SEM

Synopsis
1. Introduction
2. What is a trust
3. Categories of trust
4. Features of trust
5. Trust property
6. Who may act as a trustee
7. Duties of trustee
8. Failure to act
9. Conclusion
10.Bibliography
Introduction
The trustee manages the trust’s assets, a significant responsibility. The trustee is either
appointed by the settlor or the court if the settlor failed to appoint someone, or if the
appointed trustees fail. The trustee must voluntarily accept his or her position. Once accepted,
the trustee cannot resign without the consent of all of the beneficiaries or the court. A trust
will not fail for want of a trustee.

Since the trustee holds legal title to the trust property, he or she owes fiduciary duties to the
beneficiaries who hold equitable title. The trustee must distribute the property in accordance
with the settlor’s instructions and desires. His or her three primary jobs include investment,
administration, and distribution.

A trustee is personally liable for a breach of his or her fiduciary duties. The trustee’s
fiduciary duties include a duty of loyalty, a duty of prudence, and subsidiary duties. The duty
of loyalty requires that the trustee administer the trust solely in the interest of the
beneficiaries. The duty of prudence requires that the trustee is held to an objective standard of
care in managing the trust property. Subsidiary rules include the duty of impartiality (no
favoritism between classes of beneficiaries), the duty not to comingle trust property and the
trustee’s personal property, and the duty to inform and account to beneficiaries. The trustee
will always have duties, or the trust will become passive and legal title will pass to the
beneficiaries.

Under common law, the trustee had an affirmative duty not to delegate acts he or she could
reasonably be required to personally perform. A trustee could, however, employ agents and
attorneys where reasonable under the circumstances. The UTC commentary states that a
“trustee may delegate duties and powers that a prudence trustee of comparable skills could
properly delegate under the circumstances.” Additionally, the UTC holds the trustee to a
standard of reasonable care, skill, and caution when selecting an agent.
If there are multiple trustees, they carry a dual accountability for their own actions, inactions,
and decisions as well as those of their co-trustees. At common law, when there were multiple
trustees, each had an obligation to participate in trust administration unless otherwise
specified. When one trustee breached his or her fiduciary duty, the other trustees were
required to compel him or her to redress it. Under the UTC, co-trustees are required to
exercise reasonable care, to participate in the performance of the trustee’s functions, unless
they are effectively assigned to another co-trustee, and act by majority decision. The UTC
allows a dissenting trustee to absolve him or herself from liability by documenting such
dissent. But a dissenting co-trustee must prevent “any serious breach of trust” and must
“compel a co-trustee to redress a serious breach of trust.”

Beneficiaries can recover improperly distributed trust assets if they are traceable back to the
trust. Beneficiaries’ claims against the trustee are of no higher priority than claims of other
trustee creditors. Beneficiaries, however, and not creditors, are the only parties who can reach
the trust property. If a trustee wrongfully disposes of the trust property, the beneficiaries can
recover the property unless it has come into the hands of a bona fide purchaser for value. If
the trustee disposes of trust property and acquires other property with the proceeds of the
sale, the beneficiaries can enforce the trust on the newly acquired property.

Anyone accepting the position of trustee must be aware of its significant responsibilities.
Professionals are available, Anyone accepting the position of trustee must be aware of its
significant responsibilities. Professionals are available, however, to help facilitate these duties
and avoid trustee liability.

What is a Trust?
A trust is a fiduciary relationship in which one party, known as a trustor, gives another party,
the trustee, the right to hold title to property or assets for the benefit of a third party, the
beneficiary. Trusts are established to provide legal protection for the trustor’s assets, to make
sure those assets are distributed according to the wishes of the trustor, and to save time,
reduce paperwork and, in some cases, avoid or reduce inheritance or estate taxes. In finance,
a trust can also be a type of closed-end fund built as a public limited company.

Trusts are created by settlors (an individual along with his or her lawyer) who decide how to
transfer parts or all of their assets to trustees. These trustees hold on to the assets for the
beneficiaries of the trust. The rules of a trust depend on the terms on which it was built. In
some areas, it is possible for older beneficiaries to become trustees. For example, in some
jurisdictions, the grantor can be a lifetime beneficiary and a trustee at the same time.

A trust can be used to determine how a person’s money should be managed and distributed
while that person is alive, or after their death. A trust helps avoid taxes and probate. It can
protect assets from creditors, and it can dictate the terms of an inheritance for
beneficiaries. The disadvantages of trusts are that they require time and money to create, and
they cannot be easily revoked.

A trust is one way to provide for a beneficiary who is underage or has a mental disability that
may impair his ability to manage finances. Once the beneficiary is deemed capable of
managing his assets, he will receive possession of the trust.

Categories of Trusts
Although there are many different types of trusts, each fits into one or more of the following
categories:

Living or Testamentary
A living trust – also called an inter-vivos trust – is a written document in which an
individual's assets are provided as a trust for the individual's use and benefit during his
lifetime. These assets are transferred to his beneficiaries at the time of the individual's death.
The individual has a successor trustee who is in charge of transferring the assets.

A testamentary trust, also called a will trust, specifies how the assets of an individual are
designated after the individual's death. 

Revocable or Irrevocable
A revocable trust can be changed or terminated by the trustor during his lifetime.
An irrevocable trust, as the name implies, is one the trustor cannot change once it's
established, or one that becomes irrevocable upon his death.

Living trusts can be revocable or irrevocable. Testamentary trusts can only be irrevocable. An
irrevocable trust is usually more desirable. The fact that it is unalterable, containing assets
that have been permanently moved out of the trustor's possession, is what allows estate taxes
to be minimized or avoided altogether.
Funded or Unfunded
A funded trust has assets put into it by the trustor during his lifetime. An unfunded trust
consists only of the trust agreement with no funding. Unfunded trusts can become funded
upon the trustor’s death or remain unfunded. Since an unfunded trust exposes assets to many
of the perils a trust is designed to avoid, ensuring proper funding is important.

Features of a trust
The essential features of a trust are:

1. the separation of legal and beneficial ownership. The trustee is the legal owner of the
property but the beneficial interest lies with the beneficiary;
2. the trustee cannot use the property for his own benefit (unless expressly authorised by
the terms of the trust). He must manage and distribute the property for the benefit of
the beneficiaries; and
3. the rights of the beneficiaries depend on the terms of the trust. While some types of
trust give the beneficiaries rights to call for the trust property to be transferred to
them, others give the beneficiaries no absolute rights at all. This means that a person
who sets up a trust of which he remains a beneficiary will not have the same rights
over the property as he had when he owned it absolutely. This is an important feature
of trust law.

These basic aspects of a trust arrangement flow from the body of trust law which has
developed over the years. These can be varied and added to by the special arrangement made
between the particular settlor and the trustees.

Trust property
In principle, any type of property, from bank accounts, to land, to jewellery, to pictures, can
be put into a trust. In practice, a professional trustee will need to consider carefully what type
of property it would be prepared to accept in each particular case, bearing in mind that it has
a duty to protect the trust fund.
Who may act as trustee?
A trustee is defined as a person having an obligation to deal with property, over which he or
she has control, for the benefit of other persons (beneficiaries) of which he or she may be
one.

Both individuals and corporations licensed as trust companies and private trust companies
registered under the Banks and Trust Companies Law (2013 Revision) may act as trustees of
a trust. According to Cayman Islands law it is possible to have a sole trustee (although this is
not recommended practice except in the case of a corporate trustee).

Whereas an individual is liable for the whole of their assets in the event of a claim against the
trustee, a trust company is liable to the extent of its capital.

All licensed trust companies offering trust services to the public in the Cayman Islands are
required to be capitalised with a minimum of US$500,000 thus exposing the entire capital of
the company in the event of a claim against the company. In addition the management and
ownership of the trust company is subject to prior approval by the Cayman Islands' Monetary
Authority.

Duties of a trustee
A trusteeship is a fiduciary relationship, and the trustees are bound to act bona fide in their
dealings with the trust and are bound to exercise care and skill in their judgment. They have a
duty to act in the best interests of the beneficiaries. Their main duties are set out below.

Duty of care
A trustee should exercise care and skill in administering the trust; a professional trust
company may have a higher duty of care to its beneficiaries in view of its professed expertise.

Power to invest
Trustees have onerous investment obligations. When making investment decisions trustees
must take as much care as a prudent man would take in making an investment for a person for
whom he felt morally obliged to provide. The types of investment which a trustee is entitled
to make are fairly restricted, unless expressly extended in the trust instrument.
Balance income and capital
The trustee must maintain a balance between beneficiaries interested in income and capital,
which will affect their investment decisions, unless specifically authorised not to do so.

Protection of assets
A trustee must take steps to preserve and protect the assets in the trust fund.

Conflicts of interest
The trustee must disclose any conflict in relation to the trust. A trustee must not generally
profit from the trust. This means that the trustee's business must not compete with the
business of the trust (if any). A trustee could not, then, take advantage of the fact that he is
the trustee, for example, by using an affiliated trust company as investment adviser. The
profit of the affiliate would be regarded as inappropriate and should be returned to the trust
fund. This restriction can be varied by express provision in the trust deed, and it usually is,
although such a provision will be strictly construed.

Keep records and accounts

The trustee must keep accurate records and accounts.

Unanimity
Where there is more than one trustee all decisions should be unanimous.

Awareness of powers and liabilities

A trustee is in a special fiduciary position where he is obliged to manage the trust fund bona
fide in the best interests of the beneficiaries. Before accepting such an onerous responsibility
the trustee is under a personal duty to acquaint himself with the powers and liabilities which
will be assumed by accepting the office. He should be certain he wishes and is able to
undertake such responsibilities and he should take legal advice periodically whenever
prudent.

Due diligence
The trustees should satisfy themselves as to the legitimacy of the source of the funds in trust.
They should take specific legal advice on the form of their due diligence procedures since
this is a rapidly evolving and developing area of law.
Trustee's fiduciary duties
Act in utmost good faith
The trustee has a high burden and standard to meet. He must act in utmost good faith. He
must act in accordance with the terms of the trust instrument, and he must not allow his
discretion to be fettered. A letter of wishes, for example, must not be used as a directive, but
rather as an aid available to assist in situations where a choice between several possible and
equally bona fide actions must be made. The trustee may or may not decide to act in
accordance with the wishes of the settlor in these cases.

Personal gain and self-dealing

The trustee must not deal with the trust property for personal gain and any personal financial
reward obtained through knowledge obtained from the trust will be held in favour of the trust.
The trustee should not conduct any personal business with the trust unless specifically
authorised to do so. This includes purchases from and sales to the trust. Such so called "self
dealing" can, however, be expressly authorised under the terms of the trust instrument; but
even in these cases the trustee will be expected to act fairly and not to the detriment of the
beneficiaries.

Failure to act
Failure to act properly can expose the trustee to a breach of trust claim on the part of the
beneficiaries. This will be made if the beneficiaries feel that any act or omission by the
trustee has wrongly prejudiced their interests. Examples would include the following:

1. the trustee has made an imprudent investment or failed to supervise the activities of
the investment adviser properly, resulting in a loss of value of the trust fund;
2. the trustee has invested in assets producing a high income yield, to the detriment of
the capital beneficiaries;
3. the trustee has failed to acquaint itself fully with the circumstances of the
beneficiaries, and therefore failed to make a payment to an impecunious beneficiary,
or made a payment to a beneficiary in a manner which was not advantageous from a
tax perspective; and
4. a trustee has had undue regard to the wishes of the settlor, without properly
considering the interests of the other beneficiaries.
CONCLUSION
It is said that the relation of Trust is like a glass. Once broken, it is never the same as before.
By a prima facie observation of the Indian Trust Act, it can be seen that apart from the legal
aspects, the duties and powers provided in the Act intend to preserve the delicate relation of
trust, so that the trust may be kept, and the intention with which the trust is formed may be
fulfilled. Therefore, here we may conclude with the duties of a Trustee as provided for in the
Indian Trust Act, 1882.
BIBLIOGRAPHY

1. https://www.mondaq.com/caymanislands/trusts/496738/duties-and-
liabilities-of-trustees--august-2015
2. https://www.pearse-trust.ie/blog/6-main-duties-of-a-trustee
3. https://www.investopedia.com/terms/t/trust.asp