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Trustee Duties in South Australia
A Trust is a legal obligation which requires a person or other legal entity (the ‘trustee’) to deal with property in a certain way for the benefit of a person or persons (the beneficiary or beneficiaries). There are also Trustee companies. These are professional organisations which can administer the terms of a trust. A trustee holds the legal title to the trust property and is responsible for the management of the trust funds.
A trustee owes a fiduciary duty to the trust beneficiaries. A fiduciary duty is a legal obligation to act in the best interest of the beneficiaries, to exercise the care, diligence and skill that a prudent person would exercise in managing the trust affairs. As a result, the trustee must always act in the beneficiaries’ best interests. Trust property can be tangible, such as land, money or personal effects or intangible such as shares.
Forming a trust
There are various forms of trusts, the most common being discretionary trusts, bare trusts, testamentary trusts, unit trusts, hybrid trusts and superannuation funds. A Trust can be created by a Will, where it becomes effective upon a person’s death or by a Declaration or Deed which establishes how trust property is to be managed. A Trust can be created for various reasons, including providing ongoing support for a beneficiary, to provide effective estate planning, to distribute income to achieve the best tax outcomes, to protect assets when individual members become bankrupt or to provide for a benevolent cause such as a bequest for medical research.
A trustee may be appointed by a settlor (the person who provides the funds for the benefit of another), a person who is given the power to appoint, a Will, or the by the Court. In the other states of Australia, the maximum life of a trust is limited by the perpetuity period, however there is no maximum time limit on a trust in South Australia.
Trustee duties and powers
Trustee powers are usually conferred on the trust by the trust instrument, or if it does not, in South Australia the Trustee Act will apply. The laws that confer these powers often have a provision that the power is subject to the trust instrument. In South Australia, if they don’t, then the law will override the trust instrument. The Act is designed to provide a balance between the powers of the trustees (what the trustee is entitled to do under the Act) and their obligations (what the trustee is required to do under the Act). It sets out how trust property must be managed, the duties of trustees in respect of their power of investment and matters to which trustees must have regard in exercising the power of investment.
Generally, a trustee has a fiduciary duty to always act in best interests of beneficiaries (present and future) and the person who created the trust, to act responsibly in carrying out their duties, to manage the trust according to the trust deed, to act fairly and impartially towards all beneficiaries and to avoid situations where there may be a conflict of interest or duty and not to profit or benefit personally from the trust except as provided at law or under the trust terms. Trustees can be paid for their time and trouble in performing their duties only if the trust specifically provides for payment.
Consequences of mismanaging a trust
There are provisions under the Act that allow trustees, beneficiaries and others to apply to the Supreme Court of South Australia for orders regarding the management of a trust. A trustee is liable for any loss of trust property that occurs as a result of their own wrongful or negligent act or omission, or the loss as a result of circumstances that the trustee could reasonably be expected to have foreseen or avoided. However, the Supreme Court may excuse the trustee from personal liability for the breach of trust even if the trustee is, or may be, personally liable for a breach of trust if the trustee has acted honestly and reasonably and it is fair to excuse them for the breach of trust.
A trustee can also be removed for mismanagement. If the trust has an appointor, they can remove the trustee and appoint another. The trust instrument may also set out a procedure for removing a trustee. The Supreme Court also has the authority to appoint a new trustee in substitution of another trustee using both the powers under the relevant trustee laws and under its inherent jurisdiction.