A trustee is a person who holds legal title to assets, but takes care of those assets for the benefit of someone else (the “beneficiary”). The basic principles that guide a trustee are as follows:
- The trustee must follow the directions set out in the trust document.
- The trustee must act impartially between the beneficiaries, if there is more than one beneficiary.
- The trustee must act with reasonable and proper care.
- The trustee must not act in conflict with the interests of the beneficiaries, and must not profit by reason of acting as trustee.
- The trustee must account for the management of the trust fund to the beneficiaries.
If a trustee fails to follow the above principles, then the trustee can be held liable for any loss to the trust arising from that failure.
In terms of the day-to-day administration of the trust, some of the common trustee duties are:
- Preserve or improve the value of the assets of the trust.
- If the assets of the trust are comprised of real estate, then the trustee must ensure that the real estate is maintained in good repair, is adequately insured, and that property taxes are paid;
- If the assets of the trust are comprised of investments, then the trustee must ensure that the assets are properly invested, so as to obtain the best return possible, given the ongoing needs of the trust to access cash and preserve capital.
- Hold Trust Assets Separate
- The trustee must hold the trust assets separate from the trustee’s own assets, and hold the assets in the name of the trustee, but only in the trustee’s capacity as trustee for the benefit of the beneficiary.
- File tax returns.
- T3 Trust Returns are required to be filed with Canada Customs and Revenue Agency for each year, or portion thereof, that the trust is in existence.
- Exercise Discretion
- A trustee is required to exercise the discretion given to the trustee in the trust document.
- A trustee cannot simply fail to consider the options and duties set out in the trust document. However, once the trustee considers the options available, it may be that the trustee determines that no action should be taken at the time.
- A trustee must consult with the beneficiaries as to the beneficiaries’ needs, and, in keeping with the duties and powers set out in the trust document, make decisions as to the administration of the trust.
- The trustee must personally exercise the trustee’s discretion, and is not allowed to delegate any duties, unless so authorized by the trust instrument.
- Keep Records and Provide Accounting
- A trustee must keep detailed records of all transactions undertaken on behalf of the trust, and be prepared to provide copies of these records to the beneficiaries if requested to do so.
- A trustee must provide an accounting of all transactions undertaken on behalf of the trust on a regular basis, as may be agreed to between the trustee and beneficiaries, and generally on an annual basis.
For specifics of what a given trustee is to do, reference must be had to the trust document.