Trustees have important duties to perform, and although many visitors to FindLaw will be familiar with the term, some may not have a full grasp of who can be a trustee, and the different types of trustees out there. Hopefully, this article will provide readers with a basic understanding of what a trustee really is.
Who can be a trustee?
First, any person who has the capacity to own property, can also become a trustee.
Additionally, a beneficiary can act as a trustee, however, a sole beneficiary cannot undertake such a role, or the trust will disappear due to the merging of the separate legal and equitable estate. Interestingly, companies also have the capacity to act as trustees, and are sometimes referred to as ‘corporate trustees’.
We should conclude this section by highlighting that a trust is not invalid in circumstances where a settlor vests property in the hands of a person who has no legal capacity to hold such a position, because in equity, a trust is not allowed to fail for want of a trustee, and if such a situation does arise, the courts may appoint another trustee.
Types of trustees
Yes, it may be hard to believe that a trustee can involve a number of different types, but this certainly is the case. Most people will probably be familiar with a trustee who is appointed by a settlor of a private or charitable trust in accordance with the trust instrument or trust deed. Trustees may also take the form via statutory trustee companies as well as the public trustee.
The classification of trustees can also be made according to the role they are to perform and can include bare, custodian, and advisory trustees and can arise by implication of law, as in the case of a resulting trust, and by the operation of law, in the case of a constructive trust.
Public trustees: irrespective of what label is used in regards to a public trustee, the role fulfils a number of public functions that can involve such duties as the administering of wills, small estates, or estates of the mentally incapable.
Trustee companies: depending on the jurisdiction, trustee companies must act within their statutory capacity in their position as executors and administrators of an estate. The essence of the role of a trustee company is the investment and management of the funds on behalf of their clients.
Bare trustees: a bare trustee is where a person holds a trust property for the absolute benefit and disposal of a beneficiary who is of full age and capacity. However, the trustee must have no interest in the property outside of the legal title, nor does the trustee have any further duties to perform, besides conveying upon demand to the beneficiaries, or per their instructions.
Custodian trustees: a number of jurisdictions make specific reference for the appointing of custodian trustees to hold any trust property to be managed by the managing trustees. In the absence of a specific provision, a trust instrument can provide for a custodian trusteeship in accordance to the terms expressed by the settlor.
Advisory trustees: some jurisdictions make an allowance for advisory trustees to be appointed who can act with the Public Trustee, or as in the case of Western Australia, any trustee. The basic role of an advisory trustee is to provide advice to trustees because the role does not have any property vested in it, nor do advisory trustees have any power of management or administration of property.
How are trustees appointed?
Trustees can be appointed via the express terms of a trust instrument, statute, or by the courts.
Appointment by a trust instrument: trustees appointed upon the creation of a trust are sometimes referred to as original trustees, and it is common practice for a trust instrument to include provisions guiding the occasion and manner in which a trustee is to be appointed.
Appointment by a statutory power: all jurisdictions have statutory provisions in place to appoint a trustee in the absence of an express power of appointment under the trust instrument. The statutory provisions in all jurisdictions provide for the circumstances in which an appointment can be made, and the class of persons who may make the appointment.
Appointment by the court: courts can appoint new trustees because a trust will not fail for want of a trustee. Generally speaking, legislation gives the courts the power to appoint, remove or replace a trustee if it is satisfied that such an action is in the interests of a beneficiary, or to advance the purposes of the trust. The primary consideration of the courts when making an appointment is the welfare of the beneficiaries, taking into account whether the trust property will be safe, or whether the trust property will not be executed in the manner that will serve the interests of any beneficiaries.