Use good faith and uphold the trust
Trustees' primary obligation is to carry out the Trust purposes in accordance with the Trust Deed or other foundation documentation.
The utmost good faith is required of anyone aspiring to be a Trustee. A high degree of probity, honesty, and integrity are required in undertaking to ensure the fulfilment of the Trust.
Once the purposes of a public Trust have been declared, the donor is not entitled to intervene or change them.
Trusteeship imposes a duty on each Trustee to ensure that the actions of his fellows comply with the Trust Deed and with the law. Even although day-to-day management may be, and sometimes practically must be, delegated, overall supervision lies with the Trustees as a whole. Trustees are not entitled through good nature or embarrassment or indolence or ignorance to allow co-Trustees free rein to do as they see fit. Allowing a co-Trustee to commit a breach of trust, whether expressed or implied, will involve both Trustees in the consequences of breach of trust.
Charity trustees and quasi trustees
The responsibility for charities extends beyond those who are formally Trustees - by statute all who are "concerned in the management or control" of bodies recognised as charities in Scotland, whether Trustees or not, are bound to administer the charity honestly and ensure the sound management and proper application of its assets.
Trustees are entitled to have their own opinions but must distance themselves from these and not allow them to undermine the Trust. They cannot allow themselves to be influenced by matters extraneous to the terms and purposes of the Trust and must uphold Trust strategy.
It is the duty of Trustees to take advice but make their own decisions in the light of the advice.
Avoid conflicts of interest
Trustees must separate their own interests and personality from the interest and personality of the Trust.
If a Trustee finds he cannot do that, he should abstain from participating in relevant decisions and if it goes further than single issues should resign as a Trustee.
Standard of care
The standard of management is the same standard of care that a prudent man of business would take in his own affairs. This involves having a reasoned and reasonable basis for decisions taken.
Avoid breach of trust
Trustees must not allow a conflict of interest to develop between themselves and the Trust - to do so is a breach of trust.
Breach of trust can involve dishonesty but can also consist in failure to observe the law or failure to seek proper advice.
It includes any form of bad management or neglect or any act that goes against the purposes of the Trust. Allowing a co-Trustee to commit a breach of trust is itself a breach of trust.
It is no defence that the other Trustees concurred nor that they acted in good faith.
Similarly, it is no defence that Trustees in breach have exercised the same prudence that they do in their own affairs; a Trustees’ actions must be measured against the objective standards of prudence and ordinary diligence.
Liability for actions
The general rule is that Trustees incur personal liability on a joint and several basis. The liability of the Trust Estate is determined by the liability of the Trustees, not their ability to pay.
Trustees can take out their own insurance to cover liability for their actings but this can only be met from Trust funds where there is authority in a Deed of Trust or a scheme approved by the court. However, if insurance cover is justified by the nature of the Trustees’ activities the expenditure on premiums may be justified.
Consequences of failure
Trustees are personally liable for their failures. If it appears to the Lord Advocate that there is or has been any misconduct or mismanagement in the affairs of a charity, he may suspend any person concerned in its management of control pending action by the Court of Session. It may remove and disqualify that person from office.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.