How To Prevent Breach Of Duties As A Trustee During COVID-19

The impact of COVID-19 has been felt by all worldwide. The extent of this has somewhat hindered the on-going affairs of many and in some countries with stricter lockdowns has, to a degree, stalled life. This has had a great impact on the UK, however the number of incentives introduced by the Government has allowed the continuance of life, albeit at a slower pace. Whilst a large portion of the public have been placed on furlough and many businesses have temporarily closed, those businesses providing professional advice and services have been able to remain open, in most cases, and have continued to offer a level of services.

The services which remained accessible include accountancy services, investment advisers, and solicitors. Access to these services have, however, been limited with a reduced number of people working and a number of firms having to temporarily close. These are the typical services that Trustees rely upon to carry out their role as a Trustee. With the lack of access to these services, it begs the question of what Trustees should do to ensure they continue to meet their duties as a Trustee.

Preventing a breach of duties as a Trustee during the coronavirus pandemic

Beneficiaries can take action against Trustees for any breach of their duties and can seek to claim any loss from the Trustee personally which resulted due to their breach. It is therefore important Trustees meet their duties as a Trustee to prevent any action being taken against them, which could lead to an extensive personal liability, as discussed in our recent blog.

The actions which Trustees can take depends on whether access to the usual professional advisers has been maintained throughout the coronavirus.

Access to professional advice

Whilst a Trustee maintains access to professional advice, it is expected they will continue to act as they would have otherwise in ensuring the Trust terms are met. Trustees should consider the Trust assets in light of the economic impact resulting from COVID-19, including taking any advice in respect of property owned by the Trust and taking advice on any investment portfolio.

At Nelsons, our Investment Management team has recently reviewed the impact of COVID-19 on investments (see here for more information) and have outlined the importance of active management as a result of the volatile market we have experienced.

It would therefore be advisable that Trustees reviewed any investment portfolio and consider the need to make any changes to this, in light of the circumstances, which a professional would be able to advise on. Any decisions must of course be in the best interests of the Beneficiaries of the Trust and should be in accordance with the terms of the Trust. A Trustee’s failure to review the investment portfolio will likely be viewed as a breach of their duties and could leave them vulnerable to action being taken by the Beneficiaries.

If the Trust has any filing deadlines, such as tax returns or the preparation of Trust accounts, providing access to the usual accountant remains, it would be expected that these deadlines are met. Although the progress may be delayed due to remote working and the reduced number of professionals working, it would be expected that a Trustee makes all reasonable endeavours to ensure the required procedures are met. So long as a Trustee can prove reasonable endeavours were made then it would be expected that there was no breach of duty.

It would be expected that there had been a number of requests from Beneficiaries during the pandemic. It is important that Trustees keep in their mind the terms of the Trust and its aims when considering any requests. Trustees are reminded that distributions must only be made in accordance with the Trust’s terms and the need to act impartially between Beneficiaries. It is advisable for Trustees to keep a log of all requests and decisions, that way any challenges could be proven to have been tackled in line with their duties. Trustees would also be expected to seek professional advice if necessary.

Trustees are also required to act unanimously when making any decisions. Although Trustees are likely to be prevented from holding any formal Trustee meeting during the pandemic, it would be expected reasonable steps were taken to make decisions together. This could be by way of a remote meeting, group emails or telephone conference. The mere excuse that Trustees cannot meet in person would by no means allow the avoidance of the need to act unanimously or to not hold any meeting due.

Without professional advice

If a Trustee is unable to obtain their usual professional advice during COVID-19 they may be prevented from carrying out their duties as a Trustee. It would still be expected that reasonable steps are carried out to ensure their duties are met. This could be by seeking advice from a different available adviser or carrying out their own research to an extent. In the event of a loss where the power of investment was delegated to a professional, the Trustee may be able to take separate action against the professional in respect of professional negligence, however, this will not always fully mitigate the Trustees liability.

Trustees would also be expected to relay any information to Beneficiaries when necessary. Should there be a lack of professional advice, it would be advisable that Trustees explain the reasoning for any decision they have made to the Beneficiaries which will likely prevent any action being taken against them on the basis the decision was impliedly consented to by those seeking action.