Contributed By Lilian Eku
INTRODUCTION
The legal obligations of a trustee include acting in the beneficiary’s best interests, managing the assets prudently, avoiding conflicts of interest, maintaining accurate records, providing regular updates to the beneficiary, and carrying out the terms of the trust agreement. Trustee’s duties may vary based on the specific terms of the trust and applicable laws. In this article, we shall discuss the basic elements of trust and the duties of a Trustee according to Nigerian Law.
DEFINITION OF TERMS
What Is a Trust?
A trust is a legal entity with separate and distinct rights, similar to a person or corporation. In a trust, a party known as a trustor gives another party, the trustee, the right to hold title to and manage property or assets for the benefit of a third party, the beneficiary.[1]
In law, a trust is a relationship where property is held by one party for the benefit of another party. A trust is created by the owner, also called a “settlor”, “trustor” or “grantor” who transfers property to a trustee. The trustee holds that property for the trust’s beneficiaries. Trusts exist mainly in common law jurisdictions.
What is a Fiduciary Relationship?
Black’s Law Dictionary defines fiduciary duty as “[a] duty to act for someone else’s benefit while subordinating one’s personal interests to that of the other person. [2]
Who is the Fiduciary of a Trust?
The Fiduciary of a Trust is the ‘Trustee’, who is tasked with overseeing the management of property and assets within the Trust. Simply put, a Fiduciary is someone who acts on behalf of another person, often in a legal or financial capacity. In the case of a Trust, this involves following the wishes of the Trustor and acting in the Beneficiary’s best interest.[3]
Can a Fiduciary be a Beneficiary?
YES! A Fiduciary can be a beneficiary, though this is not always recommended. This situation typically occurs when a parent names an adult child as a Trustee but also sets aside an inheritance for them. The child typically must fulfil their responsibilities as a Fiduciary before receiving their final inheritance. [4]
DUTIES/ROLES OF A FIDUCIARY/TRUSTEE IN A TRUST
The fiduciary duties of trustees refer to the duties owed when managing a trust by a trustee to the beneficiary.
Like other fiduciary relationships, trustees have fiduciary duties of care, loyalty, and good faith. As a result, the trustee must reasonably manage the trust and avoid self-dealing. Furthermore, trustees have a duty of impartiality in cases where the trust has two or more beneficiaries. Due to this duty, the trustee must take the interests of all beneficiaries, not just one, into account when managing the trust.[5]
These duties ensure that the fiduciary acts responsibly and in the best interests of the beneficiaries.
Some of these duties/responsibilities are:
1. Duty of loyalty: The fiduciary must act in the best interests of the beneficiaries and avoid any conflicts of interest.
2. Duty of prudence: The fiduciary must make informed and careful decisions regarding the management of the trust assets.
3. Duty of impartiality: The fiduciary must treat all beneficiaries fairly and avoid favouritism.
4. Duty of accounting: The fiduciary must keep accurate records of all trust transactions and provide regular reports to the beneficiaries.
5. Duty of confidentiality: The fiduciary must maintain the confidentiality of the trust’s affairs and not disclose sensitive information without proper authorization.
6. Duty of communication: The fiduciary must keep the beneficiaries informed about the trust’s administration and any significant developments.[6]
IMPORTANCE OF TRUST AND LOYALTY IN FIDUCIARY RELATIONSHIPS
By upholding trust and loyalty, fiduciaries can fulfil their responsibilities effectively and establish a solid bond with the beneficiaries they serve.
Trust and loyalty are crucial in fiduciary relationships for several reasons:
1. Protection of interests: Trust and loyalty ensure that the fiduciary acts in the best interests of the beneficiaries, safeguarding their rights and protecting their assets.
2. Confidentiality and privacy: Trust and loyalty foster an environment where the fiduciary can maintain the confidentiality and privacy of the trust’s affairs, ensuring sensitive information is kept secure.
3. Effective decision-making: Trust and loyalty enable open and honest communication between the fiduciary and beneficiaries, facilitating informed decision-making and promoting transparency.
4. Mitigation of conflicts of interest: Trust and loyalty help prevent conflicts of interest from arising, ensuring that the fiduciary’s actions are solely driven by the beneficiaries’ best interests, rather than personal gain.
5. Long-term relationship building: Trust and loyalty form the foundation of a strong fiduciary relationship, fostering mutual respect, cooperation, and a commitment to the beneficiaries’ welfare over the long term.
Legal Consequences for Breach of Fiduciary Duty
The liability for breach of fiduciary duty is strict for the protection of the person to whom the duty is owed. It does not matter whether or not the fiduciary acted mala fide (in bad faith), what matters is that there was a fiduciary relationship and the fiduciary was in breach of his fiduciary duty. Fiduciary relationships take different forms: company directors, agents, trustees, executors and administrators, and business partners, to mention a few. Set out below are a few cases illustrating different fiduciary relationships and the duty owed.
In Nasr & Anor v Rossek[7], the courts considered an agent as a fiduciary and stated as follows: ‘…in all transactions with his principal, the agent must disclose every material fact which is known to him (the agent). If this is not done, the transaction is voidable at the principal’s option and the principal may obtain rescission of the transaction after it has been completely executed without the necessity of establishing fraud on the part of the agent, although the establishment of fraud, as had been done in the present case, makes the case for rescission much more irresistible and conclusive.[8]. The general rule is that the trustee is personally liable for any loss caused by his breach of trust.[9] (1973) LPELR-1946 (SC)
These legal consequences emphasize the importance of fiduciaries fulfilling their duties with utmost care and loyalty to protect the interests of the beneficiaries;
1. Lawsuits: The beneficiaries can file a lawsuit against the fiduciary for breach of duty, seeking damages and other legal remedies.
2. Removal from fiduciary role: A court may remove the fiduciary from their position if they are found to have breached their duties, appointing a new fiduciary in their place.
3. Restitution: The fiduciary may be required to return any profits or assets gained through the breach, compensating the beneficiaries for their losses.
4. Financial penalties: The fiduciary may be ordered to pay fines or monetary penalties as a consequence of breaching their fiduciary duties.
5. Professional consequences: If the fiduciary is a professional, such as an attorney or financial advisor, they may face disciplinary action from their respective licensing or regulatory bodies.
6. Criminal charges: In severe cases, breach of fiduciary duty can result in criminal charges, leading to potential imprisonment or other criminal penalties.[10]
CONCLUSION
In conclusion, the concept of a fiduciary relationship in a legal trust is essential for protecting the interests of the beneficiaries. Trust and loyalty are key elements that ensure the fiduciary acts in the best interests of the beneficiaries, maintains confidentiality, makes informed decisions, avoids conflicts of interest, and builds a long-term relationship. Breaching fiduciary duty can result in legal consequences such as lawsuits, removal from the fiduciary role, restitution, financial penalties, professional consequences, and even criminal charges. Thus, upholding fiduciary duties is crucial to maintaining integrity and trust within a legal trust.
- Julia Kagan; What is a legal Trust? Common Purposes,Types, and structures. Available at. https://www.investopedia.com/terms/t/trust.asp ↑
- Black law dictionary 8 ED. ↑
- Patrick Hick, Fiduciary Duties in Trusts of an Estate – What You Need to Know; Available at https://trustandwill.com/learn/fiduciary-duties#:~:text=The%20Fiduciary%20of%20a%20Trust%20is%20the%20 Trustee,%20who%20is,a%20legal%20or%20financial%20capacity. ↑
- Ibid ↑
- Ibid ↑
- .Trustee Act 1888, Trustees Act 1893 ↑
- (1973) LPELR-1946 (SC) ↑
- Trustee law, (Cap 156) Laws of Ondo State,2006 ↑
- Bakibinga, D.J., Law of Trusts in Nigeria (University of Ilorin Press, Ilorin,1989)201 ↑
- The Trustee Law. (Cap 166) Laws of Oyo State, 2000; public Trustee Law (Cap 126), Laws of Ondo State,2006. ↑
