Author: O. M. Atoyebi S.A.N FCIArb. (U.K.)., Contributor: Lilian Eku
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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:
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:
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;
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.
[1] Julia Kagan; What is a legal Trust? Common Purposes,Types, and structures. Available at. https://www.investopedia.com/terms/t/trust.asp
[2] Black law dictionary 8 ED.
[3] 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.
[4] Ibid
[5] Ibid
[6] .Trustee Act 1888, Trustees Act 1893
[7] (1973) LPELR-1946 (SC)
[8] Trustee law, (Cap 156) Laws of Ondo State,2006
[9] Bakibinga, D.J., Law of Trusts in Nigeria (University of Ilorin Press, Ilorin,1989)201
[10] The Trustee Law. (Cap 166) Laws of Oyo State, 2000; public Trustee Law (Cap 126), Laws of Ondo State,2006.
