Fiduciary Duties When Investing Trust Funds – Your Rights and Responsibilities as Trustee

Trustees hold a general duty to preserve the trust fund. Those who fail to satisfy this duty may find themselves personally liable for losses caused by their breach. But what does this duty actually entail, and how can trustees avoid liability?

A Trustees must understand their underlying responsibility to preserve the trust fund. Section 5 of the Trusts (Investments) Amendment Act 1999 (Qld) (‘The Act’) authorises a trustee to invest funds from the trust in any investment they deem appropriate. However, trustee powers of investment are not limitless. To guard against personal liability, the trustee must ensure:

  • The investment is not expressly prohibited by the trust deed, regardless of the benefit it may bestow to the trust.
  • Reasonable care, prudence and diligence is taken when making and managing investments to ensure they are in the best interests of the trust and its beneficiaries.

The Act also sets out numerous considerations a trustee ought to undertake prior to, and throughout management of investments made with trust funds. The applicability of these considerations will vary depending on the trust, its purpose, its beneficiaries, and the proposed investment. Before investing trust funds, at a minimum, consideration needs to be given to:

  • The purpose of the trust.
  • The needs of the beneficiaries.
  • The risk associated with the investment, including the proportionality of the investment to the value of the entire trust fund.
  • Forecasted appreciation or depreciation of the investment.
  • Potential returns and the expected time frame of such returns.
  • Any management or maintenance costs associated with the investment.

Trustees must also be cognisant of the fact that their fiduciary obligation is an ongoing one – there can be no “set and forget” when it comes to trustee investments. The Act requires, at a minimum, annual consultation with a qualified financial advisor on investments made with trust funds, ensuring they continue to be in the best interest of the beneficiaries. The trustee must also ensure it utilises other sources of professional advice, including legal and accountancy, where the trust investments necessitate it.

Trustees may be held personally liable for losses incurred by the trust where they have failed to invest the trust funds, even where the trust did not expressly set out vehicles for investment or even the requirement to do so.[1] The takeaway here is that prudent and carefully considered investment of trust funds falls within the duty of the trustee and a failure to do so could be a costly. Failure to invest could be deemed a breach of trustee duties leading to removal as trustee and deemed a breach of trustee duties. Trustees must not interpret ‘cautious investment’ to mean no investment.

To conclude, investment of trust funds is a critical and essential means of preserving and strengthening the value of a trust and best serving the interests its beneficiaries. However, when acting as trustee, it is best to err on the side of cautious investment. Investment suitability can only be assessed on a trust-by-trust basis, which is why trustees must keep the above duties and considerations at the forefront of their mind both preceding and following initial investment to support the trust without exposing themselves to liability. If you are appointing someone as trustee or want to review your trust deed to determine your rights and obligations, please contact Perspective Law on 07 3839 7555.

[1] Adamson v Reid (1880) 6 VLR (E) 164.