Trustees have a legal obligation to act in the best interests of the beneficiaries and manage the trust in accordance with the trust document. They must exercise reasonable care and skill in managing the trust, similar to how a prudent person would manage their own affairs.
While many trustees are unpaid volunteers, others may be professionals – such as accountants or solicitors – who charge for their services. Regardless of whether they are paid or unpaid, all trustees are held to a standard of care and can be personally sued for errors, breach of duty, or negligence that causes financial loss.
For a volunteer trustee, the standard is that of a reasonably diligent person with the general knowledge they have, but the ‘reasonable’ standard is higher for a professional who holds themselves out as having special knowledge or experience – this is why most professionals are required by their regulatory bodies to have professional indemnity insurance to protect them from financial claims arising from negligent services, advice, or errors in their work.
‘A negligent trustee can cause devastating financial loss and emotional distress by exhibiting bias, failing to act in the best interests of the beneficiaries, or grossly mismanaging funds,’ says Claire Simon, Partner in the dispute resolution team with QualitySolicitors Parkinson Wright. ‘The consequences can be severe, eroding public confidence and causing irreparable damage, and it may be necessary to take legal steps to hold them accountable for any financial loss they may have caused.’
Such financial loss can result from poor investment management, mismanagement of trust assets, inadequate record-keeping, failing to provide beneficiaries with necessary information or accounts, or not adhering to the trust document's terms.
A professional negligence claim may be brought against a trustee for failing to act with the required standard of care while managing a trust, resulting in financial loss for the beneficiaries. However, if you suspect a trustee of negligence you should first talk to them directly about your concerns then follow a professional’s or trustee board’s complaints procedure if their answers are not satisfactory. If that fails, you can request a formal account of the trust's management accounts and consider mediation before pursuing legal action.
Examples of trustee negligence
Specific examples of potential trustee negligence include:
- Poor investment decisions – making risky or unsuitable investments that lead to a loss of trust funds.
- Failure to diversify investments – concentrating trust assets in a single investment, exposing the trust to unnecessary risk.
- Failure to account for trust assets – not providing proper accounting and transparency to beneficiaries about the trust's finances.
- Failure to distribute assets as directed – delaying or mismanaging the distribution of trust assets to beneficiaries.
- Conflicts of interest – acting in a way that benefits the trustee or a related party, rather than the beneficiaries.
- Failure to manage expenses properly – incurring excessive or unnecessary expenses, reducing the value of the trust.
Key aspects of trustee professional negligence
If they fail in their duties and you have evidence of losses arising from their actions, then you may have grounds to bring a professional negligence claim to recoup the losses sustained to your organisation or the beneficiaries. You will need to be able to prove four key elements:
- the trustee owed a duty of care – this duty typically arises from the trust deed, which outlines the trustee's responsibilities and their relationship with the beneficiaries;
- they breached that duty by failing to meet the required standard of care – they failed to perform their responsibilities to the standard of a reasonably competent professional in their position;
- financial loss was suffered as a direct result of the trustee's breach of duty –you need to show that the loss would not have occurred ‘but for’ the trustee's negligence; and
- you suffered a quantifiable loss as a result – this might include showing a decreased value of trust assets.
What evidence will you require?
You will need to gather evidence to support your claim that the trustee's actions or inactions led to your financial loss. This would include:
- the trust document that outlines the trustee's duties and responsibilities;
- financial records including estate accounts, bank statements and valuations of assets which reveal a decrease in assets;
- any financial penalties you were exposed to as a result of the trustee’s alleged negligence;
- legal or financial analysis from experts that assess whether the trustee's conduct fell below the required standard of care; and
- correspondence such as emails, letters, and notes of conversations with the trustee to support your claim that their actions or inactions led to your financial loss.
Steps involved in a professional negligence claim against a trustee
Your first step will be to engage a specialist solicitor who will ask the trustee for information about the trust's administration, including financial accounts. If negligence is suspected, they will then initiate legal steps to remove the trustee, recover losses, or seek other remedies.
They will draft a letter of claim that outlines the facts, the alleged negligence (breach of duty), the financial loss suffered, and the evidence supporting these claims. The professional has 21 days to acknowledge receipt of this letter and then approximately three months to investigate the claim, collect their evidence, and prepare a formal response.
After the response, both parties will be encouraged to discuss settlement, potentially through mediation, to avoid costly court proceedings. If no settlement is reached, you can start formal court proceedings.
Remedies
Remedies for professional negligence against a trustee include ordering the trustee to compensate the trust for any financial loss (equitable compensation), requiring the trustee to pay back any profit they made from the breach, or removing the trustee from their position.
Other remedies involve reversing or freezing transactions and potentially restoring trust property. In some cases, you might also be able to pursue a proprietary claim to trace the trust property.
How we can help
Consulting a solicitor for a professional negligence case against a trustee is essential because these claims are legally complex and highly specific. Your experienced trusts solicitor will provide the necessary legal expertise to navigate the process, establish the core elements of the case, and manage the negotiation and litigation effectively to secure compensation for any financial losses and remove the rogue trustee if required.
For further information, please contact Claire Simon or a member of the dispute resolution team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.