Trustee duties to beneficiaries: what a trustee owes

Trustee duties to beneficiaries are what turn a trust from a transfer of assets into a relationship you can rely on. The trustee holds the assets in its own name, but it does not hold them for itself. It holds them for the beneficiaries, or for a stated purpose, and every decision it takes is measured against that. If you are a beneficiary, a settlor, a protector or an adviser, the practical question is simple: what can you expect, what can you ask for, and what evidence should exist that the duties are being met?

This guide takes the duties one at a time: information, even-handedness, prudence and accounts. It then shows how they work in a discretionary trust, where the trustee decides who receives what, and what a beneficiary may reasonably request. It is general information, not advice. The exact scope of each duty depends on the law governing the trust, the wording of the trust deed and your own position, so a real case always needs an individual analysis.

Where the duties come from

A trustee's duties have three layers, and it helps to keep them apart.

The first layer is the definition of a trust itself. Under the Hague Convention on trusts, the assets are placed under the control of a trustee for the benefit of a beneficiary or for a particular purpose. The assets form a separate fund, the title stands in the trustee's name, and the trustee has the power and the duty, in respect of which it is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed on it by law. In plain terms: the trustee manages, and the trustee accounts. Those two verbs are the root of everything below.

The second layer is the law that governs the trust. A trust is governed by the law its settlor chose, expressly or by implication, or failing that by the law with which it has the closest connection. That law supplies the detail: how far a trustee must volunteer information, how wide its discretion is, what standard of care applies and what remedies a beneficiary has. Two trusts that look alike on paper can therefore give beneficiaries noticeably different rights.

The third layer is the trust deed, together with any letter of wishes. The deed may widen or narrow what a beneficiary can see, name a protector with powers over the trustee, or relieve the trustee from certain liabilities. It cannot, however, turn the trustee into a mere signatory with no duty to anyone. The idea that the trustee must manage and account is part of what makes the arrangement a trust at all.

For a Swiss professional trustee there is a fourth, practical layer: supervision. Professional trustees in Switzerland are subject to FINMA oversight, which works through a supervisory organisation. That does not replace the duties owed to beneficiaries, and a supervisor is not a substitute for a beneficiary's own questions, but it adds an external check on how the trustee organises itself. We come back to this below.

What a beneficiary may request

Most people arrive at this subject through a specific question rather than a theory of fiduciary law. "May I see the accounts?" "Why was this distribution refused?" "Who decides, and on what basis?" It is worth starting from the requests, because that is where the duties become concrete.

A beneficiary can usually expect to be able to ask, and to receive a reasoned answer, on points such as these:

• the existence of the trust and the fact that they are a beneficiary or a possible beneficiary;
• the identity of the trustee and of any protector;
• the trust accounts, in some form and at some level of detail;
• the trust deed, or the parts of it that define their own entitlement or the trustee's powers;
• how a discretion affecting them was considered, without necessarily revealing every internal deliberation;
• how the assets are invested and what the investment objective is.

"Usually" matters. Whether each item is a right, a courtesy or something the trustee may decline depends on the governing law and the deed. A fixed beneficiary with a defined entitlement is generally in a stronger position than a person who is merely one of a wide class of possible beneficiaries under a discretionary trust. A minor, a person lacking capacity and a person who has been excluded all raise further questions.

The sensible approach is to ask in writing, to be specific, and to say what you need the information for. A request framed around a concrete decision ("I need to understand the position before taking advice on my own affairs") is easier to answer than a request for everything.

The four duties in practice

The table below sets out each duty, what it means day to day and the kind of evidence you can reasonably ask to see. Treat the third column as a list of things to ask about, not as a promise that every trust will produce every document.

The duty to inform

The duty to inform is the one beneficiaries notice first, because its absence is the first thing they feel. It does not mean the trustee must copy every beneficiary on every email. It means that a beneficiary is given enough information to understand their position and, where appropriate, to hold the trustee to account.

In practice this often splits into two. There is information the trustee must give on request, such as accounts or the relevant parts of the deed. There is also information a careful trustee gives without being asked, such as a change of trustee, a significant change of investment strategy or the fact that a beneficiary has become entitled to something. Some trust laws and deeds go further than others on the second kind.

The trustee also has to balance the duty to inform against confidentiality and against other beneficiaries' interests. A trustee that shares a settlor's letter of wishes with a person who is not meant to see it may breach a duty to someone else. For that reason, a refusal is not automatically a breach, but it should be explained and recorded. See what information your trustee must give you for a more detailed look at the practical limits.

The duty to be even-handed

Even-handedness means treating beneficiaries fairly as between themselves, according to the deed. It does not mean treating them identically. A deed may deliberately favour one person, for example by giving an income interest to a surviving spouse and the capital to children. The trustee's task is to carry out that design without tilting it in its own preferred direction.

The duty is most visible where beneficiaries' interests conflict:

• an income beneficiary wants high yield, while a capital beneficiary wants growth;
• one branch of the family asks for distributions, while another prefers to leave capital intact;
• a current beneficiary is closer to the trustee than a remote one.

A trustee that shows no sign of having weighed these competing interests, and has simply followed whoever asked most recently, is not being even-handed. This is why independence matters, particularly in families with second marriages or children from different relationships. The page on blended family trustee neutrality looks at that scenario directly.

The duty of prudence

Prudence is about how the assets are managed. The trustee is expected to act with the care, skill and diligence that would be expected of a careful professional in its position, and a paid, regulated trustee is generally held to a higher standard than an unpaid family member. The standard is about process rather than outcome: markets fall, and a loss does not by itself show a breach. What matters is whether the decision was reasonable when it was taken, informed by proper advice and recorded.

Prudence typically includes:

• setting an investment objective that fits the trust's purpose and the beneficiaries' needs and time horizon;
• diversifying where the deed and the circumstances call for it, and recording why where they do not;
• taking advice where the trustee lacks expertise, and supervising any manager it appoints;
• reviewing the assets and the policy at reasonable intervals;
• not placing itself in a position where its own interests conflict with the beneficiaries'.

Where the trust holds an operating business, property or an unusual asset, prudence looks different. A concentrated holding may be a deliberate feature of the structure rather than a failure to diversify, provided that the trustee has considered it and the deed permits it. The service pages on a trustee for a trust holding a family business and on trustee duties when the trust owns property go into those cases.

The duty to keep and render accounts

Accounts are where the other duties become visible. A trustee that cannot show what it holds, what it received, what it paid out and why, cannot credibly claim to have been prudent or fair. The Convention's own description of a trustee, who manages and accounts for the assets, puts accounting at the centre of the role.

Good practice means more than an annual set of figures. It includes:

• a clear separation between trust assets and the trustee's own assets, and between the assets of different trusts;
• a complete record of receipts, payments and distributions, with the reason for each distribution;
• bank and custody statements that match the accounts;
• accounts that are prepared on a consistent basis from year to year, so that they can be compared.

Accounts are not a legal formality for their own sake. They are what allow a protector, an auditor, a successor trustee, a court or a supervisory body to understand what happened. If you are thinking about replacing a failing trustee, missing or unreliable accounts are often both the symptom and the first obstacle.

How the duties apply in a discretionary trust

In a discretionary trust the deed does not give any single beneficiary a fixed share. The trustee decides whether, when and how much to distribute, usually within a class of people and often guided by a letter of wishes. This is the trust type where beneficiaries most often feel that they are asking for something to which they are not entitled, and where the trustee's duties therefore deserve a precise description.

A discretionary beneficiary generally cannot demand a distribution. What the beneficiary can generally expect is that the trustee:

1. knows who the objects of its discretion are, and keeps that list current;
2. actually considers whether and how to exercise the discretion, rather than defaulting to inaction or to the most persistent request;
3. takes into account relevant matters and leaves out irrelevant ones;
4. uses the discretion for its proper purpose, as set by the deed and informed by the letter of wishes;
5. records the decision and the reasons for it in a way that could be shown to a protector or a court.

The letter of wishes is guidance, not an instruction. A trustee should read it seriously, but it must still exercise its own judgement, particularly where circumstances have changed since the settlor wrote it. The page on letters of wishes and your trustee explains how a letter is used and updated, and the trustee of a discretionary trust describes what to expect from the role.

Because a discretion is a power, a court or a protector will usually look at the process rather than substitute its own view of the right answer. This is why a recorded process is worth more than a persuasive explanation given after the event.

Example: a request for accounts

This example is fictional and is given only as an illustration.

A family established in Lausanne has a discretionary trust, set up by the late father and administered by a professional trustee in Geneva. Two adult children are among the beneficiaries. For several years they have received distributions on request, but they have never seen any accounts. After a disagreement about a request for a property purchase, one of them writes to the trustee asking for the latest accounts and the trust deed.

A careful trustee would normally respond in these steps:

• Acknowledge and clarify. It confirms the request, checks the person's status as a beneficiary under the deed and asks what the request is for.
• Check the deed and governing law. It identifies what the deed and the governing law say about disclosure to this class of beneficiary, and whether a protector has to be consulted.
• Provide what is due. It sends the accounts in a form suited to the beneficiary, together with the parts of the deed that define the beneficiary's interest. If it withholds anything, such as another beneficiary's confidential details, it says so and says why.
• Record the exchange. The request, the decision on disclosure and the reasons go onto the file.

If the trustee replies vaguely, delays without explanation or refuses outright, the beneficiary has options that run from a more formal written request, through the protector if there is one, to legal steps in the competent court. None of these should be the first move if a calm written request has not yet been tried. In a case like this, an independent look at the file can also show whether the accounts exist in a form that can be shared. The case study on adult children asking for accounts follows a similar situation in more detail.

What beneficiaries cannot expect

A realistic picture also needs the limits. A trustee's duties do not mean that:

• a discretionary beneficiary is entitled to a distribution;
• every internal deliberation, legal advice obtained for the trustee in its own defence or confidential material about other beneficiaries must be disclosed;
• the trustee must follow a beneficiary's investment preferences, or a settlor's informal wishes, against its own considered judgement;
• the trustee is liable for every loss, since a poor result is not the same as a breach of duty;
• a deed cannot limit anything. Exculpation clauses and similar provisions can reduce a trustee's liability in some circumstances, though how far they go depends on the governing law and cannot excuse a trustee from the core duty to act in good faith.

The glossary entry on the exculpation clause explains the last point. Reading it before you sign a deed or accept a trustee's terms is useful.

The role of the protector and of supervision

Two external mechanisms sit alongside the trustee's own duties.

The first is the protector, where the deed provides for one. A protector may have powers to approve distributions, to remove and appoint trustees or to consent to certain changes. The protector is not a general auditor, but a good protector asks the questions a beneficiary might not be in a position to ask. The trustee, protector and beneficiary triangle sets out how the three relate, and the comparison of a trustee with or without a protector discusses the trade-offs.

The second is regulatory supervision. Under the Swiss Financial Institutions Act (FinIA, LEFin, FINIG), those who manage assets and trustees professionally are subject to FINMA supervision, which works through a supervisory organisation that holds a FINMA authorisation. SO-FIT is one such organisation, a non-profit association authorised by FINMA, active both as a self-regulatory body for anti-money-laundering purposes and as a prudential supervisory organisation for asset managers and trustees. Supervision checks that the trustee is properly organised and meets its regulatory obligations. It is not a body to which a beneficiary can simply hand over a private dispute, and it does not replace the beneficiary's own civil remedies. For what the approval does and does not tell you, see FINMA and SO-FIT: what trustee approval means for you.

When duties are not being met

Warning signs rarely look dramatic at first. They tend to look like silence, delay and vagueness. Typical signals include:

• accounts that arrive late, in a changed format, or not at all;
• distributions decided without any explanation, or explained by reference to a policy that has never been shown to you;
• a trustee that cannot say who currently holds the power to remove it;
• decisions that systematically favour one branch of the family;
• investments that nobody can describe in a sentence;
• a trustee that has become hard to reach, or whose staff change repeatedly without introduction.

A structured response usually works better than an angry one. Start by documenting what you asked for, when and what came back. Then check the deed to see who has powers over the trustee and what the deed says about disclosure. Next, consider whether an independent review would settle the factual questions before positions harden; the service on independent review of an existing trust and its trustee is designed for exactly this stage. Only then do formal steps, including replacement of the trustee or court proceedings, become the sensible choice.

Whether to stay and repair the relationship or to leave is a decision in its own right. Our comparison of switching trustee or staying and fixing sets out the factors, and changing trustee step by step describes the process if you do decide to move.

A short checklist before you write to the trustee

• Confirm which law governs the trust and where the trustee is established
• Obtain the trust deed, or at least the clauses that cover your position
• Identify whether there is a protector and who holds the power to remove the trustee
• Decide exactly what you need: accounts, the deed, an explanation of a decision, or all of these
• State the reason for your request in a sentence
• Ask in writing and keep a copy of what you send and receive
• Note any deadline you were given and whether it was met
• Consider whether you should take independent advice before escalating