Trustee Duties, Powers, Discretions and Liability
Separate duties (obligations the trustee must perform) from powers (authorities the trustee may exercise) and discretions (choices within a power). Under the Trusts Act 2019, mandatory duties include acting honestly and in good faith, acting in the beneficiaries' best interests, and not exercising a power for the trustee's own benefit. Default duties - such as the duty to invest prudently, to avoid conflicts, and to act unanimously - may be modified or excluded by the deed, but only to the extent the Act permits.
A trustee must exercise powers for a proper purpose, take relevant considerations into account, and not act capriciously. Courts will not usually substitute their discretion for the trustee's, but will intervene where the trustee has acted in bad faith, for an improper purpose, or without considering relevant matters. Trap: assuming a trustee can be directed by the settlor after formation - once the trust is constituted, the settlor generally has no ongoing power unless the deed reserves one.
Liability: a trustee is personally liable for breaches of trust, but may be relieved by the court where they acted honestly and reasonably, and ought fairly to be excused. Trustees may also be indemnified from the trust fund for properly incurred expenses, but not for liabilities arising from their own breach. Deeds often include exoneration clauses; these cannot excuse dishonesty or bad faith.
Worked example: A trustee invests in a speculative venture outside the permitted investment clause. Even if the investment succeeds, the trustee has breached the deed and must account for any loss; the exoneration clause will not protect a deliberate departure from the deed.