A common and crucial issue in trusts is what are the pros and cons of using corporate trustees. It is difficult to see at first where the advantages and pitfalls lie. All trustees – whether individual, corporate, or independent trustee services – must be statutory and common law compliant. This means they must carry out their duties in such a way as to protect beneficiaries’ interests. Above all they must pay due regard, including by guarding against negligence or failures to act, by acting so as not to create any conflict of interests between themselves and the trust. Essentially, a trustee is not entitled to benefit from the trust they administer. All trustee services must promote the objects of the trust. This is done by acting in accordance with the duties and discretions trustees hold as they administer schemes to the advantage of the designated beneficiaries.
How then to tell what are the pros and cons of using corporate trustees? While the pros include reliance on market presence and a level of experience and expertise which will more often than not outshine the capacity of an individual trustee, these are characteristics equally of independent trustee services, as these will necessarily have had the same training and exposure to trust management as would be expected of professional independent trustees. What the deliberations actually boil down to is this: the question of liability, and who pays when things go wrong. The downside to corporate trustees is that it will rarely be possible to hold them to account for breaches of the trust, and even where this is possible, it will always be easier to bring a claim against an independent trustee for the reason that they are held to stricter account. The reason for this is that independent trustee services are designed specifically to be just that: a mechanism which the Pensions Regulator calls in when serious flaws in occupational pensions have caused losses for large numbers of people.
The idea behind the range of levels of liability is that the independent trustee must have undertaken a high level of training to tender its services as an expert provider, and as such should be held to a higher level of account for potential liability resulting from the management and administration of the trust in question. This level is higher than the already stringent burden which all trustees are expected to meet. On the other hand, the separation in law between a corporate trustee and its directors means that the beneficiaries of a scheme administered by a corporate trustee will rarely have the right to bring an action for losses directly against those directors, who may have been in breach of their duties and discretions under the trust. If the corporate trustee has no property in its own right, but rather holds property on trust, the effect will be that it is impossible to make a successful claim for damages.