a guide to investing within a trust

The trustee of a trust has an obligation to maintain the trust, however has no financial gain to be made from the trust. A trustee has the obligation to manage the trust as per the guidelines stipulated in the trust and to carry out any transactions the trust may be involved in. All actions of the trustee must be to the benefit of the beneficiaries of the trust, who are the only ones entitled to any money from the trust. There may come a time when the trustee decides to invest parts of the trust in order to further the growth of the funds. In this case, the trustee is bound by law and the trust deed in how they are to invest the money. Should the trustee ever be questioned or taken to court over an investment, the courts in Ontario will typically survey three main points surrounding the investment.

A Trustee’s Role

A trustee cannot take unnecessary risks with trust funds. All investments must be educated and responsible. The trustee cannot risk the funds that legally belong to the beneficiaries on investments that would not be approved by a prudent financial investor.

Does the Trustee have Permission to Invest the Trust Funds?

The trustee deed will be the guiding documents for if the trustee is entitled to invest funds or not. The deed will be the first document reviewed in the event of any possible litigation surrounding trust investments to determine if the trustee acted in good faith or if they acted outside of their guidelines.

All Investments Must be Fair to all Beneficiaries

In the trust deed, the term likely to be used is “maintain an even hand” or otherwise to keep all transactions even amongst the beneficiaries so one does not benefit more than another. It is important that the trustee reference the trust deed in order to determine what the investment guidelines are. In some situations the even hand rule may not apply, but if the trust deed is silent to this point the trustee must exercise the even hand rule.

Being a trustee of a trust is similar to being a director in a company; although directors have no ownership of the company, they operate in the best interest of the shareholders. Trustees must operate in the best interest of the beneficiaries and follow all rules laid out when investing trust funds. For further information on how to invest within a trust, contact your financial advisor at The Beacon Group of Assante Financial Management Ltd.