Trustee Liability for Breach of Trust UK (2026): Personal Liability, Defences, and the Relief Under Trustee Act 1925 s.61

A breach of trust is any act or omission by a trustee that contravenes the terms of the trust deed or the trustee's general duties under law: (1) THE GENERAL PRINCIPLE — UNAUTHORISED ACTS: a breach of trust occurs whenever a trustee: (a) acts outside their powers (ultra vires); (b) fails to act where they should have acted; (c) acts within their powers but in breach of their duty of care; (d) exercises their powers for an improper purpose or in bad faith; (2) COMMON EXAMPLES OF BREACH OF TRUST: (a) UNAUTHORISED INVESTMENT: investing trust assets in investments not authorised by the trust deed or the Trustee Act 2000 s.3 general power of investment — e.g. investing in speculative ventures or keeping assets in non-interest-bearing accounts without justification; (b) IMPROPER DELEGATION: delegating investment management to an agent without the required written mandate (Trustee Act 2000 s.15); (c) FAILURE TO DIVERSIFY: investing the entire trust fund in a single asset class in breach of the standard investment criteria (Trustee Act 2000 s.4); (d) SELF-DEALING: purchasing trust property at an undervalue or contracting with the trust in a transaction that benefits the trustee personally — the self-dealing rule; (e) MISAPPROPRIATION: taking trust funds for personal use — which may also constitute theft; (f) UNAUTHORISED DISTRIBUTION: paying trust income or capital to non-beneficiaries, or to beneficiaries in the wrong proportions, or without proper authority; (g) FAILURE TO MAINTAIN ACCOUNTS: failing to keep proper accounts and provide them to beneficiaries on request; (h) FAILURE TO APPLY CORRECT STANDARD OF CARE: exercising investment powers without taking proper advice or reviewing the portfolio as required by the Trustee Act 2000 s.4; (3) THE DISTINCTION BETWEEN HONEST AND DISHONEST BREACH: a breach of trust does not need to be deliberate or dishonest to create personal liability. An honest but careless trustee who makes an unauthorised investment is just as liable as a dishonest one — though the remedies and defences available may differ.

A trustee who commits a breach of trust is personally liable to the trust and its beneficiaries in the following ways: (1) THE GENERAL RULE — UNLIMITED PERSONAL LIABILITY: a trustee who commits a breach of trust is personally liable to RESTORE THE TRUST FUND to the position it would have been in had the breach not occurred. The restoration can be: (a) in KIND — returning specific property; (b) by FINANCIAL COMPENSATION — paying the monetary equivalent of the loss caused by the breach. There is NO upper limit on this liability — a lay trustee who negligently invests a £1,000,000 trust fund in a worthless venture can be personally liable for the full £1,000,000 loss; (2) EQUITABLE COMPENSATION vs ACCOUNT OF PROFITS: (a) Where the breach has caused a LOSS: the beneficiaries claim equitable compensation for the loss they have suffered; (b) Where the breach has generated a PROFIT for the trustee (e.g. self-dealing): the beneficiaries can claim an ACCOUNT OF PROFITS — requiring the trustee to disgorge the profit they made from the breach; (3) THE STANDARD — NO CAUSATION REQUIREMENT: unlike ordinary negligence claims in tort, equitable compensation for breach of trust does not require strict 'but for' causation in all cases. The court can require the trustee to restore the trust fund to the position it should have been in — Target Holdings Ltd v Redferns [1996] AC 421. However, the Supreme Court in AIB Group (UK) Ltd v Mark Redler & Co Solicitors [2014] UKSC 58 confirmed that there must be a causative link between the breach and the loss claimed; (4) JOINT AND SEVERAL LIABILITY OF CO-TRUSTEES: where multiple trustees commit a breach of trust jointly, each trustee is jointly and severally liable for the FULL amount of the loss — even if one trustee acted at the instigation of another. However, a trustee who is less culpable can seek a contribution from the more culpable trustee under the Civil Liability (Contribution) Act 1978; (5) PASSIVE BREACH — FAILURE TO PREVENT: a trustee who fails to prevent a co-trustee's breach (e.g. by failing to monitor investments or by signing a blank cheque that the other trustee misuses) can also be personally liable. Wilful default — deliberately closing one's eyes to wrongdoing — makes the passive trustee jointly liable.

Several defences can limit or extinguish a trustee's liability for breach of trust: (1) TRUSTEE ACT 1925 s.61 — RELIEF WHERE HONEST AND REASONABLE: s.61 of the Trustee Act 1925 gives the court a discretion to relieve a trustee from personal liability for a breach of trust where: (a) the trustee acted HONESTLY; (b) the trustee acted REASONABLY; (c) having regard to all the circumstances, it would be EQUITABLE to excuse the trustee for the breach or for part of it. The s.61 relief is a discretionary remedy — the court is not obliged to grant it even if the conditions are met. In practice, s.61 is most commonly granted to: (i) lay trustees who acted in good faith without professional advice; (ii) professional trustees who acted in accordance with standard practice at the time but whose conduct was technically a breach; (iii) trustees who sought but received negligent legal advice that they acted on reasonably; (2) TRUSTEE ACT 1925 s.62 — CONSENT, INSTIGATION, OR REQUEST OF BENEFICIARY: s.62 provides that where a breach of trust was committed at the instigation or REQUEST of a beneficiary, the court can make an order that the beneficiary's beneficial interest be impounded (frozen) to make good the loss. This is not a complete defence — it allows the trustee to set off the beneficiary's impounded share against the trustee's liability; (3) CONSENT OF ALL BENEFICIARIES — RULE IN SAUNDERS v VAUTIER: if ALL the beneficiaries are adults, have full mental capacity, and consent to the breach BEFORE it occurs, the trustees are not liable. This is the rule in Re Pauling's Settlement Trusts [1964] Ch 303 extended from the Saunders v Vautier line of authority. Post-breach consent ('acquiescence') is a related but distinct principle; (4) EXCLUSION CLAUSES IN THE TRUST DEED: professional trust deeds commonly include trustee exclusion clauses — limiting the trustee's liability to fraud or wilful default and excluding liability for negligence or honest mistake. Such clauses are enforceable at common law (Armitage v Nurse [1998] Ch 241), though their scope is limited by fiduciary duties and the duty of good faith. The Law Commission has reviewed but not abolished them; (5) LIMITATION PERIOD: a claim for breach of trust must generally be brought within 6 years of the breach (Limitation Act 1980 s.21(3)). However, there is NO limitation period for fraudulent breach of trust (s.21(1)) or for claims to recover trust property from the trustee themselves (s.21(1)(b)).

The limitation period for breach of trust claims is governed by the Limitation Act 1980 and is more complex than most civil limitation periods: (1) THE GENERAL RULE — 6 YEARS: under the Limitation Act 1980 s.21(3), an action by a beneficiary to recover trust property or claim compensation for breach of trust must be brought within SIX YEARS from the date on which the cause of action accrued (typically the date of the breach). After the six-year period, the claim is time-barred; (2) FRAUDULENT BREACH — NO TIME LIMIT: under s.21(1)(a), there is NO limitation period for actions against a trustee to recover trust property from the trustee if the breach: (a) was FRAUDULENT; (b) involved the trustee CONCEALING the breach. If the trustee has committed a dishonest breach and hidden it, the claim survives indefinitely. The fraudulent breach exception does not apply to honest but careless breaches; (3) TRUSTEE RETAINING TRUST PROPERTY — NO TIME LIMIT: under s.21(1)(b), where the trustee is in possession of trust property to which the beneficiary has a proprietary right (i.e. they hold the property itself, not just a debt), no time limit applies; (4) CHARITABLE TRUSTS: the Attorney General can bring actions against charitable trustees on behalf of charities without being subject to ordinary limitation periods in many cases; (5) BENEFICIARIES UNDER A DISABILITY: for a beneficiary who lacked mental capacity at the time of the breach, time does not start running until they recover capacity (s.28). This can extend the limitation period for decades in cases involving incapacitated beneficiaries; (6) THE FRAUDULENT CONCEALMENT PROVISION — s.32: under s.32 of the Limitation Act 1980, where the trustee has deliberately concealed the breach of trust from the beneficiaries, the limitation period does not start running until the beneficiary discovers (or could with reasonable diligence have discovered) the concealment. This provision is separate from the s.21(1) fraudulent breach exception.

Trustees should take proactive steps to reduce the risk of breach of trust claims and to protect their personal financial position if a claim arises: (1) ACT STRICTLY WITHIN THE TRUST DEED: always read and understand the trust deed before taking any action. If in doubt whether an action is within the trustees' powers, take legal advice before proceeding; (2) TAKE PROFESSIONAL ADVICE ON INVESTMENTS: the Trustee Act 2000 requires trustees to take and consider proper investment advice (s.5) and to review the portfolio regularly (s.4). Always obtain a written investment recommendation from a qualified investment manager. Keep records of the advice received and acted upon; (3) KEEP DETAILED MINUTES AND RECORDS: trustees should maintain minutes of all meetings; records of all decisions; correspondence with beneficiaries; investment manager reports; and accounts. In the event of a claim, the trustees' records are their primary defence; (4) OBTAIN A TRUSTEE INDEMNITY INSURANCE POLICY: trustee indemnity insurance (also called trustee liability insurance) covers the trustee's personal liability for: (a) breach of trust claims; (b) legal costs in defending claims; (c) regulatory investigations. Professional trustees are required to hold adequate insurance. Lay trustees (e.g. family members acting as trustees) often overlook trustee indemnity insurance — but they have the same personal liability exposure as professional trustees; (5) THE TRUST DEED EXCLUSION CLAUSE: if you are setting up a new trust, the trust deed should include a carefully drafted trustee exclusion clause — ideally one that excludes liability for honest mistake but retains liability for fraud and wilful default. Take specialist advice on the wording; (6) SEEK BENEFICIARIES' CONSENT BEFORE UNUSUAL TRANSACTIONS: where a proposed transaction is unusual or potentially contentious, obtaining written consent from all adult beneficiaries in advance is the most reliable protection — combining both the s.62 impounding defence and the Saunders v Vautier consent principle; (7) APPLY TO COURT FOR DIRECTIONS: where trustees are genuinely uncertain what course of action is appropriate, they can apply to the court (under the Trustee Act 1925 s.57 or under the TLATA 1996 s.14) for directions. A trustee who acts in accordance with court directions is protected from breach of trust claims for that transaction.