Once, trusts were widely thought to be only for persons of very high net worth. Today, however, many persons regardless of their net worth, are deciding to create trusts.

For that reason, it is increasingly possible that you might be approached to act as a trustee – and before doing so, you should be fully aware of what a trust is, what your obligations as trustee would be, and how to effectively retire from your position of trustee if you no longer wish to act.

A trust is established when assets are transferred by a person (known as a settlor), to trustees to hold on the terms of a trust instrument for the benefit of beneficiaries or for defined purposes. Once the trust has been created and the initial assets (known as the trust fund) are transferred to the trustees, the settlor, who has funded the trust, usually relinquishes any control over the assets. In the case of a discretionary trust, the assets could comprise a family's wealth.

The position as, and responsibility of, trustees should not be taken lightly. Once they are appointed, the law places trustees in a fiduciary position or position of trust. This means that, in relation to the trust, trustees must act in good faith for the sole benefit of the beneficiaries, or to carry out the purposes of the trust. Trustees must therefore ensure that they always follow the correct procedure and formalities established by law when they act as trustees. Trustees are required to maintain trust accounts and accurate records of every transaction affecting the trust. This will include documenting all additions to and distributions from the trust and all trustee decisions.

There may come a time when a trustee decides that he is no longer willing or able to act as a trustee. Alternatively the settlor, or such person who has the power pursuant to the trust instrument, may decide to appoint a new trustee (whether individual or professional) to replace the existing trustee. Either way, it is important to ensure that the correct procedures and formalities required by law for the retirement of trustees are followed. If not, a trustee who intended to resign may find that they are still, in fact, a trustee with the full fiduciary responsibilities for the trust.

A recent Jersey case concerned a co-trustee who decided to retire from her position. In April 2001, she signed a document that she thought validly effected her retirement. In July 2001, the remaining two trustees signed documents to refinance the trust assets. Over the next seven years, the two trustees signed various documents and entered into various transactions on behalf of the trust.

Several years after the refinancing documents were signed by the two remaining trustees, someone questioned whether the trustee had, in fact, validly or properly retired from the office of trustee in April 2001. The Jersey court took into account a combination of factors and ruled that the trustee had validly retired in July 2001. Had this not been the case, all of the trustees' actions between July 2001 and 2008 (including the refinancing plan) might have been jeopardised with potentially serious consequences for the trust and all three trustees.

If you agree to act as trustee, it is prudent to be aware of the procedures established by law for acting as a trustee, and for validly retiring from the office of trustee. Also, do not forget to obtain a suitable indemnity and release when retiring as trustee. Seeking the professional advice of a lawyer expert in the area is the best course.

Attorney Lorraine Welch is a member of the Trusts Practice Group of Appleby. Copies of Ms Welch's columns can be obtained on the Appleby website at www.applebyglobal.com. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.