8. Trustees' duties, powers and liability Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

What general duty is on trustees?

A

To act
- honestly and
- in good faith,
-for benefit of beneficiaries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the difference between trustee duties and trustee powers?

A

Powers: authorised but not compulsory
Duties: mandatory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How can trustees be appointed?

A

-No minor can be one
- No fixed number necessary (except for trusts of land where max is 4)
- Usually appointed by settlor and for testamentary trusts, may be named in will e.g. the executors may be named trustees as well

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What methods are there for appointing replacement trustees?

A
  • Any express powers in trust instrument
  • Beneficiaries exercising S v V rights
  • Statutory powers
  • The court
  • Charity Commission for Charitable trusts
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

In what circumstance does the general statutory power to appoint replacement trustees apply and who is it exercised by:

A
  • death of trustee,
  • trustee abroad for over 1 year,
  • minor/lacks capacity,
  • wants to retire/refuses/unfit
    Exercised by
  • persons nominated in instrument or - surviving/continuing trustees
  • If all trustees are dead, by PRs of last to die
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do beneficiaries exercising S v V rights appoint a replacement trustee?

A
  • In writing
  • Cannot be used where instrument contains express power to appoint trustees
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

When shouldn’t the court appoint a trustee?

A

Where there’s dispute between beneficiaries as to whether they’d be appropriate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How can trustees be removed?

A
  • Check trust instrument
  • statutory powers
  • Court can where trustee is bankrupt, lacks capacity or is a company in liquidation
  • Charity Comission
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In what 2 ways can trustees retire?

A
  1. Voluntary retirement
  2. Direction of beneficiaries: in writing & all agree
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How can trustees voluntary retire?

A
  • By deed
  • Where at least 2 other people or 1 trust corporation are there to act as trustees
  • Co-trustees & anyone else with power to appoint trustees consent
  • Should also obtain formal discharge of liability from beneficiaries
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

If a trustee is given a power of appointment, what kind of power is it, and the consequence? And if not a trustee?

A

Trustee = fiduciary power (don’t need to exercise but must consider doing so periodically)
Not Trustee = personal power (don’t need to consider exercising it)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What words suggest a discretionary trust vs power of appointment?

A

Discretionary: ‘must’
Power: ‘may’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What words suggest a discretionary trust vs power of appointment?

A

Discretionary: ‘must’
Power: ‘may’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are discretionary trusts?

A

Trustees must exercise discretion and do so within a reasonable time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If trustees of a discretionary trust don’t exercise it, what can beneficiaries do (and not do)?

A

Can sue to enforce trust and ensure discretion is exercised
Cannot compel them to exercise it in their favour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What trustee obligations are there for a discretionary trust?

A
  • Consider range of possible beneficiaries
  • Don’t require trustees to identify all people, just an appropriate survey of the class
  • Is/Is Not Test: trustee must be able to say with certainty whether any given individual is a member of the class or not
  • Requires conceptual certainty
  • For evidential certainty, it’s for C to prove that they’re within the class
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What happens with a discretionary trust and a power of appointment where the class of objects is too wide?

A

Discretionary = void
Power = remains valid

17
Q

What is the trustees’ duty of care?

A

Must exercise such care and skill as is reasonable
- Consider any special knowledge/experience a trustee has
- Standard of care higher for professional trustees
- Doesn’t apply to all acts of a trustee

18
Q

What is the power of investment for trustees?

A

A trustee may make any kind of investment they could make if absolutely entitled to the assets
Have a duty to invest where necessary

19
Q

What must trustees do if they exercise the power to invest?

A
  1. Consider standard investment criteria: (a) suitability (general & specific), and
    (b) diversification
  2. Take advice (unless reasonably conclude not needed)
  3. General duty of care
20
Q

What rules are there for taking advice when exercising power of investment?

A

They are not bound to follow the advice but can’t ignore it simply as they personally disagree with it - can only do so if a reasonably prudent trustee would do the same
Must obtain proper advice before exercising power & when reviewing instruments
Exception: don’t need to seek advice if reasonably conclude it’s unnecessary

21
Q

What is the power to acquire land?

A

Trustees have statutory power to acquire freehold or leasehold in UK (not overseas)
Can be done for investment or wider purposes
If done for investment, relevant criteria apply
Statutory DoC applies

22
Q

What is the power of delegation?

A
  • Can delegate powers of investment and to acquire land, but cannot for distributive obligations
  • Can’t delegate to beneficiaries
  • Must be an appropriate agent, reviewed regularly with an agreement that complies with statute
  • For investment, must be evidenced in writing
23
Q

What is the duty to distribute?

A

must pay as soon as possible

24
Q

What is the power of maintenance?

A

Where a minor has a vested (or contingent) interest in trust, trustees can pay income as they think fit
Can be paid to child/parent/guardian or applied directly for child’s ‘maintenance, education or benefit’
Income not paid out must be accumulated but can be paid out after - accumulated income added to capital when reaches 18
Must be used for primary benefit of minor

25
Q

What is the power of advancement?

A

A B who expects to receive capital from trust in future may wish to receive capital before it vests in possession
Can be used by both adult and minor B, vested or contingent interests
Trustees can pay up to 100% of entitlement before it vests at all but must get written consent of beneficiaries with prior interest, if they’re of age and of sound mind
Must be providing an immediate financial benefit, ensuring money is used for purposes it was provided for

26
Q

What different ways can a trustee commit a breach?

A
  • acting outside powers
  • failing to act in accordance with their duties
  • Acting in breach of fiduciary duties
27
Q

Are trustees liable for breaches committed before their appointment?

A

No
But if they discover a breach, must commence proceedings otherwise could become liable

28
Q

Are trustees liable for breaches once they retire?

A

They are liable for breaches committed before they retired
Only liable for breaches that occur after where:
a) trustee retired to facilitate breach
b) trustee parts with property in retiring without due regard

29
Q

What remedies are there for breaches?

A
  • Where trustee misapplied TP, can seek to recover property/TP
  • If not possible to recover property or results in loss in trust value, seek compensation
  • Trustees only liable for losses where their breach is a ‘but for ‘ cause
30
Q

How can trustees avoid liability for breaches/wrongful distribution?

A
  • Advertising for claimants in national newspaper (after 2 months, they can distribute)
  • Retaining fund or paying money into court
  • Seeking court directions
  • Benjamin order
  • Taking out insurance against wrongful distribution
31
Q

How can trustee liability be excluded or limited?

A
  1. Can have exclusion clause in instrument (not where breach is fraudulent)
  2. Can rely on s61 TA 1925: gives court discretion to excuse trustee where they acted honestly and reasonably, and ought fairly to be excused
  3. If they show they obtained fully informed consent or Bs acquiesced, operates as partial defence
32
Q

What limitation period is there for bringing a claim for breach of trustee duties?

A

6 years (for beneficiaries vested in possession)
Doesn’t apply for fraudulent breaches or proprietary claims

33
Q

How can trustees be protected from the outset?

A
  • Ouster cause - trust deed removes duty
  • Exemption clause - limits liability for breach
  • Trustee liability insurances
34
Q

How can trustees be protected during administration?

A
  • seeking directions
  • s48 to rely on Counsel
  • Surrendering discretion to the court
  • Obtaining beneficiary consent
35
Q

What is the process for s.48?

A
  • get written legal opinion
  • apply to high court for authorisation to rely on that opinion
36
Q

How can trustees protect themselves from Unidentified beneficiaries?

A
  • Benjamin Order
  • s.27 Notice
  • Retain funds to satisfy missing beneficiaries
  • Pay money into court
  • Insurance
  • seek indemnity from known beneficiaries
37
Q

In what circumstances is a Benjamin Order used?

A
  • know of existence of a beneficiary but can’t find them (assumes missing B is dead)
38
Q

What is a s.27 notice?

A

notice placed in:
- London Gazette
- Newspaper covering land involved
- other appropriate newspaper

39
Q

In what circumstances is a s.27 Notice used?

A
  • protection against unknown beneficiaries