9. Trustees: Powers when running a trust

Question 1

Trustee’s duty of care

Answer 1

When running a trust, a trustee must take ‘all those precautions which an ordinary prudent
man of business would take in managing similar affairs of his own’ (Speight v Gaunt (1883)
9 App Cas 1). This is an objective standard

Question 2

Duties when starting out as trustee

Answer 2

(a) ensure that they have been properly appointed;
(b) ascertain what the trust property consists of and take all reasonable and proper
measures to obtain control of the trust property – if the transfer of trust property to the
new trustee is outstanding, the new trustee must press for that transfer to take place;
(c) review the trust document and associated paperwork to familiarise themselves with
the trust and how it works – the other trustees must produce papers relating to the
administration of the trust;
(d) enquire into the past business of the trust to ensure that there have been no past
breaches of trust, and to take appropriate action to remedy any breaches; and
(e) where there are chattels held on trust, ensure that a proper inventory is drawn up.

Question 3

Duty to act impartially between beneficiaries

Answer 3

However, a trustee
must not benefit one beneficiary at the expense of another and may find themselves in
breach of trust if they continually prefer the interests of one beneficiary over the other.

Question 4

Duty to act personally and unanimously

Answer 4

1. each co- trustee is under a duty to take all
   reasonable and proper measures to take control of trust property, preferably by ensuring that property is vested in the name of all the trustees.
2. Co- trustees must generally take decisions unanimously (unless the trust document provides
   otherwise).
3. Trustees must act personally – they must be personally active in the running of a trust

Question 5

Examples of a trustee failing to adhere to their duty of acting personally

Answer 5

(a) leaves matters in the hands of a co- trustee without enquiry;
(b) allows trust funds to remain in the sole control of a co- trustee;
(c) fails to watch over and, if necessary, correct the conduct of their co- trustees; or
(d) fails to take action knowing that a co- trustee was committing, or about to commit, a
breach of trust;

Question 6

Duty to exercise discretions properly

Answer 6

Having decided to
exercise a power (discretion), trustees must exercise that power:

(a) in good faith;
(b) rationally;
(c) for the purpose for which it was created;
(d) with regard to relevant material matters and without regard to irrelevant ones;
(e) with regard to all relevant facts; and
(f) with regard to any legitimate expectation that a beneficiary might have that the power be
exercised in a particular way

Question 7

Duty to give reasons for the exercise of a power

Answer 7

Trustees do not generally need to give reasons for their decisions (but if they do decide to
give reasons, the beneficiaries and the court can enquire into their soundness). However, where a particular beneficiary has a legitimate expectation that a discretion will be exercised in their favour, the trustees may be obliged to give reasons and advance warning if they are thinking of exercising their discretion differently.

Question 8

Duty to disclose relevant information - which documents are beneficiaries entitled to see?

Answer 8

(a) the trust document or will that created the trust;
(b) the trust accounts; and
(c) a schedule of trust investments or other documents that show how trust property is
invested.

Question 9

What documents are beneficiaries NOT entitled to demand

Answer 9

• documents that record trustees’ deliberations
  on a discretion or power. - Trust diaries and minutes of trust meetings that record why trustees took particular decisions
• settlor’s letter of wishes

Question 10

If a beneficiary wants to see a document which would expose trustee decision making processes - is there any way to demand this?

Answer 10

They can apply to the court for disclosure