Chapter 7: Trustees' Duties and Powers

Question 1

If a trustee has made a personal profit from opportunities or information gained from the trusteeship, can they retain the profit?

Answer 1

No, the profit is held on constructive trust for the beneficiaries

Question 2

As a general rule, can a trustee charge for services as a trustee?

Answer 2

Trustees cannot charge for their services, but they can recover out of pocket expenses

Question 3

In which five circumstances can a trustee charge for their services as trustee?

Answer 3

1. The trust instrument contains a charging clause
2. The trustee is acting in a professional capacity e.g. Accountant
3. Trust corporation (entitled to reasonable remuneration)
4. Beneficiaries consent
5. Court has provided authorisation

Question 4

If a trustee is a professional, they may charge reasonable remuneration for their services. What three conditions must be satisfied?

Answer 4

1. The trustee is not the sole trustee
2. The co-trustee gives written consent
3. The trust instrument does not contain an express provision relating to the trustees’ charges

Question 5

Can a trustee purchase property owned by the trust if they pay full value or the purchase is made in the open market?

Answer 5

No, any such purchase by a trustee is voidable

Question 6

Can the Court permit self-dealing?

Answer 6

In exceptional circumstances, the Court has the authority to permit self-dealing

Question 7

Can a trustee purchase a beneficiary’s beneficial interest?

Answer 7

Yes, provided that the trustee paid a fair price, made full disclosure of all material facts to the beneficiary and in no way abused their position

Question 8

If a beneficiary who sold their interest to a trustee and later wants to challenge the validity of the sale, does the burden rest on the trustee or the beneficiary?

Answer 8

The trustee

Question 9

What is the statutory duty of care imposed on trustees when making investment decisions and when appointing agents?

Answer 9

Trustees must exercise such care and skill as is reasonable in the circumstances, taking into account any special knowledge the trustee has or holds himself out as having

Question 10

Are professional trustees held to the same standard as lay trustees?

Answer 10

No, professional trustees are held to a higher standard

Question 11

When the statutory duty of care does not apply, what is the standard of care?

Answer 11

Trustees are under a duty to act with the prudence of an ordinary man of business, acting in relation to their own affairs

Question 12

If there is more than one trustee, can they act individually?

Answer 12

No. If there is more than one trustee, they must act jointly and unanimously

Question 13

Can trustees delegate their functions or must they act personally?

Answer 13

Trustees must act personally and can only delegate administrative functions such as the preparation of tax or legal documents

Question 14

Are trustees liable for the acts or omissions of their agents?

Answer 14

Trustees will not be liable if they select and supervise agents in accordance with the statutory duty of care

Question 15

What is the exception to the rule that trustees mustn’t delegate their functions?

Answer 15

A trustee can delegate their functions to another individual or trust corporation by executing a power of attorney to endure for a fixed term not exceeding 12 months

The trustee will remain liable for the acts and omissions of the attorney as if they had acted personally

Question 16

If there is more than one trustee and trust property is left in the control one of them, will the co-trustees be liable if the trustee misappropriates the property?

Answer 16

Yes

Question 17

Is it necessary for trustees to keep accounts and records?

Answer 17

Yes and trustees must produce them to the beneficiaries when required

Question 18

Are trustees under a duty to invest funds to produce income?

Answer 18

Yes and they must ensure:

1. The trust instrument or statute authorise the investment trustees select
2. They take into account the relevant criteria when selecting investments
3. They take any necessary advice in making investments
4. They keep their investments under appropriate review

Question 19

Trustees have a general power of investment. What is this?

Answer 19

Trustees may make almost any kind of investment that they could make if they were absolutely entitled to the trust assets (aside from an investment in land outside the UK)

Question 20

Can trustees acquire land?

Answer 20

Trustees may acquire freehold or leasehold land in the UK

Question 21

What is the standard investment criteria?

Answer 21

Trustees must consider:

1. The suitability of the type of investment proposed
2. Diversification

Question 22

Before trustees exercise any power of investment, they must obtain and consider ‘proper advice’. What is this?

Answer 22

Advice of a person the trustees reasonably believed qualified to give advice by reason of their ability and practical experience

Question 23

If trustees obtain advice before making an investment, must it be from a professional?

Answer 23

No, the person merely requires experience in such matters and must be suitable to provide investment advice

Question 24

Do trustees always need to obtain advice before making an investment?

Answer 24

No, not if the trustees reasonably conclude that in all the circumstances it was unnecessary or inappropriate

Question 25

Can trustees delegate investment decisions?

Answer 25

Yes, trustees have the power to delegate the choice of investments to an asset manager

Question 26

Are trustees under an obligation to exercise the powers of maintenance and advancement?

Answer 26

No, the powers of maintenance and advancement are discretionary

Question 27

Does a minor beneficiary have a right to income whilst they are a minor?

Answer 27

No

Question 28

What does the statutory power or maintenance allow trustees to do?

Answer 28

Use trust income for a minor beneficiary rather than accumulate it during the beneficiary’s time as a minor

Question 29

What is accumulation of income?

Answer 29

Not using income so that it can be kept for future use

Question 30

When the statutory power of maintenance applies, what can funds be used for?

Answer 30

For the child’s maintenance, education or benefit as they see fit. The trustees must accumulate any surplus income

Question 31

When the statutory power or maintenance applies, can funds be paid directly to the beneficiary?

Answer 31

• No, minors cannot give valid receipt.
• Income must be directly applied to purpose OR to parent or guardian

Question 32

When does the power of maintenance end?

Answer 32

• On the beneficiary’s 18th birthday
• Once 18, the beneficiary is entitled to claim income as a right

Question 33

What will happen on a beneficiary’s 18th birthday if they have a vested interest in capital and income?

Answer 33

• Trust ends on 18th birthday
• Beneficiary is entitled to claim all income arising before and after 18th birthday as well as the capital

Question 34

What will happen on a beneficiary’s 18th birthday if they have an interest in capital which is contingent on them attaining an age greater than 18?

Answer 34

• The beneficiary is entitled to claim all income arising AFTER their 18th birthday
• Any remaining income accumulated during the beneficiary’s time as a minor will accrue to capital

Question 35

If a beneficiary has an interest in capital of a trust fund (whether vested or contingent), can trust capital be advanced?

Answer 35

Yes, trustees have the discretionary power to advance trust capital to the beneficiary

Question 36

When the power of advancement applies, can trustees ‘pay or apply’ capital sums for the beneficiary’s advancement?

Answer 36

Yes, at the trustee’s absolute discretion

Question 37

What are the three provisos for the power to apply trust capital to be applied?

Answer 37

1. Amount must not exceed entitlement (e.g. if trust is to be shared equally between three people, any advancement mustn’t exceed one third)
2. Any advances must be brought into account on final distribution of the fund
3. Witten consent of person with prior interest is required

Question 38

Does the power of advancement apply to trusts created before October 2014?

Answer 38

Yes, however, the power of advance is limited to one half of the beneficiary’s vested or presumptive share

Question 39

Can beneficiaries bring a trust to an end?

Answer 39

• Yes, if all beneficiaries are of full age and capacity and are absolutely entitled to the entire equitable interest
• Beneficiaries can require trustees to transfer trust funds to them in shares that they agree

Question 40

Do beneficiaries have a right to control how trustees exercise their discretion?

Answer 40

Generally, no. However, the exception is if trustees have given a legitimate expectation that their discretion will be exercised in a particular way they must inform the beneficiary if they intend to act in a different way