Fiduciary relationship Flashcards
What are the two key fiduciary duties?
· No-conflict: A fiduciary must not put themselves in a position where their personal interests conflict with their duties to their principal.
· No-profit: A fiduciary must not obtain an unauthorised benefit as a result of their position as a fiduciary either for themselves or for a third party.
What is self-dealing?
Self-dealing is a specific type of conflict involving a trustee personally buying from or selling to the trust. Such a transaction is voidable.
What is fair-dealing?
Fair-dealing involves the trustee buying the beneficiary’s interest. It is voidable unless the trustee can prove they acted honestly and fairly, having made full disclosure to the beneficiary.
What happens if the fiduciary makes a profit from their position?
If they breach the no-profit rule, their profit will be stripped from them. Beneficiaries can elect for an account or profits or a constructive trust.
A trust has two trustees, A and B. The beneficiaries are minors. The trustees require legal advice on a tax issue which has arisen in relation to the trust. A is a partner at a law firm so B suggests that there is no need to obtain advice. A specialises in real estate and is not confident in providing tax advice so suggests instructing a tax partner at their firm.
What is the best advice to the trustees?
The trustees can obtain advice from A’s firm because the advice is being given by a different solicitor so there would be no breach of fiduciary duty.
The trustees can obtain advice from A’s firm if A reasonably believes that their colleague is the best person to provide advice on this matter.
The trustees can obtain advice from A’s colleague because A is not competent to advise on tax so it would be a breach of fiduciary duty to do so.
The trustees should obtain advice from a different firm because A has a personal interest in this firm so it would be a breach of fiduciary duty to instruct them.
The trustees should obtain fee quotations from several firms first. They can instruct A’s colleague if their fees are the lowest.
The trustees should obtain advice from a different firm because A has a personal interest in this firm so it would be a breach of fiduciary duty to instruct them.
Two trustees, A and B, hold a trust fund on trust for C, who is 12 years old. The trust fund includes a house which is currently unoccupied and not producing any rental income for the trust. A and B have decided to sell the house. A would like to buy it. The trust deed does not contain any provisions authorising trustees to purchase trust property.
Which of the following is the most appropriate advice to A?
A can buy the house if B agrees.
A can’t buy the house but they could incorporate a company and use the company to buy the house instead.
A can buy the house if C’s parents agree.
A can buy the house as long as they pay market value.
A cannot buy the house.
A cannot buy the house.
Buying the house would be self-dealing. It is not authorised by the trust deed and the beneficiary is a minor so cannot provide consent.
In which of the following circumstances is it permissible for a trustee to make a profit out of their role as trustee?
If the profit is either permitted by the terms of the trust or fully informed consent is provided by all the beneficiaries.
