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Trusts law > Fiduciary relationships/Trustees' duties, powers, and liability > Flashcards

Fiduciary relationships/Trustees' duties, powers, and liability Flashcards

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1
Q

Trustees are subject to strict duties that prevent any risk of conflict BETWEEN…

A

their duties AND their own personal interests.

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2
Q

Trustees owe a fiduciary duty.
This generally means:

A
  • Obligation of loyalty.
  • Acting honestly.
  • Acting in good faith.
  • Not making a profit out of the trust.
  • Not to place himself in a position where his duty AND his own personal interest CAN conflict with the trust.
  • Not to act in his own benefit OR the benefit of a third party WITHOUT the informed consent of his principal.
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3
Q

Examples of a fiduciary relationship:

A

Director and company,
Agent and principal,
Solicitor and client,
Relationship between business partners.

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4
Q

Unauthorised profits include…

A

secret/incidental profits, bribes, commissions, OR the use of confidential information to make an unauthorised profit.

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5
Q

Fiduciaries can’t retain any unauthorised profits generated by…

and is this duty strictly applied?

A

their connection to the trust.

yes

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6
Q

Doesn’t matter if there was no bad faith OR…

A

deliberate wrongdoing OR that the fiduciary generated profit for himself AND the trust suffered no loss.

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7
Q

Any profits MADE by exploiting trust property OR…

A

the office of trustee (including confidential information) is held by the trustee on constructive trust for the beneficiary of the pre-existing trust.

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8
Q

Self-dealing rule:

A

Trustee buys trust property.
Purchase of the trust property by a trustee voidable by any beneficiary since it reflects the possibility that the trustee MIGHT NOT give the best price obtainable
AND gives rise to a conflict between the trustee’s self-interest AND his duty to the trust.

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9
Q

Fair dealing rule:

A

Trustee buys out the equitable interest of the beneficiary.
Trustee’s purchase of a beneficiary’s equitable interest in property will not be voidable IF the trustee acts honestly,
not taken advantage of his position,
makes full disclosure to the beneficiaries
AND pays a fair price.

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10
Q

Core fiduciary duty is one of…

A

loyalty to their principal.

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11
Q

Trustee MUST NOT allow their own self-interest to conflict with…

A

the interest of their principal
OTHERWISE, held to accountable.

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12
Q

Paid employment:

A

Trustee MUST NOT use their position to obtain paid employment.
Directorship is acquired because of their position as a trustee,
accountable for any fees OR salary to the trust.
Not the case IF trustees were directors before.

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13
Q

Trustees must not compete with the trust:

A

Trustees MUST NOT compete with the trust IF it contains a business as part of its assets.

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14
Q

Appointment:
(4 elements)

A
  • Trustees are appointed by the settlor OR testator in the will OR trust document OR statutory powers.
  • Trustee MUST be adults of sound mind OR corporations.
  • Trusts of personalty can have a single trustee.
  • Trusts of land should have a minimum of two human trustees (not more than 4) OR trust corporation, to overreach any beneficial interests.
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15
Q

s36(6) TA 1925?

A

allows for the appointment of additional trustees (no more than 4 trustees) once appointment is made.

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16
Q

s41 TA 1925?

A

allows the court to appoint an additional trustee where it is impracticable OR inexpedient for others to act WITHOUT court’s involvement.

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17
Q

s19 TLATA 1996?

A

provides beneficiaries can serve a written direction on a trustee
to appoint a trustee of their choosing (no more than 4 trustees) once appointment is made.

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18
Q

Removal:

A

*Trustees can be removed expressly by a power in the trust document.

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19
Q

s36(1) one of the TA 1925 provides grounds for?

A

replacing trustee (death, retires, unfit etc).

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20
Q

s41 TA 1925 provides the court can replace a trustee where…

A

it is impracticable OR inexpedient for others to act WITHOUT the court’s involvement.

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21
Q

s19 TLATA 1996 provides beneficiaries can serve a…

A

written direction on a trustee to remove a trustee AND replace with one of their own choosing.

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22
Q

Court can exercise its jurisdiction to remove…

A

a trustee for the welfare of the beneficiaries.

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23
Q

Retirement:

A

Trust document contains an express power for trustees to retire.

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24
Q

s39(1) TA 1925 allows a trustee to retire WITHOUT…

A

being replaced provided there will be two trustees OR a corporation left.

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25
Q

s36(1) TA 1925 provides grounds for replacing a trustee who?

A

retires.

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26
Q

s19 of the TLATA 1996 provides that beneficiaries can serve a written direction on…

A

a trustee to retire.

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27
Q

Trustees’ duties on appointment:
(4 elements)

A
  • Trustee on appointment SHOULD receive the trust instrument AND ALL related documentation.
  • Person appointed as a trustee SHOULD examine ALL previous trust appointments AND retirements to ensure the trustees have been validly appointed.
  • Trustee MUST acquaint themselves with ALL the beneficiaries AND their entitlements, including the trust assets.
  • The legal title to the trust property MUST be transferred into the names of the new AND continuing trustees.
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28
Q

Trustees’ duties during trust’s lifetime:
(5 elements)

A
  • Trustees are under a duty to run the trust in the same way as an ordinary prudent business person would run their own affairs.
  • Trustees are under a duty to act fairly between the beneficiaries.
  • Trustee should only act on decisions that have unanimous trustees consent.
  • Trustee should take an active role by supervising the action of co-trustees.
  • Trustees should exercise their powers soundly, rationally AND in good faith BUT they don’t need to give reasons for their decisions.
29
Q

The Trustee Act 2000:
(5 elements)

A
  • Significantly widens the investment powers of trustees.
  • Default provisions for trustee investments.
    All the provisions can be expressly altered OR excluded by the trust instrument.
  • Trustees MUST consider NOT ONLY the need to provide an income for the life tenants BUT also how to preserve AND increase the capital for the remaindermen.
  • Trustees have a duty to act even-handedly towards different classes of beneficiary.
  • Trustee can appoint qualified agents to carry out asset management functions.
30
Q

The TA 2000 -
Guidance to trustees on how to exercise their investment powers AND the standard of care expected of them.
MUST have regard to…

A

the standard investment criteria when selecting assets for the trust.
Apply the suitability of investments test, consider diversification when choosing investments AND obtain proper advice from someone reasonably qualified.
Whenever the property is held on trust to benefit both life tenants AND remainderman,
trustees have a duty to invest the trust property to generate income for the life tenant AND preserve the capital for the remainderman.

31
Q

Trustees’ statutory powers of maintenance AND advancement allows…

A

trustees to assist certain beneficiaries BEFORE their entitlement vests.

32
Q

Maintenance (use of income):

A

Trustees can use the income from their interest to provide for maintenance of a minor beneficiary.
Under the age of 18 years.
However, not obliged to.

33
Q

Trusts created after 1 October 2014?

A

trustees can apply part OR all of the income for the maintenance, education, OR benefit of a minor beneficiary. (s31 TA 1925).

34
Q

Trusts before 1 October 2014?

A

powers to be exercised with what is reasonable in the circumstances.

35
Q

Payments should be made to the minor’s…

A

parent OR guardian OR benefit provider (e.g., school).

36
Q

s31 can’t be used if…

A

another beneficiary has a prior interest to the income.

37
Q

Beneficiary over 18 years, trustees are under a duty to…

A

pay the trust income to the beneficiary as it arises.

38
Q

Advancement of capital (trust property):

A

Trustees, in their discretion, can advance a beneficiaries’ entitlement to the capital BEFORE it vests.
Includes beneficiaries with a vested interest, contingent interest, OR reminder interest in trust property.

39
Q

Beneficiaries can’t compel…

A

advancement of capital.

40
Q

Trustees can advance the capital interests for the advancement OR…

A

benefit as any use of money which WILL improve the situation of the beneficiary.

41
Q

Trusts created AFTER 1 October 2014 - beneficiary’s entire interest can be advanced.
Trusts BEFORE this date, ONLY half of the beneficiary’s share can be advanced.
Correct?

A

yes

42
Q

Any advancements will be deducted from…

A

the beneficiary’s final share.

43
Q

An advancement NOT permitted IF…

A

there is prior interest on the capital by another beneficiary
UNLESS they consent.

44
Q

Beneficiaries will have a claim AGAINST…

A

a trustee for breach of trust.

45
Q

Liability BETWEEN trustees is…

A

joint AND several for breaches they have participated in.

46
Q

Remedy can be provided for breach of trust OR…

A

fiduciary obligation,
the remedy can be personal OR proprietary.

47
Q

Remedy can be at common law OR…

A

equity

48
Q

Examples of breaches of fiduciary duties:

A

Making OR retaining inappropriate investments.
Making a payment from the trust fund to the wrong person.
Failure to obtain proper advice.
Misappropriating funds.
Inappropriate delegation.
Failure to recover debts.

49
Q

Liability of a trustee for his own acts:

A

Trustee commits a breach of trust,
liable to the trust for any loss incurred OR personal gain.

50
Q

Former trustees:
(2 elements)

A

Trustee is not, however, liable for breaches of trust committed by his predecessors BEFORE his appointment as trustee.
Should NEVERTHELESS sort out any irregularities discovered when taking office,
including obtaining any satisfaction from the previous trustee.

51
Q

Retirement:
(2 elements)

A

Retirement a trustee WILL STILL REMAIN LIABLE for breaches of trust that occurred DURING his stewardship.
Trustee NOT LIABLE for breaches committed by his successors UNLESS his retirement occurred so that the breach could be committed OR to avoid his becoming involved with it.

52
Q

Liability for acts of co-trustees:

A

Trustee is liable for his own breaches, ISN’T generally, liable for the breach of duty committed by a co-trustee.
Liability can arise when the trustee himself is at fault in allowing ANOTHER trustee to commit a breach.

53
Q

Joint and several liability:

A

Two OR more trustees are each liable for a breach of trust, they are jointly AND severally liable.
Any one of the trustees can be sued for the full amount.

54
Q

Civil (Liability) Contribution Act 1978:

A

Trustees can ask the court to apportion liability on the basis of what is just AND equitable between the trustees.

55
Q

The breach and the loss:

A

Claimant MUST prove that there is a loss which wouldn’t have occurred BUT for the breach of trust.
Beneficiaries right is to restore to the trust fund what ought to be there (restitution).

56
Q

Measure of liability:

A

Trustee who fails to comply with his duties is liable to make good the loss to the trust estate.
No loss, trustee is accountable for any profit made in breach of trust.
Rule is not to punish the trustee BUT to compensate the beneficiaries.

57
Q

Trustees can be required to:

A
  • Account for any unlawful profit
  • Compensate for any loss suffered by the trust
  • Restore property due to the trust
  • Offset of losses
58
Q

Account for any unlawful profit:

A

profit arises from an unauthorised transaction the beneficiaries can claim it.

59
Q

Compensate for any loss suffered by the trust:

A

trustee must compensate the trust fund from his own pocket.

60
Q

Restore property due to the trust:

A

trustee is required to restore to the trust the specific property, its equivalent OR its monetary value to the trust fund.

61
Q

Offset of losses:

A

trustees can’t set off profit AGAINST the loss
UNLESS the breaches form part of the same transaction.

62
Q

Involvement of a beneficiary:

A

Beneficiary has instigated, requested, concurred in, OR consented to a breach of trust, beneficiary WON’T generally be allowed to sue AND can have to relieve the trustees of liability, partially OR wholly.

63
Q

Indemnity from a beneficiary:

A

Court of Chancery has an inherent jurisdiction to order that a trustee OR other beneficiaries be indemnified out of the interest of the beneficiary who instigated OR requested such a breach
OR consented to the breach AND actually benefitted from it.

64
Q

Section 62 of the Trustee Act 1925:

A

Court could impound the interest of the beneficiary IF the beneficiary instigated OR requested the breach OR consented in writing to the breach BUT there is no requirement of actual OR intended benefit to the beneficiary.

65
Q

Section 61 of the Trustee Act 1925:

A

Courts can relieve a trustee who has acted honestly AND reasonably AND ought fairly to be excused.
As long as these 3 requirements ARE MET the award of relief is in the discretion of the court.

66
Q

Protection of Trustees, Exoneration Clauses:

A

Trust instrument WILL commonly restrict the liability of a trustee (exemption or exoneration clause).
Such clauses offer protection for the trustee WHILE reducing the protection OTHERWISE afforded to the beneficiary.
There can be no exclusion of liability from fraud OR intentional wrongdoing.

67
Q

Limitation Act 1980, s21(3) provides:

A

6-year limitation period within which claims for breach of trust MUST be brought from the date of the breach.

68
Q

For a beneficiary with a postponed interest, the 6-year period…

A

WILL NOT commence UNTIL his interest falls into possession.

69
Q

Minor beneficiary, s28 Limitation Act 1980 provides:

A

that the 6-year period WILL NOT commence UNTIL the beneficiary has attained majority.

Trusts law (3 decks)

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