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Trusts law > Overview: Administration of trusts + Role, appointment, and removal + The Fiduciary relationship > Flashcards

Overview: Administration of trusts + Role, appointment, and removal + The Fiduciary relationship Flashcards

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1
Q

Who is the legal owner of trust property and what do they have?

A

Trustee - has all rights and powers of legal owner

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2
Q

How must a trustee exercise their legal rights over the trust property and how is this enforced?

A
  • For the benefit of B
  • Obligations to B can be enforced personally against T
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3
Q

Re trustees, what do express trusts have in common?

A

As trust has been expressly created, an obligation has been intentionally imposed on the T

Role of T will vary depending on trust e.g. testamentary, charitable…

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4
Q

What is a lay trustee?

A

Act voluntarily and are not paid

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5
Q

What is a professional trustee?

A
  • Will be paid to perform their role
  • Because of payment and expertise, will be held to a higher standard of care than lay trustees
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6
Q

What is the difference re trustees for smaller and larger charities?

A
  • Small = managed by Ts themsevles
  • Large = will have employees (ensure that terms of trust and law complied with)
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7
Q

What are the obligations of a trustee like in bare trusts?

A

T has very limited obligations; simply hold legal title of trust property on behalf of adult Bs who have fully vested interests (and can collapse trust with SvV) - T only needs to distribute property in accordance with trust terms/Bs’ instructions

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8
Q

What obligations are imposed by trusts arising by operation of law?

Implied trustss

A

Do not impose same sorts of obligations on Ts as express trusts

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9
Q

Is anyone required to accept office of T? Can a trust fail if not?

E.g. named as T in a will

A
  • No - they can refuse and an alternative T will be appointed instead
  • Equity will not allow trust to fail for want of a T
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10
Q

Will Ts take on role for remuneration?

A

No, but can recover expenses

Bar professional Ts

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11
Q

What is meant that trusteeship is a joint office?

A

Where there are mutliple Ts, they should act together and all take active role (failure to do so = breach of trust)

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12
Q

What does it mean that Ts have broad powers curtailed by duties?

A

Is not possible to have a trust where Ts have no enforceable obligations at all; must be an obligation component

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13
Q

What is the irreducable core of trustee duties?

A

General duty to act honesty and in good faith for benefit of Bs

Common to all trusts!

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14
Q

Will Ts appointed by the settlor when first established remain the only Ts the whole time the trust is in operation?

A

No - Ts can be appointed, removed, or retire

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15
Q

Can any person be a T?

A

Yes, except minors/unsound mind

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16
Q

What is the minimum maximum number of Ts to a trust?

A
  • There is no minimum or maximum
  • Bar trusts of land where legal title can be held by a maximum of four persons, and there must be a minimum of two Ts to give good receipt
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17
Q

Why should number of Ts to a trust be kept relatively low?

A

Ts must act unanimously - low number avoids administrative difficulties

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18
Q

In a transfer on trust, when should the S transfer legal title to intended T?

A

Once they have confirmed they are willing to act

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19
Q

How does the appointment of Ts in testamentary trusts work?

A
  • Testator names executors in will - who will take legal title to entire estate (if willing and able to act)
  • Executors administer estate and distribute property in accordance with will - inc ensuring legal title is vested in intended Ts of any trusts
  • If executors are also Ts, executors hold legal title to trust property in their capacity as Ts instead of executors
  • If testator named someone else T, executors must transfer property to them
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20
Q

Will the a will trust fail if the intended Ts either will not or cannot (dead) take the role?

A

No - will instead be necessary to appoint alternative Ts

Executors hold property on trust until new Ts appointed

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21
Q

Once a S has created a trust, do they automatically have the right to name replacement Ts?

A

Not if they have not reserved a power for themselves in the trust - once trust created their involvement ceases (and in the case of testamentary trust this would be impossible)

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22
Q

What are the 5 different ways replacement Ts may be appointed?

A
  1. Using any express powers to appoint Ts found in trust instrument (e.g. S has reserved power)
  2. Using statutory powers to appoint Ts
  3. By Bs exercising their SvV rights
  4. (In case of charitable trusts) by the Charity Commission
  5. By the court
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23
Q

In what 4 cases can the general statutory power to appoint new Ts be exercised?

A
  1. On the death of a T
  2. If a T is abroad for over a year
  3. If an appointed T is a minor/lacks capacity to act
  4. If a T wishes to retire, refuses to act or is unfit to act
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24
Q

Who exercises the statutory power to appoint new Ts?

3 scenarios

A
  1. The persons nominated in trust instrument, and if not…
  2. By the surviving or continuing Ts, and if all Ts have died…
  3. By the personal representatives of the last to die
25
Q

If the Bs want to exercise SvV rights to change the Ts, must they collapse it first and declare a new trust?

A

Not anymore - SvV can be used to direct Ts to appoint a new T

26
Q

In what way must the SvV power be exercised by the Bs and what might the trust include meaning it cannot be used?

A
  • Must be exercised in writing
  • Cannot be exercised in cases where trust instrument contains express power to appoint Ts
27
Q

What 3 things will the court consider when exercising its statutory power to appoint Ts?

Wishes, disputes, and whether appointment…

A
  • The wishes of the S or testator (if expressed/evidenced in trust instrument)
  • Any disputes between Bs as to whether T would be appropriate (in that case do not appoint!)
  • Whether appointment will promote/impede trust administration e.g. consider the (reasonable) views of existing Ts
28
Q

What are the 4 different ways Ts may be removed?

A
  1. Using rules dealing with removal of Ts in trust instrument (e.g. S reserves power)
  2. Using statutory power to appoint Ts - which extends to removing Ts in circumstances where it is necessary to replace them
  3. Court has statutory and common law powers to remove Ts (where T is bankrupt, lacks capacity or is a company in liquidation)
  4. (In case of charitable trusts) by the Charity Commission

All basically apply same way appointment rules do/an extension of them

29
Q

When might the court remove Ts using its inherent jurisdiction?

A

Where it is concluded that it is not appropriate for T to remain in office e.g. act dishonestly

30
Q

In what 2 ways can retirement of Ts occur?

A
  1. Voluntary retirement
  2. By direction of Bs
31
Q

When can a T retire voluntarily, who must consent and what must be used?

A
  • By deed
  • Where there are at least 2 people/1 trust corporation to act as Ts and
  • Co-Ts/any person with a power to appoint Ts consents
32
Q

What should a T who voluntarily retires obtain from Bs to ensure they do not remain in office?

A

A formal discharge of liability from Bs

33
Q

How can Bs (by direction) compel a T to retire and what must be the case in terms of the trust?

A
  • In writing with agreement of all Bs
  • Only if there will remain at least 2 Ts/one trust corporation
34
Q

What are the 2 main types of duties that Ts have?

A
  1. Trustee duties - comply with terms of trust and exercise functions in accordance with prescribed standards of care and skill (to safeguard trust fund)
  2. Fiduciary duties - not create conflict between personal interest and duties to Bs or make unauthorised profit from T role
35
Q

What is the distinguishing feature of a fiduciary relationship?

A

One party owes a duty of single-minded loyalty to the other (will often be an imbalance of power in relationship e.g. T has legal title to property and powers of legal owner, so B is reliant on T to act on their behalf)

E.g. solicitor/client, company/director, agent/principal

36
Q

What are the 2 key fiduciary duties? Who is a fiduciary liable to if these duties are breached?

A
  1. No-conflict - fiduciary cannot put themselves in position where personal interests conflict with duties to principal
  2. No-profit - fiduciary cannot obtain unauthorised benefit as a result of position either for themselves or TP

Fiduciary who breaches these duties is liable to the principal

37
Q

Can a T act in the best interests of the Bs and still breach the no conflict rule?

E.g. T works for well-performing PE fund and thinks it is a good idea to invest trust money in the fund (on good advice)

A

Can still be in breach - a conflict will not be negated by T’s apparent good intentions as if they are tempted to act in their own interests, they may not be doing what is best for the principal

E.g. if T were not employed by the PE fund, there would be nothing preventing them from this investment

38
Q

What does self-dealing involve and will there be a conflict of interest?

A
  • Involves a T purchasing assets from/selling assets to trust
  • Clear conflict = buyer/seller always seeking the lowest/highest price

Therefore a T who holds legal title is prevented from buying trust property (subject to anything in instrument authorising transaction)

39
Q

If T enters into an unauthorised self-dealing transaction, what happens to the transaction and what can Bs do?

A

The transaction will be voidable and Bs can seek to rescind it (unwind sale)

40
Q

If the T owns or partly owns a company, can they get around the self-dealing rule?

E.g. sells trust property to company they have an interest in

A
  • T wholly owns company = obvious conflict; transaction is voidable in same way
  • T is not the sole shareholder = if they have a controlling shareholding the transaction willl be voidable, if they do not have a controlling shareholding it will not be self-dealing but will still involve a breach of the no-conflict rule
41
Q

What does fair-dealing involve?

A

The T directly transacts with the B to buy their beneficial interest under the trust

42
Q

Will fair-dealing transactions always be voidable under the rules re conflict of interest?

A

Unless the T can demonstrate that they made full disclosure to B, acted honestly and fairly and did not take advantage of B, the transaction is voidable

Less stringent in nature because B involved in transaction BUT T is likely to be in a stronger bargaining position

43
Q

What happens where there is a conflict between principals?

E.g. A is a trustee who wants to buy house for occupation of their beneficiary, but they are also an estate agent and has been instructed to sell C’s house - can A sell the house to the beneficiary?

A

It is not possible to act entirely in both interests of both principals where they conflict

Recall obligation of single-minded loyalty to principal

44
Q

In what two cases can fiduciaries proceed in cases involving a potential conflict?

A
  1. Transaction is authorised by instrument creating the relationship (e.g. S authorised certain types of conflict in trust deed)
  2. Unauthorised but fiduciary obtains fully informed consent of principals

Without these, the fiduciaries commit a breach of fiduciary duty

45
Q

What are the consequences of a breach of the no conflict rule if it causes a loss, if the transaction is voidable and if breach causes a profit to the fiduciary?

A
  • If breach causes a loss = principal can sue fiduciary personally to compensate
  • If transaction is voidable (self-dealing, fair-dealing) = B can seek recission
  • If breach causes a profit to fiduciary = principal can end fiduciary relationship
46
Q

What happens if the breach results in a profit to the principal?

A

They may not require a remedy but can still end the fiduciary relationship

47
Q

In what 4 ways might the fiduciary breach the no profit rule?

Directly, indirectly, exploiting, receiving

A
  1. Directly using property of principal to make a personal profit (e.g. money held for B in interest-bearing account - fiduciary cannot keep interest)
  2. Indirectly profiting from their role as fiduciary
  3. Exploiting an opportuity which has come to them as a result of fiduciary position
  4. Receiving a bribe/secret commission to influence the way in which they perform their role as fiduciary
48
Q

How can a fiduciary avoid making an indirect profit if they are appointed director of a company in which the trust holds shares to better monitor that company?

A

Paying remuneration into trust fund instead of accepting it personally

As the T takes on director role in their capacity as T

Subject to anything in the trust instrument allowing T to retain remuneration / fully informed consent of all Bs

49
Q

Will the indirect profit rule on being a director still apply if the T obtains director position not as a result of being a T (e.g. became director before taking on T role/appointed without the votes attached to the company shares)?

A

No - if they are independently appointed as director the rule will not apply

50
Q

What happens to the profit a fiduciary makes as a result of an opportunity that comes to them in course of their fiduciary duties?

A

They cannot keep it - very strict rule

Keech - T held commercial lease for minor B - at end of lease the lessee was not willing to re-let property to T because B was a minor but was willing to assign lease to T personally - B successfully claimed breach, such strict rules that T is the one person in the whole of mankind who is not entitled to the renewed lease - had to assign lease to B and account for profits

51
Q

Can it ever be certain that a T has exhausted all avenues of negotiation on behalf of B if there remains a possibility that they could profit personally if those negotiations are unsuccessful?

E.g. Keech - tried to re-negotiate with landlord to put principal first before doing on own behalf

A

The only way to ensure that T has done everything in their power for B is to absolutely prohibit them acting in their own interest

52
Q

Must it be the case that the principal would/could have exploited the opportunity if the fiduciary had not done so?

A

No - this does not matter! The rule is strict

E.g. Boardman v Phipps - trust had shares in poorly performing company, D acquired shares (without proper consent of Bs but believing so) and significantly increased profitability - despite actions had been motivated to increase the value of shares for benefit of trust he had also obtained personal benefit and had to give up profits (subject to liberal allowance effectively allowing remuneration for efforts) - despite great result for trust, fiduciary duty still breached

53
Q

Are breaches for bribes/secret commissions limited to those received for performing fiduciary duty in a certain way?

A

No - can also be applied to that received in merely carrying out role

E.g. European Ventures - D acted for C in purchase of company shares, C did not know D had existing contract with seller under which D was paid a commission upon completion of sale = receipt of commission found to be a breach of fiduciary duty to C

54
Q

What 2 remedies may the B elect between following breach of the no-profit rule?

A
  1. Account of profits - personal claim requiring T to pay principal an amount equivalent to the profit they have made
  2. Constructive trust - profit made by fiduciary held on CT for principal
55
Q

Why would a principal want a constructive trusts over the profits made by fiduciary in breach of the no profit rule?

A
  • Provides protection against insolvency of fiduciary - principal can identify an asset over which they have rights which rank above creditors
  • CT allows principal to trace into any subsequent profits made by fiduciary

E.g. A and B are Ts selling a piece of land, C (estate agent) offers £1,000 if they appoint C to act on sale of land - A convinces B to appoint C and receives £1,000 which he spends on company shares - if B claims £1,000 held on CT…
* B can claim increase in value of shares
* If they decrease, Bs can still make claim for £1,000 and take security interest to protect claim
* If T spent £1,000 on holiday, Bs would seek account for profits as no asset left over

56
Q

When can a T make profit out of their role as T?

A

If profit is permitted by terms of trust or fully informed consent is provided by all Bs

57
Q

Can a minor B provide consent to a transaction that would be a breach of either no conflict or no profit?

A

No - minors cannot provide consent

58
Q

Will a fiduciary be in breach of duty even if they have benefitted the trust?

A

Yes

Trusts law (13 decks)

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