Protection of Trustees

Question 1

What is the easiest way for to avoid liability that comes with being a trustee?

Answer 1

Refuse the office in the first place ie do not become a trustee

Question 2

How can an ouster clause in the trust deed protect trustees from liability?

Answer 2

Ouster clause entirely removes duties that trustees would otherwise have

(not all trustee duties can be removed by ouster clause as then there would be no trust)

Question 3

How can an exemption clause in the trust deed protect trustees from liability?

Answer 3

Can exclude or limit liability for breach of trust by way of exemption clause.

Duty still exists but trustees will be protected from personal liability if they breach it.

Question 4

If there is a valid exemption clause, do beneficiaries have any remedies for breach of duties?

Answer 4

Beneficiaries can still pursue action for breach but just not against trustee eg making proprietary claim or personal claim against stranger.

Beneficiaries still have claim against trustee for fraudulent breaches.

Question 5

How can trustee liability insurance protect trustees?

Answer 5

Insurance will may pay out for liability in some cases - such as negligence but not fraud

Premiums will often be paid out of trust fund

Question 6

How can legal advice protect trustees during the administration of a trust?

Answer 6

Trustees can seek legal advice and act on that.

Seeking legal advice alone will not protect trustees entirely from liability ie the court may disagree with the legal advice

Question 7

How will court directions protect trustees during the administration of a trust?

Answer 7

Trustees can apply for court for directions.

Acting in accordance with the directions will protect trustees from any subsequent claim from beneficiaries

Question 8

When can a s 48 application under the Administration of Justice Act 1985 be made and how?

Answer 8

Where there is a question about the construction of the terms of a Will or trust, s 48 AJA 1985 allows the trustees to:

• seek written legal opinion from person satisfying s 71 Courts and Legal Services Act 1990 (usually a barrister or solicitor with 10 years of experience)
• apply for High Court authorisation to rely on that legal opinion. Provided no dispute then HC will grant order

Question 9

How can a s 48 application under the Administration of Justice Act 1985 protect trustees?

Answer 9

Successful application will protect trustees from liability

Question 10

When can trustees surrender their discretion to the court?

Answer 10

Where they are in deadlock as to one specific decision, they may surrender their discretion to the court for this one specific decision

Question 11

When can the consent of beneficiaries protect trustees from liabilities?

Answer 11

Where all trustees give fully informed consent

Question 12

When will it be possible to get the consent of beneficiaries to protect against liability? What will trustees have to do make sure it is fully informed?

Answer 12

Where all beneficiaries are known, locatable and are over 18 (and of sound mind)

Trustees must make sure beneficiaries are given full information to enable them to provide consent.

Question 13

What options do trustees have when beneficiaries are unidentified or missing?

Answer 13

• seeking a Benjamin order, allowing distribution on the assumption that a missing beneficiary has died
• publishing a notice under s 27 TA 1925 putting unknown beneficiaries on notice of their intention to distribute the fund between known beneficiaries
• retaining a fund to satisfy the claims of missing or unknown beneficiaries
• paying money into court to satisfy the claims of missing beneficiaries
• taking out insurance against wrongful distribution
• seeking an indemnity from the beneficiaries to whom they do distribute

Question 14

What is a Benjamin Order?

Answer 14

Court order where there are missing but known beneficiaries whereby the trustees are able to distribute on a particular assumption ie missing trustee is dead

Question 15

What protection does a Benjamin Order provide?

Answer 15

Protects trustees against personal liability

Does not protect other beneficiaries - missing beneficiary can bring a claim against them

Question 16

What must the trustees do before court will make a Benjamin Order?

Answer 16

They must make full enquiries to attempt to establish the true position of missing beneficiary and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense

Question 17

What is a s 27 notice under TA 1925?

Answer 17

Notice whereby trustees publish their intention to distribute to known beneficiaries

Question 18

What steps must be taken for a valid s 27 notice?

Answer 18

Notice must be placed two months in advance of distribution in

i) London Gazette

ii) newspaper circulating in the area in which any land held on trust is situated

iii) any other newspaper which is appropriate (eg trade paper)

Question 19

What protection does s 27 notice provide?

Answer 19

Protects trustees against any personal claims from a beneficiary.

Beneficiary can still bring proprietary claim against recipient of property or against any unclaimed trust fund

Question 20

What protection does retaining funds provide trustees?

Answer 20

Trustees could retain some funds on distribution to satisfy the claims of any missing beneficiaries that do come forward.

Drawback - open-ended administrative duties

Question 21

When would it be appropriate to make payment into court?

Answer 21

Where trustees can establish genuine doubt as to location of beneficiaries.

Last resort in eyes of court.

Trustees must show that all realistic options for tracing beneficiaries have failed.

Question 22

How can missing beneficiary insurance provide protection to trustees?

Answer 22

Trustees would still be liable to any beneficiary that later comes forward after distribution but trustees can then claim on insurance policy for any money that has been paid out

Question 23

How can obtaining an indemnity from other beneficiaries protect trustees?

Answer 23

Trustees would still be liable for any beneficiaries that later come forward but could then indemnify themselves from the beneficiaries.

Indemnity is only as good as the persons granting it

Question 24

What possible claims would trustees have against advisers in event of breach?

Answer 24

Possible negligence claim if advice is negligent.

If they take action early on realising advice is negligent then can prevent personal claim against them for breach of trust all together