Protection of Trustees Flashcards
Which of the following cannot be excluded by an exemption clause in a trust deed?
A. Liability for fraudulent conduct
B. Liability for ordinary negligence
C. Liability for breach of investment duty
D. Liability for non-disclosure
A. Liability for fraudulent conduct
Explanation: Fraud cannot be excluded under any circumstances. Courts will not enforce any exemption clause that attempts to relieve trustees from liability for dishonesty.
A trustee is unsure how to distribute a gift due to unclear wording in the will. What should they do to ensure protection?
A. Apply to court for directions
B. Wait for beneficiaries to agree
C. Ask the trust’s accountant for advice
D. Make a decision independently and record it
A. Apply to court for directions
Explanation: Trustees who seek directions from the court are protected from liability if they follow the court’s guidance, even if the decision later proves incorrect.
What is the effect of following the section 27 Trustee Act 1925 procedure?
A. It protects trustees from all creditor claims
B. It removes all fiduciary liability
C. It extends the limitation period for claims
D. It protects trustees from unknown beneficiaries or creditors only
D. It protects trustees from unknown beneficiaries or creditors only
Explanation: Trustees who publish proper notice and wait two months are protected from liability to unknown claimants but remain liable to known creditors or beneficiaries.
A trustee cannot locate a beneficiary. Which action will best protect them from liability when distributing the estate?
A. Ignore the share and distribute the rest
B. Publish another s.27 notice
C. Distribute the share to the nearest relative
D. Seek a Benjamin Order from the court
D. Seek a Benjamin Order from the court
Explanation: A Benjamin Order authorises trustees to distribute on the assumption that the missing person has died. This protects trustees from liability if the person later reappears.
What is required for a trustee to be exonerated under section 61 of the Trustee Act 1925?
A. Proof that the breach caused no loss
B. Evidence of honesty and reasonable conduct
C. A majority vote of all trustees
D. Beneficiary consent in writing
B. Evidence of honesty and reasonable conduct
Explanation: Section 61 gives courts discretion to relieve trustees from liability if they acted honestly and reasonably and ought fairly to be excused.
Trustees relied on a legal opinion when interpreting a complex trust clause. Which statute offers them protection without a full court application?
A. Section 27 Trustee Act 1925
B. Section 61 Trustee Act 1925
C. Section 48 Administration of Justice Act 1985
D. Section 42 Administration of Estates Act 1925
C. Section 48 Administration of Justice Act 1985
Explanation: Section 48 allows trustees to apply for court approval to rely on written legal opinions from qualified professionals, helping avoid lengthy court proceedings.
A trustee receives an indemnity from a beneficiary in case a missing creditor later appears. What is a key risk of relying on this?
A. The indemnity has no legal effect
B. The trustee may still be liable under s.27
C. The beneficiary may later lack the funds
D. The trustee cannot distribute the estate
C. The beneficiary may later lack the funds
Explanation: Indemnities are only useful if the beneficiary can later be traced and has sufficient funds to reimburse the trustee if needed. They offer no guaranteed protection.
Which of the following is NOT a recognised way to protect a trustee from liability for distribution errors?
A. Benjamin Order
B. Professional negligence insurance
C. Payment into court
D. Obtaining a court direction
B. Professional negligence insurance
Explanation: While trustee indemnity insurance may offer some protection, professional negligence insurance (for solicitors, not trustees) is not a formal method of protection under trust law.
A trustee is worried about distributing estate funds to a minor beneficiary. The will is silent on how to handle this. What is the best course of action to avoid personal liability?
A. Transfer the funds directly to the minor’s bank account
B. Wait until the minor turns 18 and retain the funds
C. Pay the funds to the minor’s parent and obtain a receipt
D. Apply to court to appoint trustees under section 42 AEA 1925
D. Apply to court to appoint trustees under section 42 AEA 1925
Explanation: Under section 42 Administration of Estates Act 1925, the trustee can appoint trustees to hold the property for the minor. This ensures legal compliance and protects the trustee from liability where a minor cannot give good receipt.
