Trust: Duties Flashcards
How might a trustee breach the Duty not to Profit? What happens if this is breached?
- directors fees
- exploiting opportunities
- renumeration
Consequences
- It if do make a profit equity imposes a constructive trust to prevent the trustees from profiting
When might a trustee be entitled to directors fees?
Does not apply if they got position independently of their role as trustee
- Ie held it before becoming trustee
- Could have been voted in even without the votes attached to trust
Or if
- Can be authorised by trust instrument
- Can seek informed consent of all beneficiaries
When is a trustee able to charge renumeration?
- if there is an express charging clause
- professional trustees (not corporation) if not sole trustee, with consent of co-trustees and there is no charging clause
- trust corporation
- with consent of beneficiaries (full age and capacity)
- court authorisation if trust is exceptionally onerous and trustee has performed exceptional services
What is the self dealing, what duty does it breach and what are the consequences?
Breaches no conflict rules
- Self Dealing = a trustee purchasing assets from the trust or selling assets to the trust
- This rule is subject to anything in the trust instrument which can authorise this
- If trustee does enter into self dealing, the transaction can be voidable = beneficiary can seek to rescind (unwind the sale)
What is fair dealing, what are requirements?
- Involves trustee directly transacting with beneficiaries to buy their beneficial interest under the trust
- Transaction is also voidable unless:
- -pay fair price
- make full disclosure
- in no way abuse position
In case of dispute
- burdon of proof on trustee
What are the equitable duties of trustees?
- Trustees must enquire as to trust property, take control of it, ensure its preservation
- Includes seeing that legal title is vested in all trustees and that all trust property is properly segregated from the trustees personal assets
What is the statutory duty of care of trustees? When is this applied?
- Must exercise such care and skill as is reasonable in the circumstances taking into account any special knowledge the trustee has or holds himself out as having
- Professional trustees held to Higher standard
- Court will take into account any special knowledge or experience that a person in that profession would have
Applied
- Imposed in specific cases such as when exercising powers of investment or appointment of agents
What standard of care are trustees held to when statutory duty does not apply?
General Standard of care
- Must act with the prudence of an ordinary man of business acting in relation to their own affairs
- Applies to power of maintenance and advancement
How must trustees make decisions (if more than one)?
Duty to Act Jointly
- Each trustee must remain active in running trust
- Must make decisions unanimously
Can make decisions by majority votes if:
- There is clause in trust deed allowing this or:
- Court authorises majority decision
When can trustees delegate their function?
Admin Funcions
- Can delegate purely admin functions to agent
- But not any exercise of discretion
Invesmtnet decisons
- Trustees acting together can delegate investment decisisons
- Provided conditions are met
Power of Attorney
- Individual trustee can delegate all their functions to another individual or trust corporation by power of attorney
- Cannot be for term exceeding 12 months
- Trustee remains liable for acts and omissions of attorney as if they acted personally
What is the Duty to take possession of property?
- Trustees must ensure that all trust property is in their joint possession and control
- If property is not in control in one of the trustees, they will still be liable for misappropriation of the property
Trusts: What is the Duty to keep accounts and disclose information?
- Trustees must keep accounts and records
- Must produce them to beneficiaries when required
What is the Duty of Confidentiality?
- In respect to information obtained in course of discharge of their functions as trustees
- Information gained cannot be used for personal gain
- Can be waived thorugh fully informed consent of beneficiaries
What are authorised investments trustees can make? Can this be changed?
- can make any investment except for land outside of the UK
- trust instrument can extend or restrict this (ignoring this is breach of trust)
What is the standard investment criteria?
- suitability to trust; and
- need for diversification of investments of trust as appropriate to particular circumstances of trust
When must trustees take proper advice / what is proper advice? Are there exceptions?
- trustees must obtain proper advice before exercising power to invest and reviewing investments
- proper advice = advice from person trustees reasonably believe to be qualified to give it by reason of their ability and practical experience
Exception
- advice not needed if trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate
Once investments are made does the trustees duty end?
No must review
- trustees must keep investments under review and consider whether, having regard to SIC, they should be varied
- proper advice should be obtained when making review
Trustees: What are the formalities for delegating the power to invest>
Policy statement to be incorporated into contract.
To include
- full details of trust
- investment objectives
Can vest property in nominee (asset manager)
When can trustees take ethical investing into account?
Can take ethical investment into account if:
- express provision in trust instrument
- beneficiaries consent
Are the trustees liable for the performance of investments?
- not liable if they have complied with all requirements
Do beneficiaries with vested interest in capital have right to receive income as it arises?
Adult
- If they have vested interest in capital they have a right to receive income as it arises
- Not if someone else has a prior interest in the trust
Minor
- If have vested interest the trustee must accumulate income until they reach age of 18
- Accumulated income is added to capital and distributed with it
When is power of maintenance available?
- Beneficiary must have vested or contingent interest in capital and have no other beneficiary who has prior interest in income
What can power of maintenance be used to pay for?
Maintenance, benefit or education
What entitlement does a beneficiary have to income when they turn 18? (vested vs contingent interest in income/capital etc.)
Vested Interest in Income
- Abel to claim income arising after 18th birthday (as normal)
- Able to claim income accumulated during minority
Vested Interest in Income and Capital
- Trust ends on 18th birthday
- Claim all trust capital and accumulated income
Contingent Interest in Capital
- Claim all income arising after 18th birthday
- Income accumulated before 18th birthday added to capital
When is power of advancement available to beneficiaries?
- May be used by both adult and minor beneficiaries
- Applies to vested and contingent interests in capital
o NOT remainderman (only if life tenant gives written consent)
What money is used for advancement (income or capital) are there restrictions on how much can be paid?
Come from capital
- Trustees can pay up to 100% of beneficiaries’ prospective entitlement to capital (even if the have contingent interests)
- If trust created or arose before 1st Oct 2014 then limited to 1/2
When is consent required for power of advancement and who must consent?
- Because the exercise of the power may prejudice other beneficiaries, the power may only be exercised with the written consent of beneficiaries with a prior interest
- Consent can only be given by adult with sound mind
What does it mean to bring payment of advancement into account?
- Any advancement made to a beneficiary must be brought into account when the beneficiary becomes absolutely entitled
- the amount that the beneficiary will receive when their interest vests will be reduced proportionately to reflect the proportion of the capital that they received early
- trustees can decided whether to do this in monetary terms (deduct the amount previously given) – esp. if trust fund has grown since or can do it as percentage of overall value (if trust fund grows, they are entitled to same percent they originally had, minus the amount they took)
What control/rights do beneficiaries have over trustees?
- right to compel exercise of duty
- right to inspect documents
- Saunter Vautier Rights
When can beneficiaries control exercise control of trustees discretion?
- Where trustees are acting irrationally
- But hard to prove as trustees have no obligation to disclose way they use power
2.Legitimate Expectation
- If trustees have given beneficiaries a legitimate expectation that their discretion will be exercised in particular way
- Then may be expected to warn beneficiaries if they intend to change their policy
