Trust: Duties

Question 1

How might a trustee breach the Duty not to Profit? What happens if this is breached?

Answer 1

• directors fees
• exploiting opportunities
• renumeration

Consequences
- It if do make a profit equity imposes a constructive trust to prevent the trustees from profiting

Question 2

When might a trustee be entitled to directors fees?

Answer 2

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

Question 3

When is a trustee able to charge renumeration?

Answer 3

• 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

Question 4

What is the self dealing, what duty does it breach and what are the consequences?

Answer 4

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)

Question 5

What is fair dealing, what are requirements?

Answer 5

• 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

Question 6

What are the equitable duties of trustees?

Answer 6

• 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

Question 7

What is the statutory duty of care of trustees? When is this applied?

Answer 7

• 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

Question 8

What standard of care are trustees held to when statutory duty does not apply?

Answer 8

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

Question 9

How must trustees make decisions (if more than one)?

Answer 9

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

Question 10

When can trustees delegate their function?

Answer 10

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

Question 11

What is the Duty to take possession of property?

Answer 11

• 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

Question 12

Trusts: What is the Duty to keep accounts and disclose information?

Answer 12

• Trustees must keep accounts and records
• Must produce them to beneficiaries when required

Question 13

What is the Duty of Confidentiality?

Answer 13

• 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

Question 14

What are authorised investments trustees can make? Can this be changed?

Answer 14

• can make any investment except for land outside of the UK
• trust instrument can extend or restrict this (ignoring this is breach of trust)

Question 15

What is the standard investment criteria?

Answer 15

• suitability to trust; and
• need for diversification of investments of trust as appropriate to particular circumstances of trust

Question 16

When must trustees take proper advice / what is proper advice? Are there exceptions?

Answer 16

• 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

Question 17

Once investments are made does the trustees duty end?

Answer 17

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

Question 18

Trustees: What are the formalities for delegating the power to invest>

Answer 18

Policy statement to be incorporated into contract.

To include
- full details of trust
- investment objectives

Can vest property in nominee (asset manager)

Question 19

When can trustees take ethical investing into account?

Answer 19

Can take ethical investment into account if:
- express provision in trust instrument
- beneficiaries consent

Question 20

Are the trustees liable for the performance of investments?

Answer 20

• not liable if they have complied with all requirements

Question 21

Do beneficiaries with vested interest in capital have right to receive income as it arises?

Answer 21

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

Question 22

When is power of maintenance available?

Answer 22

• Beneficiary must have vested or contingent interest in capital and have no other beneficiary who has prior interest in income

Question 23

What can power of maintenance be used to pay for?

Answer 23

Maintenance, benefit or education

Question 24

What entitlement does a beneficiary have to income when they turn 18? (vested vs contingent interest in income/capital etc.)

Answer 24

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

Question 25

When is power of advancement available to beneficiaries?

Answer 25

• 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)

Question 26

What money is used for advancement (income or capital) are there restrictions on how much can be paid?

Answer 26

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

Question 27

When is consent required for power of advancement and who must consent?

Answer 27

• 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

Question 28

What does it mean to bring payment of advancement into account?

Answer 28

• 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)

Question 29

What control/rights do beneficiaries have over trustees?

Answer 29

• right to compel exercise of duty
• right to inspect documents
• Saunter Vautier Rights

Question 30

When can beneficiaries control exercise control of trustees discretion?

Answer 30

1. • 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