Trustee Duties and Power MCQs Flashcards
Which of the following most accurately correctly describes the statutory powers of trustees to purchase land?
Trustees may purchase land in the UK but only as an investment
Trustees may purchase land in the UK but only for occupation by a beneficiary.
Trustees may purchase land in the UK, whether as an investment or for any other purpose, including occupation by a beneficiary.
Trustees may purchase land in the UK or overseas, whether as an investment or for any other purpose, including occupation by a beneficiary.
Trustees may purchase land in the UK or overseas but only as an investment.
Trustees may purchase land in the UK, whether as an investment or for any other purpose, including occupation by a beneficiary.
Section 3 Trustee Act 2000 gives trustees a wide power to invest in any property, but in the case of land this must be read in conjunction with section 8 which provides that trustees may only acquire land in the UK. This land may be purchased as an investment, for occupation by a beneficiary or for any other reason.
A solicitor trustee and a lay trustee held a majority shareholding in a company on trust. The solicitor trustee was elected to the board of directors but did not attend board meetings and was unaware that the company was being mismanaged. The shares have halved in value since they were acquired by the trustees.
As a result of the failure to supervise and safeguard the trust investment a breach of the trustee duty of care and skill has occurred.
Which of the following most accurately describes the liability of the trustees?
The trustees will be jointly and severally liable, although it may be possible for the lay trustee to apply to apportion greater liability to the solicitor trustee.
Only the solicitor trustee will be liable, because they were the trustee elected to the board of directors.
The trustees will be jointly and severally liable. However, the lay trustee should apply for an indemnity because of the solicitor trustee’s overbearing influence.
Only the solicitor trustee will be liable, because they are acting in a professional capacity.
The trustees will be jointly and severally liable. There is no defence available to either trustee because the trust was a majority shareholder.
The trustees will be jointly and severally liable, although it may be possible for the lay trustee to apply to apportion greater liability to the solicitor trustee.
As the trust has a majority shareholding the trustees were under a common law duty to supervise and safeguard the investment (see e.g. Bartlett v Barclays Bank). Where a breach of duty occurs, the trustees are jointly and severally liable even though one of the trustees is not directly involved and even though one of the trustees is not acting in a professional capacity. While acting as a lay trustee will not absolve a trustee of their liability, it may be possible for the lay trustee to apportion greater liability to the professional trustee under s 1 Civil Liabilities (Contribution) Act 1978, although it is not possible on the facts to know whether this would be successful or not
Lay trustees decided to invest in a company having read positive reviews in the press. The company share price was increasing rapidly so they invested immediately without seeking further advice.
Six months later the company was publicly criticised for having breached data protection regulations on numerous occasions, and as a result the share price plummeted.
Have the trustees acted in breach of their investment obligations under the Trustee Act 2000?
Yes, because they did not first seek the consent of the beneficiaries.
No, because the events which caused the loss were not in the public domain at the time the trustees made the investment decision.
No, because the trustees are not acting in a professional capacity.
No, because it is reasonable to rely upon advice in the press.
Yes, by relying on the press reports and not seeking any other advice.
Yes, by relying on the press reports and not seeking any other advice.
The trustees are under an obligation to take proper advice and it is unlikely that this has been satisfied by reliance on press reviews (s 5 of the Trustee Act 2000).
You are advising the two trustees of a discretionary trust in relation to the following events, each of which was a breach of duty by the trustee resulting in loss to the trust fund:
Trustee A made a transfer from the trust bank account to settle an invoice received by the trust.Trustee A later discovered that the recipient account details were entered incorrectly, the funds have been paid to an overseas bank in error and it may not be possible to recover this money. Trustee B withdrew £2,000 from the trust bank account and used this to repay outstanding gambling debts.
The trust instrument contains an exemption clause which absolves the trustees from all liability for loss to the trust fund as a result of any breach.
Who may rely on the trustee exemption clause?
Both trustees, provided a majority of the beneficiaries agree.
Both trustees, provided they each agree the other should be absolved
Trustee A only.
Neither trustee.
Trustee B only.
Trustee A only.
Following Armitage v Nurse, an exemption clause which exonerates a trustee from liability can be enforced in respect of any breach other than a fraudulent or dishonest breach of trust. Trustee A was negligent but was not dishonest. Trustee B has stolen from the trust which is an act of dishonesty and therefore Trustee B cannot claim the benefit of the exemption clause, irrespective of how widely it is drafted.
You are advising the trustees of a discretionary trust. The trustees want to appoint an investment manager to make financial decisions on their behalf in relation to the trust fund. One of the beneficiaries of the trust (‘B’) is an experienced and well-respected financial adviser and has specialist tax knowledge.
The trustees would like to appoint B to act as investment manager for the trust. The trustees believe B will be highly motivated to perform well and she may also be able to offer her services to the trust at a reduced rate.
The trustees would also like B to decide when distributions should be paid to the beneficiaries to ensure this is done in the most tax efficient manner.
The trust instrument does not contain any express powers relating to the appointment of agents or delegation of trustee functions.
Which of the following is correct?
The trustees may not delegate either investment or distribution decisions to anyone because the trust instrument does not expressly permit this.
The trustees may appoint B to make investment decisions only.
The trustees may appoint B to make both investment and distribution decisions.
The trustees may appoint B to make distribution decisions only.
The trustees may not appoint B to make either investment or distribution decisions
The trustees may not appoint B to make either investment or distribution decisions
The Trustee Act 2000 does permit the delegation of investment decisions but not decisions relating to distribution of the trust fund. However, the trustees may not delegate to one of the trust beneficiaries.
A woman is the trustee of a family trust, the assets of which include a majority shareholding in a company. The terms of the trust instrument expressly permit the trustees to use the shareholding to appoint themselves as directors of the company (although it is silent regarding the payment of any associated remuneration). The woman is appointed as a director of the company and is paid an annual salary of £45,000.
Which of the following best describes the woman’s position in relation to the salary?
The woman can keep the salary because it is paid as remuneration for her work as the director of the company.
The woman cannot keep the salary. If she does, the beneficiaries may elect between a constructive trust or account of profits.
The woman can keep the salary because her position as director of the company is separate from her role as a trustee.
The woman can keep the salary unless the beneficiaries of the trust object. If they object, the beneficiaries are entitled to seek an account of profits.
The woman cannot keep the salary. If she does, the beneficiaries may seek an account of profits.
The woman cannot keep the salary. If she does, the beneficiaries may elect between a constructive trust or account of profits.
The woman has only been appointed as a director as a result of her position as trustee and keeping the salary would be a breach of the no profit rule. Following FHR European v Cedar Capital Partners the remedy for breach of the no profit rule is the proprietary remedy of a constructive trust.
A solicitor working in the commercial property team of a law firm is advising a company, acting by its directors. The company is the trustee of a trust. The company has instructed a firm of estate agents to identify a suitable property as a trust investment. The estate agents have identified a property which the company will purchase with a mortgage provided by a bank.
In relation to this transaction, which of the following parties does not owe any fiduciary duties to any of the others?
The directors
The solicitor
The estate agents
The company
The mortgagee bank
The mortgagee bank
The mortgagee bank (lender) does not owe any fiduciary duties to the company (borrower). The parties have entered a commercial agreement and there is no reason to suppose any fiduciary relationship exists.
A trustee transfers £20,000 from a trust bank account into a business account in the trustee’s sole name.
The trustee’s spouse manages the finances of this business and is surprised to see this large deposit as they are aware the business is struggling. The spouse checks the account details and realises the money was transferred from the trust account.
The trustee’s spouse asks the trustee why they have received money from the trust account but is told to ‘stop asking stupid questions’. The spouse chooses not to enquire further and uses the money in the account to pay creditors of the business. The trust account is now completely empty and the trustee is bankrupt.
Advise the trustee’s spouse as to any personal liability they may have to the beneficiaries of the trust.
The spouse will not be personally liable to the beneficiaries as they have not personally received any of the money from the trust fund.
The spouse is likely to be personally liable for knowing receipt.
The spouse is likely to be personally liable for breach of fiduciary duty.
The spouse cannot be personally liable to the beneficiaries because they do not know that there has been a breach of trust.
The spouse is likely to be personally liable for dishonestly assisting the breach of trust.
The spouse is likely to be personally liable for dishonestly assisting the breach of trust.
The spouse has assisted in a breach of trust by paying out the funds to the trustee’s creditors. They are likely to satisfy the objective test for “dishonesty” in Royal Brunei Airlines v Tan (an honest person in possession of the same facts would have considered their actions to be dishonest) because they choose not to pursue further enquiries.
A trust fund is held for two adult beneficiaries, A and B. B wants to raise money to start their own business. B has no significant assets other than their interest under the trust which they would like to sell. One of the trustees is interested in buying B’s interest.
Which of the following would be the most appropriate advice for the trustee?
The proposed sale would be self-dealing. The trustee should therefore not proceed.
The proposed sale would be self-dealing and therefore voidable unless the trustee obtains the informed consent of both beneficiaries.
The proposed sale would be fair-dealing and therefore voidable unless the trustee obtains the informed consent of both beneficiaries.
The proposed sale would be self-dealing and therefore void unless the trustee obtains the informed consent of both beneficiaries.
The proposed sale would be fair-dealing. The trustee should ensure that B gets independent advice on the sale and that the interest is independently valued.
The proposed sale would be fair-dealing. The trustee should ensure that B gets independent advice on the sale and that the interest is independently valued.
The proposed sale is an example of fair dealing. The trustee may purchase the equitable interest of a beneficiary if they can prove they acted fairly, there was no undue influence, they gave full value and the beneficiary was fully informed. These can be demonstrated by the practical steps suggested
The sole beneficiary of a trust has an interest in the £50,000 trust capital which is contingent upon attaining the age of 25. The beneficiary is currently 17 years old. The beneficiary has asked the trustee to advance her £30,000 from the trust fund so that she can fund her studies to become an educational psychologist.
Which of the following best describes the powers and duties of the trustee?
The trustee must advance £30,000 to the beneficiary for the requested purpose.
The trustee may not advance any capital to the beneficiary until she attains the age of 18.
The trustee may advance £30,000 to the beneficiary for the requested purpose.
The trustee may not advance any capital to the beneficiary until she attains the age of 25.
The trustee may advance £30,000 to the beneficiary for any purpose.
The trustee may advance £30,000 to the beneficiary for the requested purpose.
The power of advancement in s32 TA 1925 gives the trustee the power, but not the obligation, to advance the money for the beneficiary’s education.
Trustees hold a £10,000 trust fund on trust for a sole beneficiary (currently aged 17). The beneficiary has asked the trustees for an advancement of £4,000 capital to buy a car. The beneficiary also wants the trustees to use the trust income to fund the running costs of the car.
How should the trustees deal with the request?
The trustees must advance the £4,000 capital but may not apply the income for the car’s running costs.
The trustees may advance the £4,000 capital and apply the income for the car’s running costs.
The trustees may advance the £4,000 capital but may not apply the income for the car’s running costs.
The trustees may not advance the £4,000 capital or apply the income for the car’s running costs.
The trustees must advance the £4,000 capital and apply the income for the car’s running costs.
The trustees may advance the £4,000 capital and apply the income for the car’s running costs.
The trustees have the power under ss 31 and 32 LPA 1925 to advance capital for the benefit of the beneficiary and to apply income for their maintenance.
A family trust has two trustees (both of whom are individuals) and two adult beneficiaries. The beneficiaries would like to remove one of the trustees. The trust instrument does not provide any person with a power to appoint trustees.
Which of the following statements most accurately describes the rights of the beneficiaries?
The beneficiaries have a power to compel the trustee to retire as long as they both agree but they must appoint a new trustee first.
The beneficiaries do not have a power to compel the trustee to retire. They could instead agree to collapse the trust and then resettle the property on a new trust with new trustees.
The beneficiaries have a power to compel the trustee to retire if the other trustee agrees.
The beneficiaries cannot do anything to change the trustees of the trust.
The beneficiaries have the right to ask the trustee to retire but cannot compel them to do so.
The beneficiaries have a power to compel the trustee to retire as long as they both agree but they must appoint a new trustee first.
The beneficiaries have Saunders v Vautier rights and therefore have the power to compel a trustee to retire under s19 TLATA as long as they both agree. As there are only two trustees, they must appoint another trustee first.
The sole trustee of a trust for an adult beneficiary has just died. The trust instrument contains no powers to appoint trustees.
Who has the power to appoint a replacement trustee?
The beneficiary only
The trustee’s personal representatives only.
The court only.
Nobody.
The beneficiary, the trustee’s personal representatives and the court.
The beneficiary, the trustee’s personal representatives and the court.
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The beneficiary has a power to appoint trustees under s 19 TLATA. The trustee’s personal representatives can exercise the s36 TA 1925 statutory power. The court also has a power to appoint trustees under s 41 TA 1925.
Trustees have been holding a trust fund for a woman for life, remainder to the woman’s daughters in equal shares when they reach the age of 25. The woman has just died. Her younger daughter is 21 and her older daughter is 27.
Advise the trustees on their obligations with respect to the trust income and capital.
The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust unless she directs them to transfer it to her. They must distribute the income to her in the meantime.
The trustees must continue to hold the capital on trust unless the beneficiaries direct them to transfer it to them. They must distribute the income to both beneficiaries in the meantime.
The trustees must distribute the capital to both beneficiaries as soon as possible.
The trustees must continue to hold the capital on trust but must distribute the older beneficiary’s share of the capital if she requests it. They must continue to hold the younger beneficiary’s share on trust until she reaches the age of 25. They must distribute the income to both beneficiaries in the meantime.
The trustees must continue to hold the capital on trust unless the beneficiaries request their shares of the capital. They must accumulate the income unless the beneficiaries request it.
The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust unless she directs them to transfer it to her. They must distribute the income to her in the meantime.
The older beneficiary’s interest in the capital has vested in possession, meaning the trustees must distribute her share as soon as possible. The younger beneficiary’s share has vested in interest only. The trustees must continue to hold it on trust unless she exercises her Saunders v Vautier rights and collapses the trust. As she is over 18 they must distribute the income.
A woman died six months ago leaving an estate of £60,000 to be divided equally between her three children at the age of 21. Her son is 24 and her two daughters are 19 and 14. Her son is about to receive his share of the estate. The trustees have received a request to advance capital to help set up the elder daughter’s new catering business. The woman’s will does not extend the trustees’ powers of advancement.
What is the maximum amount the trustees can apply in accordance with the request?
A. £0
B. £10,000
C. £20,000
D. £30,000
E. £40,000
C - £20,000
