Trustee Powers and Duties

Question 1

Administrative

Answer 1

Administrative powers
The primary duty of a trustee is to comply with the terms of the trust. While the property is held
on trust, their role is custodial in nature. They have an obligation to safeguard the trust property.
In many cases, this will mean that the trustees have an obligation to ensure that the trust fund
produces income and capital growth ie a duty to invest.
Trustees therefore have administrative powers which enable them to carry out this function. It is
common for trustees to have a power of investment, which is designed to produce income for the
trust. They will typically also have broader powers to buy and sell property (which they might
need to do for a range of reasons). They may also have the power to raise money by charging
existing trust property. Trustees commonly also have powers to delegate some of their functions,
including their investment powers.
Trust instruments will usually contain express administrative powers but, if not, there are default
powers in TA 2000. It is important to check whether these rules have been amended or excluded.
These rules are considered in detail later in this chapter.
Administrative powers relate to the management and protection of the trust property while it is
held on trust. They do not affect the beneficial interest arising from the trust.
1.2.2 Administrative duties
These administrative powers are typically curtailed by associated duties. Trustees have a duty to
exercise their administrative powers in accordance with a prescribed standard of care and skill.
They are also usually required to comply with specific rules when exercising their powers

Question 2

Dispositive

Answer 2

Dispositive duties
Dispositive duties relate to the distribution of the trust property to beneficiaries or other objects.
They therefore affect the beneficial interest arising from the trust.
As a basic rule, trustees are required to distribute the trust property in accordance with the terms
of the trust.
In some cases they are required to accumulate income and add it to the trust capital, to be paid
out along with the capital when the capital vests in possession.
In other cases, they are required to distribute income as it arises but continue to hold the trust
capital until it is time to distribute it to the beneficiary.
1.2.4 Dispositive powers
Trustees will also often have dispositive powers which give them the ability to distribute income or
capital. An example we have already come across is a power of appointment, which is more
flexible than a discretionary trust because the trustees do not have to exercise it at all.
Trustees also commonly have powers of maintenance (allowing them to apply trust income to
maintain minor beneficiaries) and/or powers of advancement (allowing them to pay some or all of
the trust capital before a beneficiary’s interest vests in possession). These rules are considered in
detail later in this chapter.

Question 3

General power of investment (s 3 TA 2000)

Answer 3

Section 3 TA 2000 sets out the general power of investment. Under this provision, a trustee may
make any kind of investment that they could make if they were absolutely entitled to the assets of
the trusts.
When exercising the general power of investment, trustees must:
* Consider the standard investment criteria set out in s 4 TA 2000
* Take advice in accordance with s 5 TA 2000
In carrying out these functions, trustees must act in accordance with the general duty of care set
out in s 1 TA 2000. This duty can be excluded, restricted or extended by the terms of the trust
instrument (Sch 1 TA 2000).
2.2.1 Standard investment criteria
The standard investment criteria are found in s 4 TA 2000. Trustees must consider the criteria
when deciding whether to make an investment (s4(1)) in the first place. Trustees also have a duty
to regularly review investments with reference to the standard investment criteria and decide
whether they ought to be varied. There are two key components to the criteria:
(a) Suitability (s 4(3)(a)): Trustees must consider the suitability of the proposed investments.
There are two key questions to consider:
- General suitability: Is the investment of a suitable kind?
- Specific suitability: Is the particular investment suitable?
(b) Diversification (s 4(3)(b)): Trustees must also consider the need for diversification of trust
investments. The extent to which diversification is needed will depend on the size and nature
of the particular trust.
Suitability
The question of suitability will be highly fact-specific. A suitable investment for one trust fund may
be entirely unsuitable for another. In considering this question, trustees must balance the duty to
preserve the trust assets against the need to produce appropriate growth on the investment. Key
issues that trustees will need to consider when assessing suitability include:
* The size of the trust fund
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* The period of time for which the trust is intended to subsist
* The respective rights of different beneficiaries
The trustees of a large, commercial trust fund which is intended to subsist for many years will
have a greater degree of freedom to invest in assets which are intended to produce long-term
growth, compared to the trustees of a small family trust which is only intended to last for a short
period of time.
If the family trust includes both life and remainder interests, the trustees will also need to ensure
that any investments produce income for the life tenant as well as capital growth for the
remainderman. Trustees must act even-handedly between beneficiaries.

A key case on investment is Cowan v Scargill [1985] Ch 70, which sets out the following principles:
(a) When considering the suitability of trust investments, the trustee obligation to act in the best
interests of beneficiaries means their best financial interests.
(b) The trustees must balance the interests of all beneficiaries (current and future).
(c) The personal views of the trustees are not relevant to this assessment. Trustees must exercise
their powers fairly and honestly, and not for any ulterior purpose.
(d) Although the ‘best interests’ of the beneficiaries could be construed more widely in some
cases, allowing trustees to take into account moral and ethical concerns (such as in cases
where all beneficiaries are adults of sound mind who share those concerns and would not
wish to benefit from an investment they consider immoral or unethical) this will be extremely
rare in practice.
(e) Although trustees are not bound to follow the advice they receive on investments, they cannot
ignore it simply because they personally disagree with it. They can only do so if they consider
that a reasonably prudent trustee would act in the same way.
Diversification
The requirement to consider diversifying the trust investments reflects the principles of modern
portfolio theory.
This involves taking an overall approach to the risk profile of the trust fund rather than considering
each investment on an individual basis. It allows trustees to invest in a mixture of high and low risk
investments, rather than investing exclusively in low risk (and therefore probably low yield)
investments. Trustees should also invest across a range of different types of assets, so that the
trust fund is not overly exposed to the risks of losses in a particular sector.
Again, the extent to which trustees can diversify the investments will depend on the size and
nature of the trust fund, with larger funds able to spread their investments across a wider range of
assets. Smaller trust funds may not be able to diversify in the same way but the trustees may
120 Trusts Law
consider investing in investment funds, which pool the assets of multiple investors and allow them
to obtain the benefits of diversification.
Qualifications to general principles
Although moral and ethical considerations will not generally be relevant to trustee decisions, this
does not stop trustees preferring ethical investments if they have a straightforward choice
between two investments of economical equivalence. As we have already seen, the trustees can
also take into account the ethical views of beneficiaries, where the beneficiaries are all of sound
mind and agree on the decision.
There is also more scope to take non-financial considerations into account in the case of
charitable trusts. In particular, charitable trustees may refrain from making investments which
might conflict with the aims of the charity or hamper its work. For example, trustees of a cancer
research charity would not be expected to invest in the tobacco industry, even if this was the most
profitable investment available. Trustees can also consider whether making ethically questionable
investments is likely to undermine the work of the charity (eg by deterring potential donors from
supporting the charity). Trustees would be required to balance the risk to the charity of financial
loss from not making the investment against the detriment and disadvantages to the charity of
making the investment.
2.2.2 Advice (s 5 TA 2000)
Under s 5 TA 2000 trustees are required to obtain and consider ‘proper advice’ before exercising
their powers of investment (s 5(1)) and when reviewing their investments (s 5(2)). The advice must
relate to how the power should be exercised, with reference to the standard investment criteria.
‘Proper advice’ is defined in s 5(4) as being provided by a person ‘who is reasonably believed by
the trustee to be qualified to give it’ by their ‘ability in and practical experience of financial and
other matters relating to the proposed investment’.
There is an exception set out in s 5(3) which provides that trustees need not seek advice if they
reasonably conclude that in all the circumstances it is unnecessary to do so. This will depend on
the circumstances but might, for example, include situations where the cost of the advice
outweighs the benefit of obtaining it or cases where the trustee has sufficient knowledge and
expertise to make the decision without advice.

Question 4

Statutory duty of care (s 1 TA 2000)

Answer 4

The statutory duty of care is found in s 1 TA 2000 and requires trustees to ‘exercise such care and
skill as is reasonable in the circumstances’.
* Section 1(1)(a) requires the assessment to take into account ‘any special knowledge or
experience’ that a trustee has or holds themselves out as having.
* Section 1(1)(b) applies to professional trustees and requires the assessment to take into account
the any ‘special knowledge or experience’ that it is reasonable to expect of a person acting in
that capacity.
In other words, the standard of care is always higher for professional trustees, because they are
being paid to provide a service.
It is also raised for lay trustees who may have been appointed on the basis of having (or
purporting to have) particular skills that would make them desirable trustees.
This is why it is important for individuals to think carefully about whether to accept the role of
trustee, as their actions will be assessed objectively.
The statutory duty of care does not apply to all acts of a trustee, but only to those set out in Sch
1 TA 2000.
Common law duty of care
There is also a common law duty of care which applies more widely. Broadly, it requires trustees
to exercise the standard of diligence and care expected of an ordinary prudent businessperson.
Case law on investment predating the TA 2000 applies the common law duty of care. It is
generally considered that there is no difference between the two standards (with the TA 2000
11: Trustee powers and duties 121
codifying the duty of care in certain circumstances). Earlier case law therefore remains useful in
assessing whether a trustee has complied with the statutory duty of care.

Question 5

Acquisition of land (s 8 TA 2000)

Answer 5

Section 8 TA 2000: Trustees have a statutory power to acquire freehold or leasehold land in the UK
(but not overseas). This power may be exercised for investment purposes but also more widely
(including for occupation by a beneficiary).
If the land is acquired for investment purposes, the trustees must consider the standard
investment criteria and take advice in accordance with ss 4 and 5 TA 2000 respectively.
The statutory duty of care applies to all trustee powers to acquire land, whether they arise under
s 8 or otherwise, and whether the land is acquired for investment or other purposes.

Question 6

Delegation (s 11 TA 2000)

Answer 6

Section 11 TA 2000 provides trustees with broad powers of delegation. Although there are some
functions which trustees cannot delegate (such as their distributive obligations) they are
permitted to delegate their powers of investment and powers to acquire land. There are
restrictions on the persons to whom powers may be delegated (s 12). Crucially, trustees cannot
delegate decisions to beneficiaries (even if they are also trustees).
Trustees cannot delegate their investment powers except by an agreement evidenced in writing (s
15 TA 2000). This agreement should include a term ensuring compliance with a written ‘policy
statement’ to be prepared by the trustees. The ‘policy statement’ should give guidance as to how
the agent should exercise their functions ensuring they are in line with the best interests of the
beneficiaries.
The agent to whom the function is delegated is bound by any restrictions on the exercise of its
investment powers in the same way the trustee would be (s 13(1) TA 2000).
There are two primary reasons why a trustee might wish to delegate their functions:
(a) The trustee may be incapable of discharging their duties for a limited period.
(b) The trustee lacks the expertise to discharge the particular responsibility and prefers to have
an expert do this.
Trustees are required to comply with the statutory duty of care both with respect to selecting
agents and entering into agreements with those agents.
As such the trustees should ensure:
* An appropriate agent is selected for the function
* The agreement complies with their requirements under statute
* The arrangement is reviewed regularly
If trustees comply with their duties when exercising the power of delegation, they will not be
vicariously liable for any loss caused by the agent acting negligently.

Question 7

Dispositive powers and duties

Answer 7

• Trustees have a duty to distribute trust property in accordance with the trust terms.
• Trustees will always have an ultimate obligation to distribute the capital and bring the trust to
  an end.
• When the duty to distribute capital arises, the trustees must do as soon as possible.
• Trustees must also distribute the capital as soon as possible if directed to do so by
  beneficiaries in exercise of their Saunders v Vautier rights.
• Trustees will sometimes have an obligation to accumulate the trust income and sometimes
  have an obligation to distribute the income as it arises.
• If the trustees have an obligation to distribute the income as it arises, they must do so as soon
  as possible.
• If the trustees have an obligation to accumulate the income, they must add it to the capital
  and distribute it with the capital when the obligation to do so arises.
• The trustees of discretionary trusts have a dispositive duty to exercise their discretion and
  distribute the trust property within a reasonable time.

Question 8

Power of advancement

Answer 8

When is the statutory power available?
The statutory power of advancement:
* May be used by both adult and minor beneficiaries.
* Applies to both vested and contingent interests.
* Can be modified or excluded by the trust instrument: s 69(2) TA 1925.
4.2.2 How much capital can be paid?
The trustees may use the power of advancement to pay up to 100% of a beneficiary’s prospective
entitlement to the capital (even if they have a contingent interest).
The power of advancement can therefore be used to give a beneficiary their capital interest even if
they do not have Saunders v Vautier rights. However, unlike where a beneficiary is exercising their
Saunders v Vautier rights, the trustees have no obligation to distribute capital if a request is made
to use their power of advancement. The trustees have a dispositive discretion, not a duty.
Note that if a trust was created before 1 October 2014 trustees can only advance up to a
maximum of 50% of the beneficiary’s prospective share of the capital. For the purposes of this
module, you will only be tested on trusts which are created on or after 1 October 2014.
4.2.3 Meaning of ‘advancement’
A key issue for trustees when deciding whether to exercise the power of advancement is whether
this action will result in the advancement or benefit of the beneficiary. Over time the case law in
this area has developed to recognise a broader meaning of advancement than its previous
limitations to the areas of education, career and marriage.
Advancement has now been recognised to provide for an immediate financial benefit for a
beneficiary, such as to avoid an inheritance tax liability, Pilkington v Inland Revenue
Commissioners [1964] AC 612. In this case Viscount Radcliffe defined advancement as ‘any use of
the money which will improve the material situation of the beneficiary’.
Subsequent case law indicates that the advancement of the beneficiary can include the
improvement of the beneficiary’s moral well-being by giving the money for charitable purposes,
but only to the extent that the beneficiary would have otherwise used their own resources for such
purposes (see Re Clore’s Settlement Trusts [1966] 1 WLR 955 and X v A [2006] 1 WLR 741).
Trustee duties Trustee powers
Income Accumulate until A reaches
18.
May use statutory power of
maintenance for driving
lessons.
Capital Hold on trust until A reaches
21 (or dies if earlier).
May use statutory power of
advancement to buy car.
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4.2.4 To whom should the capital be paid?
If the beneficiary is an adult, the trustees can pay it directly to them but must ensure that it has
been used for the requested purpose. The trustees could instead use the capital to purchase an
asset or services on the beneficiary’s behalf.
If the beneficiary is a minor, the trustees should not pay the capital directly to them as a minor
cannot give good receipt. It should be paid either to the child’s parent or legal guardian or directly
to the provider of the goods or services that are being acquired on behalf of the beneficiary (eg
the trustees could use capital to purchase a car to be used by the beneficiary).
4.2.5 Ensuring capital is used for correct purpose
Trustees have a duty following the exercise of the power of advancement to ensure that the
money is being used for the purposes that it was provided. Should the beneficiary (or their parent
or guardian) be found to be spending the money on something else, the trustees should not pay
any further money to them. However, they may instead pay money directly to a third party for
the advancement of the beneficiary instead.
Key case: Re Pauling’s Settlement Trusts [1964] Ch 303
In Re Pauling’s Settlement Trusts [1964] Ch 303 the trust was managed by a bank with a power to
advance property to the children of a marriage. The bank made a number of advancements to
the children. These advancements were used for the benefit of the children’s parents rather than
their own benefit, including the purchase of a house in the parents’ names. It was found that the
trustees were obliged to check that the money had been applied for the purpose that it was
advanced and not leave the recipients free to spend the money as they wished. The bank’s failure
to do this was a breach of trust.
4.2.6 Consent of beneficiary with prior interest
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 (but note that the consent
of a beneficiary with a subsequent interest, such as the recipient of a gift-over, is not required).
For example, if a trustee holds property on trust for A for life, remainder to B, the trustees can only
exercise the power of advancement in favour of B with A’s written consent. This is because
providing B with their capital early will clearly prejudice A.
* In the most extreme case, if B requests 100% of their capital, A’s life interest will be
extinguished.
* Even if B requests less than 100% of their capital, this will reduce the value of A’s interest as
there will be smaller capital fund from which to generate A’s income.
Consent can only be provided by beneficiaries who are of full age and sound mind.
Bringing the payment into account
The trustees may use the power of advancement to pay up to 100% of a beneficiary’s beneficial
entitlement.
Any such payment must be brought into account when the beneficiary becomes absolutely
entitled. In other words, 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 have a choice between treating the share advanced as a proportionate share of the
overall trust value or its strict monetary value. The choice they make could have significant
consequences for both the beneficiary who receives the advancement and all the other
beneficiaries. This is best illustrated by way of example.

Question 9

Statutory power of maintenance

Answer 9

Adult beneficiaries with vested interests in capital will usually have a right to receive the trust
income as it arises (unless someone has a prior interest or the trust instrument contains a duty to
accumulate the income).
Minor beneficiaries do not have this same entitlement. The trustees must accumulate the income
until the beneficiary reaches the age of 18. Accumulated income is added to the capital and
distributed at the same time as the capital.
However, sometimes the beneficiaries may want to access the income before they reach the age
of 18. Under s 31(1) TA 1925 the trustees have a statutory power of maintenance. This allows them
to pay trust income (including any previously accumulated income) for the ‘maintenance,
education or benefit’ of minor beneficiaries.
4.3.1 When is the statutory power available?
The statutory power of maintenance can be used for the benefit of minor beneficiaries with vested
or contingent interests in the capital (as long as no other beneficiary has a prior interest in the
income).
It is also important to note that the statutory power of maintenance is a default power. The
provisions of s 31 TA 1925 may be varied or excluded completely by a trust instrument. It is
therefore important to check the trust terms to determine the actual powers of the trustees.
If the trust instrument does not contain any express powers of maintenance (and does not exclude
the statutory power of maintenance) the statutory power will be available.

2 Maintenance, education and benefit
Section 31 TA 1925 provides that the power can be used for the ‘maintenance, education or
benefit’ of the minor beneficiary.
This gives the trustees a very broad discretion in respect of the trust income. Common uses might
include:
* School fees or other training
* Medical bills
* Food, clothing and rent
* Leisure and holidays
This is a non-exhaustive list.
Note that where a trust was created before 1 October 2014, the statutory power of maintenance is
more limited. The trustees:
* Can only apply such income as is ‘reasonable in the circumstances’;
* Must take into account all the circumstances, including any other trust income available for
the same purposes (which must be applied proportionately).
In practice, this power was commonly amended in the trust instrument.
For the purposes of this module, you will only be tested on trusts which are created on or after 1
October 2014.
11: Trustee powers and duties 131
4.3.3 To whom should the income be paid?
The trustees should not pay the income directly to a minor beneficiary as a minor cannot give
good receipt. It should be paid either to the child’s parent or legal guardian or directly to the
provider of the goods or services that are being acquired on behalf of the beneficiary (eg the
trustees could pay school fees directly to the school).
4.3.4 Exercise of the power
Although the power of maintenance gives the trustees a broad discretion to pay income for the
benefit of a minor beneficiary, the following points must be noted:
(a) The power of maintenance is a fiduciary power. The trustees must consciously consider the
exercise of the power and, if they choose to exercise it, must act in good faith in the interests
of the beneficiary.
(b) The income must be used for the primary benefit of the minor beneficiary, but it does not
matter that it may indirectly benefit their parent or guardian (eg by reducing a cost that they
would otherwise incur).
(c) It is an improper exercise of the power to unquestioningly pay it to the minor’s parent or
guardian, assuming that they will use it for the minor’s benefit. See eg Wilson v Turner (1883)
22 Ch. D. 521.
4.3.5 Current and accumulated income
The power of maintenance can be used in respect of both current income and accumulated
income. So if trustees decide to exercise the power of maintenance, they are not restricted to
using income that is generated by the trust fund after they make the decision to exercise the
power of maintenance. They can also use any income that they have previously accumulated.
Example: Current and accumulated income
Trustees have been managing a trust for a minor beneficiary for five years. They have never
previously used the power of maintenance and have accumulated income of around £25,000 to
date. The trust fund currently generates income of around £5,000 per year.
The beneficiary is about to start school and the trustees want to exercise the power of
maintenance to pay their annual school fees of £10,000. The current income would not be enough
to pay the fees but the trustees can also use the accumulated income.
4.3.6 Good practice before beneficiary turns 18
Because the power of maintenance only applies during the minority of a beneficiary, it is good
practice for trustees to consider exercising the power shortly before the beneficiary turns 18,
particularly if the beneficiary has a contingent interest in the trust capital.
If it is not exercised at this time, all accumulated income will become part of the trust capital and
the beneficiary will not be able to access it unless and until their interest in the capital vests.

Question 10

No-conflict rule - self-dealing

Answer 10

Conflict: Self-dealing
The purpose of the no conflict rule is to ensure that the fiduciary is thinking only of their principal.
If the fiduciary is tempted to act in their own interests, they may not be doing the best for their
principal. Perhaps the best example of a conflict in the case of a trust relationship is the situation
known as ‘self-dealing’ (a term coined in Tito v Waddell (No 2) [1977] Ch 106).
Self-dealing involves a trustee purchasing assets from the trust or selling assets to the trust. There
is a clear conflict as a buyer will always be seeking the lowest price and a seller will always be
seeking the highest price. Therefore a trustee who holds the legal title is prevented from selling to
themselves and for the same reason is prevented from buying trust property (subject to anything
in the trust instrument authorising such a transaction). If the trustee does enter into an
unauthorised self-dealing transaction, the transaction will be voidable, meaning the beneficiaries
can seek to rescind it (ie unwind the sale).
Could a trustee get around this rule by incorporating a company and then selling trust property
to that company?
The answer to the question above is clearly ‘no’. There remains an obvious conflict of interest in a
situation where the trustee uses a wholly owned company to transact with the trust. This
transaction will be voidable in the same way as if the trustee had personally entered into the
transaction.
What about a situation where a trustee buys from or sells to a company in which the trustee
holds shares but is not the sole shareholder?
This situation is more nuanced and will require a more careful look at the facts to determine the
substance of the transaction rather than its form. Broadly, the position is likely depend upon
whether the trustee has a controlling shareholding in the company. If so, the transaction may still
be treated as self-dealing and the beneficiaries could seek rescission.
If the trustee does not have control of the company, the transaction is unlikely to be treated as
self-dealing but it will still clearly involve a breach of the no-conflict rule (because the trustee has
a personal interest in the company).

Question 11

Conflict: Fair-dealing

Answer 11

There is another, related rule (also recognised in Tito v Waddell (No 2)) known as the ‘fair-dealing’
rule. In this case, the transaction does not involve the trustee buying or selling trust property.
Instead, it involves the trustee directly transacting with the beneficiary to buy their beneficial
interest under the trust.
The rules here are not as stringent as those involving self-dealing, because the beneficiary is
personally involved in the transaction. However, because the relationship is fiduciary in nature,
and the trustee is likely to be in a stronger bargaining position, the trustee must be able to
demonstrate that the transaction was conducted fairly.
As is the case with self-dealing, the transaction is voidable unless the trustee can demonstrate
that they made full disclosure to the beneficiary, acted honestly and fairly and did not take
advantage of their beneficiary.

Question 12

Conflict: Consent and consequences

Answer 12

In cases involving a potential conflict, the fiduciaries can proceed if the transaction is authorised
by the instrument creating the fiduciary relationship (eg a settlor may have authorised particular
types of conflict in a trust deed). If the conflict is unauthorised, the fiduciary must obtain the fully
informed consent of their principals. Without authorisation or consent, the fiduciaries will commit
a breach of fiduciary duty.
If there is a breach, the consequences depend on the nature of the breach:
* If the breach causes a loss to the principal, they can sue the fiduciary personally for breach of
fiduciary duty. The fiduciary would be liable to compensate the principal.
* As we have already seen, breach of the self-dealing rule and fair-dealing rules result in the
transaction being voidable. The beneficiaries may seek rescission.
* If the breach results in a profit to the principal, they may not require a remedy although they
may wish to end the fiduciary relationship. If it also results in a profit to the fiduciary, the
principal can recover the profit from the fiduciary.

Question 13

No-profit rule

Answer 13

As we have already seen, the essence of the role of the fiduciary is the requirement to act with
single-minded loyalty towards the principal. A fiduciary must not put themselves in a position
where they might be tempted to act in their own interests. If they do act in their own interests, and
profit from doing so, there are very strict rules which apply to prevent them from retaining that
profit.
There are a number of broad ways in which a fiduciary might breach the no-profit rule:
(a) Directly using the property of their principal to make a personal profit
(b) Indirectly profiting from their role as a fiduciary
(c) Exploiting an opportunity which has come to them as a result of their fiduciary position
(d) Receiving a bribe or secret commission to influence the way in which they perform their role
as fiduciary

• A fiduciary relationship is typified by an obligation of single-minded loyalty to the principal.
• There is no set list of fiduciary relationships. They are determined on the facts.
• Fiduciary duties are proscriptive in nature. They determine what a fiduciary cannot do.
• The no-conflict rule prevents a fiduciary putting themselves in a position where their personal
  interest conflicts with their duties to their principal.
• Fiduciaries must also avoid a conflict of duties to different principals.
• Self-dealing is a specific type of conflict involving a trustee personally buying from or selling to
  the trust. Such a transaction is voidable. Fair-dealing involves the trustee buying the
  beneficiary’s interest. It is voidable unless the trustee can prove they acted honestly and fairly,
  having made full disclosure to the beneficiary.
• Fiduciaries must also avoid making an unauthorised profit from their position, whether directly
  or indirectly. If they breach the no-profit rule, their profit will be stripped from them.
  Beneficiaries can elect for an account or profits or a constructive trust.

Question 14

Indirect profit

Answer 14

A fiduciary must also avoid making an unauthorised personal profit which arises from the
performance of their role. A good example is the situation where a trust holds shares in a
company and, in order to better monitor that company, a trustee is appointed as a director.
In such cases, the directorship may come with an entitlement to remuneration. Because the
trustee takes on the directorship in their capacity as trustee, they receive the remuneration in this
capacity too and must therefore pay it into the trust fund instead of accepting it personally (Re
Macadam [1946] Ch 73).
Note that this rule will only apply where the trustee has obtained the directorship as a result of
being a trustee. It does not apply if they are independently appointed as director (eg if they
became a director before taking on the trustee role or if they could have been appointed as
director even without the votes attached to the company shares).
The rule is also subject to anything in the trust instrument which allows the trustee to retain the
remuneration (Re Llewellin’s Will Trusts [1949] Ch 225). Alternatively, the trustee could seek the
fully informed consent of all the beneficiaries.

Question 15

Remedies for breach of no-profit rule

Answer 15

Breach of the no-profit rule will result in the fiduciary being stripped of their profits. Although
earlier case law indicated that the available claim would depend on the nature of the breach, it is
now clear from FHR v Cedar Capital that a beneficiary may elect between the following remedies
in all cases involving breach of the no-profit rule:
(a) An account of profits: This is a personal claim which requires the trustee to pay the principal
an amount equivalent to the profit they have made.
(b) A constructive trust: A principal may wish to argue that the profit made by the fiduciary is
held on constructive trust for the principal. There are two primary reasons why the principal
may want a proprietary claim:
- A constructive trust provides protection against the insolvency of the fiduciary. The
principal is able to identify an asset over which they have rights which rank above other
creditors.
- A constructive trust also allows the principal to trace into any assets acquired with the
profit. (Attorney General for Hong Kong v Reid provides a good example of this.)

Question 16

Who has breached the trust?

Answer 16

Liability for breach of trust before appointment as trustee
A trustee will not be liable for a breach of trust which took place before the trustee was appointed
(see Re Strahan (1856) 8 De GM & G 291). On appointment, if a trustee discovers that a breach of
trust occurred, they should commence proceedings in order to recover from the former trustee.
Failure to take such action may result in the new trustee becoming liable for their own breach of
trust.
2.3.3 Liability for breach of trust after retirement
A trustee will continue to be liable for any breaches committed during the time that they acted as
a trustee, even after they have retired.
A trustee will only be liable for breaches of trust that occur after they retire in two cases:
(a) Where the trustee retired to facilitate the breach; or
(b) The trustee parts with trust property in retiring without due regard, so loss is suffered when
the property is transferred to the new trustees (see Head v Gould [1989] 2 Ch 250, 272)

Question 17

Offsetting losses against gains

Answer 17

In general, trustees are not permitted to set off the losses caused by a breach of trust against
profits they have made on other investments or transactions.
Trustees are held to the same high standard every time they exercise their functions, so it is no
excuse to a breach of trust that they have performed their duties better on other occasions. They
are not assessed on their average performance.
However, it is possible to offset losses against profits where they arise from the same transaction
or course of dealing.
This is well illustrated by Bartlett v Barclays Bank Trust Co Limited [1980] Ch 515. In Bartlett, the
trustees had a majority shareholding in a company but failed to properly supervise it. The
company made two investments in property, one of which was profitable but the other made a
large loss. The trustees could offset the profit against the loss as they arose from the same breach
(ie the failure to monitor the company’s speculative investments).

Question 18

Defences

Answer 18

Exemption clauses
Trust instruments will often contain exemption clauses that have the effect of limiting or excluding
trustee liability for particular sorts of breach. The duty still exists but the trustees will be protected
from personal liability if they breach it.
An exemption clause can exclude liability for any sort of breach other than a fraudulent breach. A
trustee cannot rely on an exemption clause if they have acted dishonestly (Armitage v Nurse
[1998] Ch 241).
4.2 Instigation, consent and acquiescence
Trustees will not be liable for a breach of trust or fiduciary duty if they received the fully informed
consent of all the beneficiaries. If only some of the beneficiaries have consented, the trustees will
not be able to fully escape liability but will have a partial defence against those beneficiaries.
Trustees will also have a defence against beneficiaries who instigate or request the breach. Again,
this will only provide a partial defence if there are other beneficiaries who did not.
Finally, even if the beneficiaries did not consent to the breach before it was carried out, they may
subsequently affirm the action of the trustees. A trustee who has committed a breach may
therefore have a defence of acquiescence against beneficiaries who have indicated (by their
words or actions) after a breach that they consent to the action taken.
4.2.1 Impounding a beneficiary’s interest
Where a beneficiary instigates or requests a breach, the trustees will only have a defence against
that particular beneficiary. However they may also be able to impound the beneficiary’s interest.
This means using some or all of the instigating beneficiary’s share of the trust fund to indemnify
the trustees against a claim by the other beneficiaries.
13: Liability of trustees 147
The court has discretion to impound a beneficiary’s interest in such circumstances under s 62 TA
1925. There is no requirement to show that the instigating beneficiary benefitted from the breach.
This codifies an existing common law discretion.
The statutory power to impound beneficial interests also applies to cases where the beneficiary
has consented to the breach but only where the consent was provided in writing. Again, there is
no requirement for the beneficiary to benefit from the breach.
The courts also have a common law discretion to impound a beneficial interest in cases of
consent. The common law discretion does not require the consent to be in writing but does
require the beneficiary to have benefitted from the breach.

Question 19

Delay

Answer 19

1 Statutory limitation period
As with other civil law claims (such as claims in tort or for breach of contract) there are limitation
periods applicable to claims for breach of trust.
Under s 21(3) Limitation Act 1980 the limitation period for bringing a claim for breach of trust is six
years from the breach. However, this only applies to claims by beneficiaries with interests vested
in possession. For beneficiaries with future interests, the limitation period only starts to run when
their interest vests in possession.
The limitation period does not apply to fraudulent breaches or proprietary claims against the
trustee (ie claims to recover trust property or its traceable proceeds from trustee).
If a trustee is also a beneficiary, and receives an unfairly large distribution from the trust, only the
excess can be recovered after the normal six-year period (unless the trustee acted dishonestly or
unreasonably in making the distribution, in which case it may be possible to make a claim for the
full amount of the payment).
4.3.2 Equitable defence of laches
In cases where the statutory limitation period has not yet expired, trustees may still be able to rely
on an equitable doctrine known as ‘laches’ to argue that a beneficiary has waited too long to
bring a claim.
Whether a defence of laches will be successful is highly fact-specific. It requires the trustees to
demonstrate that the beneficiary knew of a breach but has delayed their claim unacceptably,
making it unconscionable for the beneficiary to assert their beneficial interest.

Question 20

Section 61 TA 1925

Answer 20

If none of the protections above apply, trustees may seek to obtain relief under s 61 TA 1925. This
gives the court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly
and reasonably, and ought fairly to be excused for the breach of trust’. The trustees bear the
burden of establishing the three requirements ie:
(a) Honesty
(b) Reasonableness
(c) They ought ‘fairly’ to be excused
The court then has a wide discretion to consider all the circumstances of the case. The court will
not use s 61 lightly, as it may deny the beneficiaries a remedy (although note that it can be used
to excuse individual trustees while others remain liable).
4.4.1 Cases where s 61 TA 1925 may apply
The most likely use for s 61 is in cases where a trustee has inadvertently acted outside their
powers, for example by making an unauthorised investment or by distributing to the wrong
person. It is more likely to be successful in cases involving lay trustees (rather than professionals)
because although a professional trustee may easily establish that they acted honestly, it will be
harder to prove that they have acted reasonably or that it is fair to grant them relief (thereby
prejudicing the beneficiaries).
148 Trusts Law
In particular, if a lay trustee has sought advice before taking action they may be able to rely on s
61. Taking advice will not necessarily guarantee relief under s 61, but it will clearly be an important
consideration. See, for example, Re Evans [1999] 2 All E.R. 777 where an individual acted as the
executor of her father’s estate. Believing a missing beneficiary (her brother) to be dead, she
sought legal advice and took out missing beneficiary insurance before distributing the estate. It
transpired that her brother was alive and the insurance policy did not fully cover the loss. In the
circumstances, the court agreed that it was appropriate to grant her relief under s 61 TA 1925.

Question 21

Apportionment of liability

Answer 21

Civil Liability Contribution Act 1978
A claim can be made under s 1(1) where two or more parties are liable for the same damage. The
court has a discretion to require one party to make a ‘just and equitable’ contribution to another
(s 2(1)). While the court will presume equal responsibility they may depart from this presumption
where the facts indicate that it would be fair to do so.
Unequal contributions will reflect differing levels of culpability for the loss. The trustees may, for
example, have delegated a particular function to a particular trustee. While they all remain
responsible for ensuring that function is properly executed, the trustee with responsibility may be
seen to be more at fault for any resulting breach.
This would be particularly the case if a higher standard of care applied to that trustee because
they had particular expertise or were acting as a professional trustee alongside lay trustees.
5.1.1 Full indemnity
In very rare cases, the court may even award a contribution amounting to a full indemnity (s 2(2)).
This is likely only in cases where:
(a) A particular trustee is morally culpable for the breach, such as cases where the trustee has
misappropriated trust property for their own benefit.
(b) A trustee is also a beneficiary.
(c) A trustee acts as solicitor to the trust and the breach is committed in reliance on their advice.
The court will not necessarily grant an indemnity in such circumstances, as demonstrated by
comparing the following cases involving solicitor trustees.
5.1.2 Indemnity case law: Solicitor trustees
In Re Partington (1887) 57 LT 654 a testamentary trust had two trustees. One was a solicitor and
the other was the testator’s widow.
The solicitor took sole responsibility for the administration, failed to properly inform the widow and
negligently made an unauthorised investment. The court awarded a full indemnity on the basis
that it was reasonable for the widow to have relied on the advice.
In contrast, no indemnity was awarded in Head v Gould [1898] 2 Ch, where the lay trustee took an
active role in the breach of trust. The solicitor trustee did not have a controlling influence over their
co-trustee so an indemnity was inappropriate.
5.1.3 Contributions between trustees and third parties
Trustees who are liable for breach of trust, and find themselves compensating the beneficiaries for
the loss caused by the breach, may also seek a contribution from other persons who are liable in
respect of the same loss.
This might therefore include professional advisers who provided negligent advice which led to the
breach.
13: Liability of trustees 149
It might also include third parties who have become involved in the breach of trust in some way,
such as strangers to the trust (especially those who benefit from the breach such as knowing
recipients). Liability of strangers is covered in detail in the chapter on the ‘Liability of strangers’.
On the other hand, a trustee may also find themselves defending proceedings under the Act in
cases where the beneficiaries have recovered from a third party (perhaps an accessory or
knowing recipient) who then sues the trustee for a contribution.

Question 22

Protecting trustees from the outset

Answer 22

Ouster clause
If the trust is created in a formal document such as a trust deed or will, the trustees may be
involved in the drafting of that document. This is very common in cases involving professional
trustees.
In some cases, they may include an ouster clause, which entirely removes a duty that they would
otherwise have. Not all trustee duties can be ousted (because this would render the trust
meaningless) so they should be used sparingly. A common example in practice is the removal of
the duties that ordinarily arise when a trust holds a majority shareholding in a company (under
the Bartlett v Barclays Bank line of case law).
2.2 Exemption clause
It is also possible to exclude or limit liability for breach of trust by way of an exemption clause.
Protection of trustees 14
This is different to an ouster clause because the duty still exists but the trustees will be protected
from personal liability if they breach it.
Because the duty still exists, it may still be possible for the beneficiaries to pursue action in respect
of the breach (eg by making a proprietary claim or a personal claim against a stranger) but the
trustees will be protected against claims.
An exemption clause cannot exclude or limit a trustee’s liability for fraudulent breaches of trust.
2.3 Trustee liability insurance
Trustees may also choose to take out insurance against personal liability for breach of trust. Such
insurance is commonly known as ‘trustee liability insurance’ or ‘trustee indemnity insurance’.
Like any insurance policy, it will contain restrictions on when the policy will pay out. Similarly to
exclusion clauses, insurance can protect trustees against liability for negligence but not
fraudulent breaches of trust.
It will often be possible to have the insurance premiums paid out of the trust fund as an expense
of the trust.

Question 23

Protecting trustees during administration

Answer 23

1 Uncertainty as to powers or duties
There may be times when trustees are unsure of their powers or duties. For example, the provisions
of the trust instrument may be difficult to interpret, leaving them unclear as to whether they are
permitted or required to take a particular course of action.
3.1.1 Legal advice on interpretation of trust terms
Where trustees seek legal advice on the interpretation of the trust instrument, they may simply
choose to rely on that advice and act accordingly. However, this will not necessarily prevent the
trustees from liability for breach of trust if they take action on the basis of the legal advice which
turns out to be incorrect (ie the court takes a different view).
Good advice will therefore acknowledge how confident the lawyer is that their interpretation is
correct and advise the trustees as to further steps they can take to protect themselves. These
include:
(a) Seeking court directions
(b) Applying to the High Court under s 48 Administration of Justice Act 1985 (‘AJA 1985’) to rely
on Counsel’s opinion
(c) Surrendering their discretion to the court
(d) Obtaining beneficiary consent
3.1.2 Seeking court directions
If the trustees are unsure of their obligations or wish to ensure that their plans for distributing the
trust property will not expose them to a claim for breach of trust, the safest thing to do is seek
directions from the court.
There are many reasons why a trustee may want to take this action. For example, the wording of
the trust instrument may be ambiguous, leaving the trustees unsure of the scope of their duties or
powers. Similarly, they may be concerned about how to interpret a piece of legislation or apply
case law in the context of the trust.
To protect themselves from liability for breach of trust, the trustees can apply to the court for
guidance on the matter. Trustees who act in accordance with the directions of the court will not
be liable even if there is a subsequent claim from a beneficiary

Question 24

Section 48 AJA 1985 application

Answer 24

Although seeking court directions is the safest option when there is uncertainty, it is also an
expensive option and trustees need to weigh up the cost of doing so against the risk of being
successfully sued for breach of trust if they do not.
152 Trusts Law
In some cases, there is a cheaper option available which still involves applying to court but
without the expense of a full court hearing. In cases where there is a question about the
construction of the terms of a will or trust, s 48 AJA 1985 allows the trustees to take the following
actions:
Step 1 Seek a written legal opinion from a person satisfying s 71 Courts and Legal Services Act
1990 (usually a barrister or solicitor with 10 years of experience); and
Step 2 Apply for High Court authorisation to rely on that legal opinion.
The High Court will grant an order without hearing arguments unless there is a dispute which
would make it inappropriate. This course of action is therefore most useful in cases where there is
no disagreement between the trustees or beneficiaries but where the trustees simply want clarity
as to the interpretation of the trust instrument.

Question 25

Surrendering discretion to the court

Answer 25

Another reason that trustees may require input from the court is if there is a dispute between the
trustees about how they should exercise their powers. For example, the trustees of a discretionary
trust may be in disagreement as to how to exercise their discretion.
In cases where the trustees are deadlocked, or where they are precluded from acting due to a
conflict of interest, they may surrender their discretion to the court. Unlike simply seeking
directions from the court (which provide guidance as to a lawful course of action) this course of
action involves the court making the decision for them.
This is an exceptional course of action and can only be sought in relation to a specific problem
which requires addressing. The trustees cannot simply give up all their powers and obligations
and leave the court to administer the trust on an ongoing basis.

Question 26

Seeking beneficiary consent

Answer 26

If trustees are unsure of their powers and duties, or want to do something which they know would
be a breach of trust or fiduciary duty, one option that may be available to them is to seek the
fully informed consent of the beneficiaries.
This will only be an option if all the beneficiaries are known, locatable and are over 18 (and of
sound mind). In such circumstances, rather than going to the expense of seeking court directions,
the trustees may instead request the consent of the beneficiaries to the action they intend to take.
The trustees will only obtain full protection if they obtain fully informed consent from all the
beneficiaries:
* It is essential that the beneficiaries are given full information to enable them to provide
consent. If the trustees withhold important information about their intended actions, they will
not be able to rely on the consent obtained.
* If consent is only obtained from some beneficiaries, the trustees will have a partial defence to
breach of trust against claims by those beneficiaries but not against the other beneficiaries.

Question 27

Unidentified or missing beneficiaries

Answer 27

When it comes to distributing a trust fund, trustees can sometimes run into difficulties because
they either cannot identify or locate beneficiaries. Consider the example of trustees who hold a
fund on trust for the settlor’s wife during her lifetime, with the remainder to be distributed equally
between such of the settlor’s children and grandchildren who are living at the wife’s death.
There is no problem with certainty of objects here. But imagine that the wife lives for a further 30
years. How easy will it be for the trustees to identify and locate all of the remainder beneficiaries?
If they aren’t sure they have identified and located all of them, how can they distribute equally
between them?
If the trustees get it wrong, and only distribute between the beneficiaries they can identify and
locate, they will be liable to any unknown or missing beneficiaries who later come forward and
make a claim. This also exposes the other beneficiaries to a potential claim because they have
received more than their rightful share of the trust fund.
If trustees are unable to identify or locate beneficiaries there are a number of options available to
them:
14: Protection of trustees 153
(a) Seeking a Benjamin order, allowing distribution on the assumption that a missing beneficiary
has died
(b) Publishing a notice under s 27 TA 1925 putting unknown beneficiaries on notice of their
intention to distribute the fund between known beneficiaries
(c) Retaining a fund to satisfy the claims of missing or unknown beneficiaries
(d) Paying money into court to satisfy the claims of missing beneficiaries
(e) Taking out insurance against wrongful distribution
(f) Seeking an indemnity from the beneficiaries to whom they do distribute

Question 28

Benjamin orders: Missing beneficiaries

Answer 28

A common type of order sought from the court by trustees is known a Benjamin order. This is a
court order permitting the trustees to distribute on the basis of a particular assumption, which will
depend on the circumstances of the particular case.
This is useful in the situation where the trustees know of the existence of a beneficiary but are
unable to locate them. A Benjamin order can be granted allowing the trustees to distribute the
trust fund on the basis that the missing beneficiary is presumed dead.
Before an order is awarded the trustees must make full enquiries to attempt to establish the true
position and demonstrate there is no reasonable prospect of knowing the true position without
disproportionate expense.
The order relieves the trustees from personal liability if they distribute the trust property but the
assumption turns out to be incorrect.
However, a disappointed beneficiary or creditor can make a claim against other beneficiaries to
whom the property had been distributed.

Question 29

Section 27 TA 1925 notice: Unknown beneficiaries

Answer 29

In some cases, the trustees may be unsure as to whether they have properly identified all the
beneficiaries. For example, the trustees may have an obligation to divide trust property equally
between a conceptually certain class of individuals (eg the nieces and nephews of the settlor) but
be unsure who all those people are.
To prevent liability to unidentified beneficiaries, the trustees may publish a notice of their intention
to distribute to known beneficiaries two months after the advertisement. This puts unknown
beneficiaries on notice that they must identify themselves to the trustees. After the two months’
notice period, the trustees may distribute to known beneficiaries and will have no personal liability
to the unknown beneficiaries.
The notice must be placed in (i) the London Gazette, (ii) a newspaper circulating in the area in
which any land held on trust is situated, and (iii) any other newspaper which is appropriate (for
154 Trusts Law
example, if the deceased owned a business the relevant trade paper may be an appropriate place
to advertise).
Rights of beneficiaries coming forwards later
The options above will have serious implications for a beneficiary who comes forward later. As the
trustee will be protected against any personal claims from such a beneficiary, they will not have a
right to recover personally from the trustees.
Where the property has been distributed the only option for a beneficiary will be a proprietary or
personal claim against the recipient of the property. However, if the property has not been fully
distributed, it will still be possible for the beneficiary to claim any undistributed property from the
trustee.

Question 30

Retained funds

Answer 30

Another option is for the trustees to retain a fund setting aside trust assets in order to be able to
discharge liabilities if missing beneficiaries come forward after distribution. This is useful in cases
where the trustees are able to identify all beneficiaries but cannot locate all of them. It allows
them to distribute to the beneficiaries they can find, while still having the funds to satisfy the
claims of the other beneficiaries if they come forward later. However, it does mean that the
trustees may be required to hold the retained fund for a long time, meaning ongoing
administrative duties.
Retaining a fund is also an option in cases where the trustees remain unsure as to whether they
have identified all potential beneficiaries. They may choose to distribute to the known
beneficiaries but hold some money back in case other beneficiaries come forward in future.
This is quite a risky strategy in cases of unknown beneficiaries as it will be difficult for the trustees
to quantify the respective interests of the known and unknown beneficiaries, and could well result
in a claim against the trustees for having paid out the wrong amount to the known beneficiaries.

Question 31

Payment into court: s 63 TA 1925

Answer 31

Another option in circumstances where trustees can establish genuine doubt as to the location of
beneficiaries is to distribute to those beneficiaries they can find and pay the remaining funds into
court: s 63 TA 1925.
This gives the court legal control over the funds and effectively allows the trustees to retire. This is
likely to be a more attractive option to the trustees than retaining a fund, because it means that
they do not have open-ended administrative duties in respect of the trust fund.
However, from the court’s perspective this course of action is a last resort which should only be
taken if all realistic options for tracing the beneficiaries have failed. It is not an easy route for
trustees to free themselves from their obligations.

Question 32

Missing beneficiary insurance

Answer 32

Trustees may decide to take out insurance to guard against the risk of missing or unknown
beneficiaries emerging after the trust fund has been distributed.
The trustees may simply take out insurance and then distribute in accordance with the
information they have available. If a beneficiary later comes forward, the trustees will be liable to
them but can claim on the insurance policy.
Obtaining insurance does involve an upfront cost (which can usually be met by the trust fund) so
trustees will need to decide whether it is worth paying for the certainty of having the insurance
policy to guard against a future claim. It is also significantly cheaper than seeking a Benjamin
order. Risk-averse trustees may well choose to use insurance alongside another mitigation
measure

Question 33

Obtaining indemnity from beneficiaries

Answer 33

A final option available to the trustees who cannot identify or locate the beneficiaries, but still
want to distribute the entire trust fund, is to seek an indemnity from the beneficiaries to whom
they plan to distribute. This involves the beneficiaries promising to reimburse the trustees if the
trustees are successfully sued by other beneficiaries later. It has the benefit of being cheaper and
14: Protection of trustees 155
quicker than some of the options above, as well as avoiding part of the trust fund being tied up on
trust for a long period of time.
However, like with the insurance option, an indemnity does not actually protect the trustees from
claims by beneficiaries who come forward later. It simply gives them someone else they can seek
to recover the loss from. Although cheaper than taking out insurance, it is also riskier because an
indemnity is only worth anything if the person giving the indemnity is able to pay. There is also a
risk that the indemnifying beneficiary will resist payment, resulting in further expensive litigation
by the trustees to recover.

Question 34

Protecting trustees after breach

Answer 34

Claims against third parties
Trustees who find themselves potentially liable for breach of trust might also consider the
possibility of taking action against third parties. In particular, we have already considered the
situation in which the trustees have acted in reliance upon advice from a professional such as a
lawyer or a financial adviser. If that advice was negligent, the trustees should consider making a
claim against the adviser in their capacity as trustee.
If they identify the negligence early, and take swift action against the adviser, they may be able
to prevent a personal claim for breach of trust altogether (because they will have complied with
Unknown beneficiaries Missing beneficiaries
Benjamin order Not possible. Protects trustees but not
other beneficiaries. No
ongoing trustee duties but an
expensive option.
Section 27 TA 1925 notice Protects trustees but not
other beneficiaries. Best
practice.
Not possible.
Retained fund Risky – won’t fully protect
trustees or other beneficiaries
if they don’t retain a large
enough fund.
Protects trustees and other
beneficiaries but means
ongoing trustee duties.
Payment into court Not possible. Protects trustees and other
beneficiaries. No ongoing
trustee duties. Last resort.
Missing beneficiary
insurance
Doesn’t protect against claim
but trustee should be able to
recover from insurer.
Doesn’t protect against claim
but trustee should be able to
recover from insurer.
Cheaper than a Benjamin
order.
Indemnity from
beneficiaries
Doesn’t protect against claim
for breach of trust. Trustee
can try to recover from
indemnifying beneficiary.
Doesn’t protect against claim
for breach of trust. Trustee
can try to recover from
indemnifying beneficiary.
156 Trusts Law
their duties as trustee in taking action and recovering the funds on behalf of the trust).
Alternatively, they may need to bring a separate claim against the adviser alongside or following
the proceedings for breach of trust.
If a trustee is successfully sued for breach of trust and required to pay equitable compensation,
they may wish to seek a contribution or indemnity from other liable parties (including their cotrustees). This process was considered in detail in the chapter on ‘Liability of trustees’.
4.2 Practical steps after breach has occurred
Once a breach of trust occurs, advising a trustee involves assessing the scope of liability and
identifying existing protections. The following steps should be taken:
(a) Check the trust instrument for an exemption clause.
(b) Consider whether any of the following may provide a full or partial defence:
- Reliance on court directions
- Instigation/consent/acquiescence
- Statutory limitation rules/laches
- Statutory relief under s 61 TA 1925
(c) If there is likely to be a successful claim, check for relevant insurance (and inform the insurer
of the claim) or an indemnity from other beneficiaries.
(d) Identify whether there are any potential claims against third parties (such as financial or
legal advisers to the trustees who may have given negligent advice).
(e) If a trustee is required to pay equitable compensation, consider Civil Liability Contribution
Act 1978 claims against co-trustees or third parties.