trustee powers and duties

Question 1

what are trustee powers?

Answer 1

• they determine what a trustee may do
• acts that are authorised but not compulsory

Question 2

what are trustee duties?

Answer 2

• mandatory
• a trustee must do

Question 3

what are fiduciary duties?

Answer 3

• what trustees must not do

Question 4

from where do trustees derive their powers?

Answer 4

• trust instrument (trust deed, will, something else)
• TA 1925
• TA 2000

Question 5

what are the two broad categories of powers and duties?

Answer 5

1. Administrative - relates to the management of the trust property while it is held on trust
2. Dispositive/distributive - relates to distribution of trust property

Question 6

list of trustee powers

Answer 6

Administrative
- general power of investment
- acquisition of land
- delegation
Dispositive
- power of advancement
- statutory power of maintenance

Question 7

list of trustee duties

Answer 7

Administrative
- statutory duty of care
Dispositive
- duty to distribute capital
- duty to distribute or accumulate income

Question 8

When exercising the general power of investment, trustees must:

Answer 8

• Consider the standard investment criteria set out in s4 TA 2000
• Take advice in accordance with s5 TA 2000
• In accordance with the general duty of care in s1 TA 2000 (this can be excluded, restricted or extended by the terms of the trust
  instrument)

Question 9

what are the standard investment criteria?

Answer 9

trustees must regularly review investments with regard to the following two criteria:

(a) Suitability (s 4(3)(a)): Trustees must consider the suitability of the proposed investments.
- 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.

Question 10

what do trustees consider when assessing suitability?

Answer 10

• The size of the trust fund
• The period of time for which the trust is intended to subsist
• The respective rights of different beneficiaries

Question 11

example of suitable investment for a large commercial trust fund

Answer 11

assets which are intended to produce long-term
growth

Question 12

example of suitable investment for a small family trust

Answer 12

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

Question 13

what are the principles concerning suitability set out in Cowan v Scargill?

Answer 13

• best interests means best financial interests
• best interests could, in rare cases, involve the consideration of moral and ethical concerns
• must balance the interests of all beneficiaries (current and future)
• personal views of trustees are not relevant
• trustees must exercise powers fairly, honestly and not for an ulterior purpose
• although trustees are not bound to follow investment advice, they cannot ignore it due to personal disagreement; only if a reasonably prudent trustee would act in the same way.

Question 14

why must there be diversification of a trust investment?

Answer 14

• reflects modern portfolio theory
• overall approach to the risk profile of the trust fund, rather than considering each investment individually
• high and low risk investments
• different types of assets in different sectors

Question 15

what particular considerations are taken into account when it comes to investment for charitable trusts?

Answer 15

non-financial considerations

e.g., 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

Question 16

when must proper advice be taken?

Answer 16

• before exercising powers of investment
• when reviewing investments

Question 17

what would constitute proper advice?

Answer 17

proper advice is 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’.

Question 18

when do trustees not need to seek advice?

Answer 18

trustees need not seek advice if they reasonably conclude that in all the circumstances it is unnecessary to do so

e.g., where the cost of the advice outweighs the benefit of obtaining it
where the trustee has sufficient knowledge and expertise to make the decision without advice.

Question 19

what is the statutory duty of care?

Answer 19

requires trustees to ‘exercise such care and
skill as is reasonable in the circumstances’:
- ‘any special knowledge or experience’ that a trustee has or holds themselves out as having
- professional trustees must use any ‘special knowledge or experience’ that it is reasonable to expect of a person acting in that capacity.

Question 20

what is the common law duty of care?

Answer 20

trustees must exercise the standard of diligence and care expected of an ordinary prudent businessperson

Question 21

what is the trustee power to acquire land?

Answer 21

power to acquire freehold or leasehold land in the UK
(but not overseas).

Question 22

why does the trustee have a power to acquire land?

Answer 22

• investment purposes (+ standard investment criteria)
• for occupation by a beneficiary

Question 23

what duty applies to the trustee power to acquire land?

Answer 23

the statutory duty of care

Question 24

which powers can a trustee delegate under its power to delegate?

Answer 24

• power of investment
• powers to acquire land

Question 25

which powers a trustee NOT delegate under its power to delegate?

Answer 25

distributive obligations

Question 26

can trustees delegate decisions to trustees who are also beneficiaries?

Answer 26

no

Question 27

to delegate powers of investment, what must trustees do?

Answer 27

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.

Question 28

why might a trustee want to delegate their functions?

Answer 28

(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.

Question 29

when selecting agents, what duty must trustees comply with?

Answer 29

the statutory duty of care, in particular ensuring:
* An appropriate agent is selected for the function
* The agreement complies with their requirements under statute
* The arrangement is reviewed regularly

Question 30

if trustees do not comply with their duties when exercising their power of delegation, what might be they be liable for?

Answer 30

vicarious liability for any loss caused by the agent acting negligently

Question 31

in which three situations do trustees typically distribute trust property?

Answer 31

(a) When they have an obligation to do so under the terms of the trust.
(b) When directed to do so by beneficiaries with Saunders v Vautier rights.
(c) In the exercise of a dispositive power such as a power of appointment, maintenance or advancement.

Question 32

in a life interest trust, will beneficiaries be entitled to capital and/income?

Answer 32

both capital and income

Question 33

when must trustees distribute income and capital?

Answer 33

ASAP

but depends on nature of asset:
- chattel on trust for one beneficiary: can transfer legal title on the same day or day after
- a piece of land for multiple beneficiaries: selling it before distributing proceeds could take months

Question 34

what happens if a trustee delays paying income or capital?

Answer 34

results in a breach of trust

Question 35

for a minor beneficiary with a trust fund, until when must the trustees continue to hold the capital on trust?

Answer 35

until the beneficiary exercises their Saunders v Vautier rights or if not, then when they turn 25

Question 36

can the trustees pay capital before B turns 18?

Answer 36

no

Question 37

what powers can a trustee combine with the duties to distribute or accumulate income?

Answer 37

• power to distribute
• power to accumulate income

Question 38

before checking the statutory rules, what must trustees check regarding their duties to distribute or accumulate income?

Answer 38

trustees must check the trust instrument for expressly drafted rules

Question 39

what are the rules for distributing income to adult beneficiaries?

Answer 39

• as it arises
• includes beneficiaries with contingent interests which carry the intermediate income
• but it is common to amend these rules to defer a beneficiary’s right to income until their capital interest vests in possession (25)

Question 40

what are the rules for distributing income to minor beneficiaries?

Answer 40

• before 18 - accumulate the income

Question 41

what are the rules for distributing income beneficiaries 18-25?

Answer 41

18-25 - distribute income as it arises

Question 42

rules for distributing income and capital at 25

Answer 42

when B turns 25, distribute accumulated income + capital

Question 43

which other trusts may have dispositive duties?

Answer 43

eg discretionary trusts, within a reasonable time (what that is will depend on the trust)