Trustee powers + duties

Question 1

What are the two categories of trustee duties?

Answer 1

1. Administrative
   - management of the trust property while it is held on trust
2. Dispositive
   - distribution of trust property in accordance with its terms.

Question 2

What is the difference between powers and duties?

Answer 2

Powers are permissive and determine what a trustee may do whereas duties are mandatory and determine what a trustee must do

Question 3

Explain what sort of administrative powers trustees have.

Answer 3

Appointment
- Trustees may have a power to create or transfer a beneficial interest in trust property

Advancement
- Trustees can in certain circumstances apply capital for the benefit of a beneficiary who has a contingent interest.

Maintenance

• A power of maintenance is common in trusts involving minors (and some beneficiaries with contingent interests).
• It allows the trustees to pay trust income to beneficiaries who would benefit from receiving it immediately, instead of waiting for their interest to vest in possession.

Question 4

Does a trustee have to provide beneficiaries with reasons as to why they have or have not exercised their power?

Answer 4

No requirement to

- however if they do, the courts can set aside the decision is the reason is inadequate

Question 5

What should the trustees do if there is a disagreement as to a decision - no unanimous decision?

Answer 5

Seek directions from the court

Question 6

Name the fiduciary duties trustees will have.

Answer 6

They have a fiduciary relationship. 2 main fiduciary duties:

1. Fiduciaries must not put themselves in a position where their interests conflict with their duties to their principal
   - ‘no conflict’ rule.
2. Fiduciaries are also prohibited from making an unauthorised profit from their role.
   - ‘no profit’ rule.

Question 7

What are the general trust duties?

Answer 7

1. Primary duty is to comply with the terms of the trust. (trust duties)
2. They have a duty to exercise theiradministrativepowers in accordance with a prescribed standard of care and skill. (trust duties)
3. As the trustee-beneficiary relationship isfiduciaryin nature, trustees also have fiduciary duties to consider when performing their role. (fiduciary duties)
   - obligation of undivided loyalty to their beneficiaries (no conflict & no profit)
4. Act impartially

Question 8

How can a trustee commit a breach of trust?

Answer 8

• acting outside their powers

- failing to act in accordance with their duties (falling below the standard of care expected)

Question 9

How can a trustee commit a breach of fiduciary duty?

Answer 9

• creating a conflict between their personal interests

- making na unauthorised profit

Question 10

What is the common law duty of care?

Answer 10

Requires trustees to exercise the standard of diligence and care expected of an ordinary prudent business person.

Question 11

How can trustees monitor investments when they hold a small number of shares in a company?

Answer 11

Limited in what they can do beyond reviewing publicly available information and anything provided to them as shareholders.

Question 12

How can trustees monitor investments when they hold a majority shareholding in a company?

Answer 12

The trustees will have power over that company, expected to make use of to safeguard the investment.
- could have a trustee appointed as a director

Question 13

Who will be liable if there has been a breach?

Answer 13

• Where multiple trustees have breached the trust, they will be jointly and severally liable.
• In rare cases, the court may even award a full indemnity (s2(2)).
• In general, an indemnity will only be awarded where the indemnifying trustee has benefitted from the breach or where a trustee is found to have been solely responsible for the duty that was breached.
• indemnity may happen where there is a significant disparity in the knowledge and XP of the trustees resulting in one of the trustees taking full responsibility
• controlling influence

Question 14

Can a trustee be liable for a breach of trust which took place before the trustee was appointed?

Answer 14

No (Re Strahan)

• 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.

Question 15

Can a trustee be liable for any breaches even after they have retired?

Answer 15

Yes only when the breaches committed were during the time they acted as a trustee AND:

• Where the trustee retired to facilitate the breach. or
• The trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees (Head v Gould)

Question 16

Can liability be excluded or limited?

Answer 16

Yes - if there is an exemption clause in the trust instrument (will not exempt trustees if they have been fraudulent)

• If there is no exemption clause, trustees may seek to rely on s61 Trustee Act 1925 (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’.
• rarely used - could be used if trustees have sought and relied on legal advice before taking action
• trustees could have indemnity insurance (will not help if fraudulent)
• obtained fully informed consent fo the beneficiaries or the beneficiaries acquiesced (s36(2) LA 1980). Those beneficiaries will be barred from making a claim.

Question 17

What is the limitation period for breaches of trust?

Answer 17

s21(1)(a) 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.
• limitation period does not apply to fraudulent breaches

Question 18

What are the possible remedies?

Answer 18

• If the trustee has misapplied trust property, the beneficiaries may seek to recover the property itself (or its traceable proceeds).
• If it is not possible or desirable to recover the trust property, the beneficiaries will instead seek compensation to reflect the loss of the asset.
• if a breach of trust has resulted in a loss in the value of the trust fund, the beneficiaries may seek compensation.
• the beneficiaries will wish to have the trustee removed from office.

Question 19

How do you assess the loss arising from a breach of trust?

Answer 19

Causation - but for test (AIB Group v Redler)

Loss is assessed at the date of the trial

Question 20

Can trustees offset their losses against gains?

Answer 20

Only where they arise for the same transaction or course of dealing.