Trustees Flashcards
Who can be a trustee
Most adults with mental capacity can be appointed to act as a trustee.
A company can also act as a trustee (whether alone or in conjunction with human trustees)
so long as it is authorised to do so by its constitutional documents. ‘Trust corporations’ are
corporate trustees that carry out trust business for profit.
Minimum and maximum number of trustees
Trusts over land should have at least two human trustees or a sole trust corporation.
Cannot have more than 4.
Trusts of personalty can have a sole trustee, although as a practical matter it is generally better
to appoint more than one.
Can have more than 4 trustees.
Retirement of trustees
3 ways:
- Trust instrument may contain an express power
- s39 TA 1925 allows retirement without being replaced. Conditions -
a) must be 2 trustees or a trust corporation left
b) trustee retires by deed
c) the other trustees consent by deed - s36(1) TA 1925
Retiring trustees must be replaced.
Appointment must be in writing.
Person nominated in trust instrument or if none continuing trustee appoints.
Removal of trustees
- Trust instrument contains express powers
- s36(1) TA 1925 grounds for replacing
a) dead
b) outside UK for more than 12 months
c) desires to retire
d) refuses to act
e) unfit to act
f) incapable of acting e.g. physical or mental incapacity
g) a minor
Appointment must be in writing.
- s41 TA 1925 will replace if expedient to do so and it is otherwise inexpedient to appoint without courts assistance.
- s19 TLATA 1996
allows beneficiary absolutely entitled to serve written direction on a trustee to retire and appoint someone.
Appointment of additional trustees
- Trust instrument contains express power
- s36(6) TA 1925 Appointment must be in writing.
Person nominated in trust instrument or if none continuing trustee appoints. - s41 TA 1925
a) dead
b) outside UK for more than 12 months
c) desires to retire
d) refuses to act
e) unfit to act
f) incapable of acting e.g. physical or mental incapacity
g) a minor
Court will appoint if expedient to do so and it is otherwise inexpedient to appoint without courts assistance. - s19 TLATA 1996 allows beneficiaries to serve written direction on a trustee to appoint additional trustee.
Appointment of a trustee
If a trustee is concerned that they might not be able to perform their functions in running the trust for a period of time, they should consider delegating those functions to a ‘deputy’ called an attorney.
The delegation should be made by deed.
The delegation can run for a period of up to 12 months.
Written notice about the delegation must be given to all other trustees and any other person with the power to appoint new trustees within seven days of delegation.
The delegating trustee will be automatically liable for the acts or defaults of the attorney as if they were the acts or defaults of the trustee.
Power to apply income for beneficiaries who are minors
Income is a return paid on a regular basis generated from capital e.g. interest, dividends.
Can use income to pay for the maintenance, education and benefit of a beneficiary under 18 as long as:
(a) there is no contrary provision in the declaration of trust; and
(b) the trustees can only exercise this power in favour of minor beneficiaries who have some kind of interest in income, whether vested or contingent, but not where there are any ‘prior interests’ to income.
Can’t use it where someone else is the life tenant e.g. husband for life, remainder to my son.
Should pay money to beneficiaries guardian or directly to education provider.
Cannot be compelled to exercise this power.
Duty to pay income to certain beneficiaries
Adult contingent beneficiaries are entitled to trust income as it arises and trustees must pay that income to them, pending the vesting of their beneficial interests.
If an adult contingent beneficiary dies before the condition is satisfied, their estate will receive nothing.
Power to pay capital to or for beneficiaries
Capital refers to the underlying trust property itself.
Trustees have the power to pay or apply trust capital early for a beneficiary’s advancement or benefit so long as the statutory conditions are satisfied:
a) no contrary provisions in declaration of trust
b) the beneficiary has an interest in the capital
c) must be for the beneficiary’s advancement or benefit
d) for trusts created after 1 oct 2014 the advance payment must not exceed the beneficiary’s entitlement
e) the payment is taken into account when the beneficiary becomes entitled to the trust capital
f) if there is a beneficiary with a prior interest, adult prior interest-holder must give written consent.
Trustees cannot be compelled to advance capital.
Differences between powers and duties
Beneficiaries can compel trustees to perform duties.
Beneficiaries have very little control over the exercise of powers.
(a) trustees must consider from time-to-time whether to exercise them; and
(b) if they do decide to exercise them, they must ensure that they do so properly.
As long as trustees do these requirements, beneficiaries have no right to complain.
Trustees duty of care
Trustee must take ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’
Objective standard, although the standard can be higher for paid, professional trustees.
Duties when starting out as trustee
(a) ensure that they have been properly appointed;
(b) ascertain what the trust property consists of and take all reasonable and proper measures to obtain control of the trust property – if the transfer of trust property to the new trustee is outstanding, the new trustee must press for that transfer to take place;
(c) review the trust document and associated paperwork to familiarise themselves with the trust and how it works;
(d) enquire into the past business of the trust to ensure that there have been no past breaches of trust, and to take appropriate action to remedy any breaches; and
(e) where there are chattels held on trust, ensure that a proper inventory is drawn up.
Duty to act impartially between beneficiaries
Trustee may be faced with a choice between two beneficiaries, whose interests appear to conflict with each other.
Trustee must act impartially in the interests of each beneficiary.
Does not necessarily mean that beneficiaries must be given equal treatment, nor does it mean that trustees must consult either or both beneficiaries, nor give either side a ‘fair hearing’.
A trustee must not benefit one beneficiary at the expense of another and may find themselves in breach of trust if they continually prefer the interests of one beneficiary over the other.
Duty to act personally and unanimously
Co-trustees must generally take decisions unanimously (unless the trust document provides otherwise).
Trustees must act personally – they must be personally active in the running of a trust.
Whilst trustees can take advice from experts – legal, financial or otherwise – they cannot allow the experts to take decisions for them.
Duty to exercise discretions properly
Beneficiaries can intervene if the trustees exercise their powers improperly.
Having decided to exercise a power, trustees must exercise that power:
(a) in good faith;
(b) rationally;
(c) for the purpose for which it was created;
(d) with regard to relevant material matters and without regard to irrelevant ones;
(e) with regard to all relevant facts; and
(f) with regard to any legitimate expectation that a beneficiary might have that the power be exercised in a particular way
