TRUSTEES Flashcards
the trustee beneficiary relationship is fiduciary - what does this give rise to
a duty of care
fiduciary
a fiduciary relationship is one of trust and confidence - the distinguishing obligation of a fiduciary is the obligation of loyalty
trustees are subject to a number of duties when carrying out their role eg to preserve and increase trust funds - true or false
true
in order to carry out these duties and properly administer the trust, trustees are granted various powers (eg powers of investment)
can there be an appointment of a trustee if they aren’t prepared to accept the post
no there can be no appointment of a trustee unless they’re prepared to accept the post
in administering a trust, each trustee must exercise reasonable care and skill in all the circumstances - s1
- this entails a higher standard for professional trustees, as what amounts to reasonable care and skill is assessed with ref to ‘any special knowledge or experience that they have or holds themself out as havinhg’
lay trustees must meet the reasonable care and skill standard - true or false
true
trustees must exercise the same level of care as…
as an ordinary man (or person) of business would when looking after the assets of another
investments must be permitted by the trust and should not be overly hazardous, but trustees do not have to eschew all risk - true or false
true
in order to hold the trustees to account, the beneficiaries need to be provided with info about the trust - the details of what ‘info’ entails has been determined by case law..
- trustees don’t have to provide reasons to explain their exercise of their discretion
the beneficiaries are entitled to inspect all trust docs as of right - these trust docs include docs..
- that contain info about the trust which the beneficiaries are entitled to know
- which are in the possession of the trustees in their capacity as trustees
- which the beneficiaries have a proprietary right over
trustees must keep accounts and make them available for inspection by the beneficiaries - true or false
true
the requirement to make the accounts available may be limited where…
where theres a large class of potential beneficiaries to a discretionary trust
do docs referring to discussions of the trustees in relation to their decision making need to be disclosed
no they do not have to be disclosed
NOTE
following a recent privy council case there’s now some doubt as to whether beneficiaries have the right to view all trust documents
where beneficiaries want to obtain info about a trust, they could seek to make a subject access request under which act
under the data protection act 2018, the DPA allows individuals to call for personal info held on them
is it true that in certain circumstances trustees have a duty to invest trust property
yes
the trustees must distribute the trust property, in accordance to the terms of the..
trusts terms
if the trustees distribute the property to the wrong person, or fail to distribute it, can they be personally liable for a breach of trust
yes
if a trustee is uncertain as to how the trust property should be distributed, what can they do
they can apply to the court for directions
if a trustee is unable to locate a beneficiary, there are various options open to them to mitigate against the risk that the beneficiary will subsequently emerge and claim their interest
- advertise for the missing beneficiary
- take out insurance
- seek a benjamin order from the court
- pay money into court
benjamin order from the court - what does this give the trustee the permission to do
it gives them permission to distribute the trust property free from risk of the liability if the beneficiary subsequently emerges
this protects the trustees from an action for breach of trust if it subsequently turns out that the unascertained beneficiary is still alive, by allowing the trustees to distribute trust property based on a specific assumption (eg that the beneficiary died)
any subsequent claim by the beneficiary must then be brought against the other beneficiaries but can’t be brought against the trustees
trustees are granted various powers in order to carry out the terms of the trust and to properly administer any trust property - these powers generally come from which two sources
- the trust instrument
- statute
where trustees purport to act outside the powers granted to them, their action will be set aside by the courts - true or false
true
the document creating the trust may expressly grant the trustees specific powers in relation to the trust property or the administration of the trust - true or false
true
the main powers granted to trustees by statute are the powers of …
- investment
- maintenance
- advancement
power of investment
power to invest trust property to increase the property available for the beneficiaries
power of advancement
the power to advance capital to the beneficiaries
power of maintenance
power to use trust income for the education, maintenance or benefit of the beneficiaries
in each case the power must arise for it to be exercised - does the common law and TA impose limits on those powers
yes
there are many factors which affect a trustees power of investment - what does this include
- has the power arisen
- duty of care
- powers are discretionary
- investment advice should be taken and considered
- renumeration
- delegation of powers
power of investment - has the power arisen
if the trust instrument/deed expressly sets out provisions for exercising powers of investment, adhere to that
otherwise if its silent and theres no intention to the contrary, its implied that trustees have the power to make any investment that the trustee would choose to make themself if the fund were absolutely theirs
power of investment - duty of care
the trustee must exercise reasonable care and skill in the circumstances
this entails a higher standard for professional trustees although even ignorant lay trustees must meet the reasonable care and skill standard
trustees must exercise the same level of care as an ordinary man or person of business would when looking after the assets of another
power of investment - powers are discretionary
trustees are free to choose whether or not to use them, but must pay attention to the standard. investment criteria when reviewing and making investments, as a prudent person of business world including
- suitability of the type of investment
- suitability of the specific investment
- ethical considerations
- conflicts of interest
- diversification
suitability of the type of investment
is this form of investment suitable for life tenants and/or remaindermen ( as appropriate depending on what the trust is for)
eg would limited company shares or a property development be appropriate, when it may take many years to realise a return and there’ s no ready market to sell those shares
suitability of the specific investments
eg if investing in company shares, consider whether this would give the trust a controlling interest
taking a controlling interest would oblige the trustees to get involved in the management of business (because a prudent person of business would do so) however the trustees may delegate this, but not to a beneficiary
ethical considerations - are trustees required to consider making ethical investment
trustees aren’t required to consider making ethical investments and are only bound to nurture the financial interests of beneficiaries
however trustees are free to invest ethically, as long as it doesn’t compromise financial returns
example
the court held it was legitimate for a charity to have an investment policy which precluded investment in ways which conflicted with the charitys charitable purposes
even if this doesn’t secure the vest returns
the charity comission has commented that it doesn’t regard this case as fundamentally changing the rules on investment of charitable monies
note
the charities act 2022 amends the rules on the disposal of land by charities and removes the automatic requirement to advertise and widens the range of advisors who may support a charity with such disposal
conflicts of interest
even potential conflicts of interest or conflicts that benefit the trust as well as the trustee, could be a breach
eg the trustee is a director of a firm into which they cause the trust to invest
diversification
a prudent businessperson should diversify risk by having lots of different investments
theres no obligation to diversify but it should be considered
power of investment - investment advice should be taken and considered
any advisor must be suitably qualified - advice isn’t deemed necessary if it’s inappropriate eg expensive advice for a tiny trust find
trustees are free to consider advice and don’t have to blindly follow it
power of investment - remuneration
trustees must not make a profit but professional trustees are entitled to a reasonable fee
the trust deed may expressly provide for their remuneration or the beneficiaries may all consent to paying the trustees
power of investment - delegation of powers
trustees may delegate their powers apart from certain powers listed in TA 2000
delegation should be in writing - agents that trustees delegate to must be suitably qualified and have no conflicts of interest
trustees must abide by the DOC when doing so, if they do, will not be liable for the act or default of their agent
there are many factors which affect a trustees power to use trust income for the education, maintenance or benefit of the beneficiaries
- has the power arisen
- is the beneficiary entitled
- is the income to be applied for the beneficiaries education, maintenance or benefit
- reviewing the power
power to use trust income - has the power arisen
as set out in the trust deed, unless there’s something stated to the contrary, there’s an implied power of maintenance - this is a discretionary power TA 1925
power to use trust income - is the beneficiary entitled
the beneficiary must be a minor and not absolutely entitled to the income
there should also be intermediate income and no third party with prior income, meaning no one else should be entitled to the income TA 1925
power to use trust income - is the income to be applied for the beneficiaries education, maintenance or benefit
education- ordinary meaning
maintenance - ordinary living expenses
benefit - widely defined and can include direct benefits
trustees should also consider whether advancement might be more appropriate than payment of income for education, maintenance or benefit
power to use the trust income - reviewing the power
although s1 TA 2000 DOC doesn’t apply (unlike for investment) ongoing payments of income should be reviewed by the trustees and not simply paid automatically
power to advance capital - is this a discretionary power and does the TA 2000 DOC apply
this is a discretionary power and the DOC doesn’t apply
what will the scope of the power to advance capital be based on
a strict interpretation of the trust deed (where an express power is stated)
a failure to exercise discretion properly will be a breach of trust
power to advance capital - has the power arisen
set out in the trust deed, if it’s silent an implied power of advancement is provided for by the TA 1925
power to advance capital - is the payment for the beneficiary’s advancement or benefit
advancement includes setting a beneficiary up for life
benefit is widely defined as anything that improves a beneficiary’s material situation
trustees should also consider whether maintenance might be more appropriate than payment of capital for advancement or benefit
