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Trust Law > Trustees > Flashcards

Trustees Flashcards

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1
Q

Who can be a trustee?

A

Any person except a minor may be a trustee, but practical restrictions such as conflicts of interest must be considered.

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2
Q

What is the minimum and maximum number of trustees for trusts of land?

A

A minimum of two trustees is required, and a maximum of four persons may hold legal title to land.

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3
Q

What is the preferred practice regarding the number of trustees?

A

It is good practice to appoint more than one trustee, but numbers should be kept relatively low to avoid administrative difficulties.

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4
Q

How are original trustees appointed in a lifetime trust?

A

Trustees are usually appointed by the settlor through a self-declaration of trust or a transfer on trust.

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5
Q

What happens when a settlor self-declares a trust?

A

The settlor becomes the trustee as long as all key requirements for declaration of an enforceable trust are met.

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6
Q

What occurs during the appointment of trustees in a will?

A

The testator names executors who take legal title to the estate and must distribute property according to the will.

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7
Q

What if the named trustee in a will is unwilling or unable to act?

A

The trust will not fail; alternative trustees must be appointed, and executors will hold the property on trust until new trustees are appointed.

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8
Q

How can replacement trustees be appointed?

A

Replacement trustees may be appointed using express powers in the trust instrument, statutory powers, or by beneficiaries exercising their rights.

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9
Q

What is the general statutory power to appoint new trustees?

A

The general statutory power under s 36 Trustee Act 1925 allows for replacement of trustees under certain conditions.

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10
Q

What are the circumstances under which the statutory power to replace trustees can be exercised?

A

It can be exercised on the death of a trustee, if a trustee is abroad for over a year, or if a trustee lacks capacity or wishes to retire.

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11
Q

What are Saunders v Vautier rights?

A

Beneficiaries can exercise their rights to change trustees, traditionally requiring the trust to be collapsed and a new trust declared.

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12
Q

What is the court’s power regarding trustee appointment?

A

The court can appoint a trustee if there is no one authorized who is able and willing to make the appointment.

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13
Q

What powers does the Charity Commission have regarding trustees?

A

The Charity Commission has the power to appoint or remove trustees in the case of charitable trusts.

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14
Q

What are the rules for removing trustees?

A

Removal of trustees can be governed by the trust instrument, statutory powers, or by the court.

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15
Q

How can a trustee voluntarily retire?

A

A trustee can retire by deed with consent from co-trustees and must comply with statutory requirements.

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16
Q

What is required for beneficiaries to compel a trustee to retire?

A

Beneficiaries must direct the retirement in writing, requiring agreement from all beneficiaries.

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17
Q

What are the main duties of trustees?

A

Trustees have a primary duty to comply with the terms of the trust and to exercise their functions with care and skill.

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18
Q

What are the key fiduciary duties of trustees?

A

Trustees must avoid conflicts of interest and must not make unauthorized profits from their role.

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19
Q

What is the no-conflict rule?

A

A fiduciary must not put themselves in a position where their personal interests conflict with their duties to their principal.

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20
Q

What is self-dealing in the context of fiduciary duties?

A

Self-dealing occurs when a trustee purchases assets from or sells assets to the trust, creating a conflict of interest.

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21
Q

Can a trustee circumvent the no-conflict rule by using a company?

A

No, using a wholly owned company to transact with the trust still constitutes a conflict of interest.

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22
Q

What is the fair-dealing rule?

A

The fair-dealing rule requires that transactions between a trustee and a beneficiary must be conducted fairly.

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23
Q

What is the nature of the relationship between a trustee and a beneficiary?

A

The relationship is fiduciary in nature, requiring the trustee to demonstrate that transactions are conducted fairly.

24
Q

What happens if a trustee engages in self-dealing?

A

The transaction is voidable unless the trustee can demonstrate full disclosure, honesty, and fairness.

25
Q

What is the no-conflict rule?

A

The no-conflict rule prevents a fiduciary from putting themselves in a position where their personal interests conflict with their duties to a principal.

26
Q

What are the consequences of breaching fiduciary duty?

A

If a breach causes a loss, the principal can sue the fiduciary. If it results in a profit, the principal may recover the profit.

27
Q

What is the no-profit rule?

A

The no-profit rule prohibits fiduciaries from making unauthorized profits from their position, whether directly or indirectly.

28
Q

What is an example of direct profit breach?

A

A solicitor retaining interest from client money held in an account is a breach of the no-profit rule.

See Brown v IRC [1965] AC 244.

29
Q

What is an example of indirect profit breach?

A

A trustee receiving remuneration as a director must pay it into the trust fund instead of accepting it personally.

See Re Macadam [1946] Ch 73.

30
Q

What is the significance of Keech v Sandford?

A

This case illustrates that a fiduciary cannot keep profits made from opportunities arising during their fiduciary duties.

31
Q

What happens if a fiduciary accepts bribes?

A

Accepting bribes is a breach of fiduciary duty, and profits must be stripped from the fiduciary.

See Attorney General for Hong Kong v Reid [1994] 1 AC 324.

32
Q

What remedies are available for breach of the no-profit rule?

A

Beneficiaries may elect between an account of profits or a constructive trust.

33
Q

What is a constructive trust?

A

A constructive trust allows a principal to identify an asset over which they have rights, providing protection against the fiduciary’s insolvency.

34
Q

What is the difference between personal and proprietary claims?

A

A personal claim seeks an account of profits, while a proprietary claim seeks a constructive trust over the profits made by the fiduciary.

35
Q

What is the summary of fiduciary duties?

A

Fiduciary duties involve single-minded loyalty, avoidance of conflicts, and prohibitions against unauthorized profits.

36
Q

What is accessory liability?

A

Accessory liability refers to a personal claim against a person who dishonestly assisted or procured a breach of trust.

37
Q

What is dishonest assistance?

A

Dishonest assistance is a fault-based claim where a defendant is liable only if their assistance was dishonest.

38
Q

What are the requirements for a claim of dishonest assistance?

A
  1. There was a trust in existence at the material time.
  2. The trustee committed a breach of that trust.
  3. The defendant assisted the trustee to commit that breach.
  4. The defendant’s assistance was dishonest.
39
Q

What constitutes assistance in the context of dishonest assistance?

A

The defendant must assist the trustee or fiduciary in planning, committing, or covering up the breach, and the assistance must be more than minimal.

40
Q

What is the standard for determining dishonesty?

A

Dishonesty is determined by assessing whether the conduct was honest or dishonest based on the standard of ordinary decent people.

41
Q

What is the liability of a dishonest assistant?

A

A dishonest assistant is liable for the loss occasioned by the breach they assisted and may also be liable for profits acquired due to their participation.

42
Q

What is knowing receipt?

A

Knowing receipt is a personal claim against a recipient of misapplied trust property or its traceable proceeds, based on the recipient’s knowledge.

43
Q

What are the requirements for a knowing receipt claim?

A
  1. A misapplication of trust property.
  2. Beneficial receipt by the defendant.
  3. Persistence of the claimant’s equitable proprietary interest.
  4. Knowledge of circumstances making it unconscionable for the defendant to retain the benefit.
44
Q

What does beneficial receipt mean?

A

Beneficial receipt means the receipt by the defendant should be for their own benefit, not merely in a ministerial capacity.

45
Q

What is the significance of the persistence of equitable proprietary interest?

A

A knowing receipt claim depends on the continuation of the claimant’s equitable proprietary interest; if extinguished, the claim cannot proceed.

46
Q

What is the fault requirement for knowing receipt?

A

A recipient is only liable if they had the requisite knowledge of the circumstances making their receipt unconscionable.

47
Q

What is the Baden scale?

A

The Baden scale categorizes five types of knowledge relevant to knowing receipt: actual knowledge, wilfully shutting one’s eyes, failing to inquire, knowledge of circumstances indicating facts, and knowledge putting one on inquiry.

48
Q

What is actual knowledge?

A

Knowledge that a person has directly acquired through their own experience or information.

49
Q

What does it mean to wilfully shut one’s eyes to the obvious?

A

Deliberately ignoring clear evidence or facts that are apparent.

50
Q

What is the significance of wilfully and recklessly failing to make inquiries?

A

It refers to a failure to investigate that an honest and reasonable person would have undertaken.

51
Q

What does knowledge of circumstances indicating facts imply?

A

Awareness of situations that would suggest certain facts to an honest and reasonable person.

52
Q

What does knowledge of circumstances that put a person on inquiry mean?

A

Awareness of situations that would prompt an honest and reasonable person to investigate further.

53
Q

How does the Baden scale apply in a commercial context?

A

Baden types (1) to (3) knowledge renders receipt of trust property ‘unconscionable’ without needing to show awareness of breach of trust. Types (4) and (5) require a reasonable person’s perspective on the facts known to the defendant.

54
Q

What can beneficiaries of a trust do against a ‘knowing’ recipient?

A

They can bring a personal claim against a recipient of misapplied trust property or its traceable proceeds.

55
Q

What is required for a claim against a recipient of trust property?

A

The recipient must have received the property beneficially and had knowledge of circumstances making their receipt ‘unconscionable’.

56
Q

How can the Baden scale be used?

A

It can be used to determine whether a person had knowledge that rendered their receipt of trust property ‘unconscionable’.

Trust Law (10 decks)

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