Trustees and fiduciary duties Flashcards
what are 6 ways in which a trustee can be appointed?
- trustee deed
trust set up in a will -> will is the trust deed
- trust instrument gives specific powers of appointment to trustee.
- other trustees can add/ remove
- retiring trustee can appoint a successor
- beneficiaries (must be 18 and sui juris)
can a trustee use powers of the trust to reduce number of trustees?
no -> if there are 2 and one is removed they must be replaced
What are 5 ways in which trusteeship may be ended?
- death of trustee
2.trustee does not want to be a trustee
- retirement (with consent)
- beneficiaries able to compel retirement where there is a SvV right by giving written instructions. Power not available if there is power of appointment in trust deed
- court
if there is only 1 trustee and they die who becomes the trustee
PR
What are the 2 kind of duties that trustees have?
- appointment duties
- continuing duties
What are the appointment duties of a trustee?
- understand terms of the trust/ deed and who the beneficiaries are
- find out what the trust property is and ensure it is in their name
- take action if there has been a breach of trust
What are the continuing duties of a trustee?
- act unanimously
- impartiality vis a vis beneficiaries
- invest
- keep accounts and records
- distribute the trust funds to right people
- keep trust assets separate from personal ones
- be adequately informed before exercising powers
- fiduciary duties: no conflit, no profit
What is the common law standard of care for trustees?
Trustee must exercise the same standard of diligence and care as expected of a prudent business person would of their own business.
Higher standard if professional trustee.
What is the statutory standard of care for trustees?
(Trustee Act 2000)
Trustee must exercise such care and skill as is reasonable in all the circumstances;
having regard to any special skill, knowledge or experience that they have or HOLD themselves out as having.
Reasonable trustee standard.
Higher standard if professional trustee.
Can the statutory standard of care for trustees be excluded by a trust instrument?
Yes
Under the duty to invest the trust - can a trustee invest in land overseas?
no
Do trustees have a duty to regularly review and monitor investments?
yes
There isa duty for trustees to make investments with regards to Standard Investment Criteria (SIC)
What are the 2 tests set out in the SIC that trustees must consider when making an investment?
- is it a good investment having regard to all other investment?
- diversification of portfolio
What must the trustee do before investing?
obtain and consider proper advice
note: trustee does not need to follow this only consider it
Does a trustee have the power to delegate investment?
yes -> to a suitable agent
Do trustees need to consult beneficiaries prior to making investments?
no
Can trustees invest in a way which prioritises certain beneficaries
no
What is the trustee power of maintenance?
- statutory power
- allows trustee to use income under a trust fund for benefit of a minor (U18) beneficiary or adult beneficiary who has not taken trust capital due to a contingency
- discretionary power
For what purposes can the power of maintenance be used for where there is an U18 beneficiary?
- education
- maintenance
- benefit to be paid to a parent or guardian
Under power of maintenance - is there an amount that the trustee can/ cannot pay out
no limit
discretionary
The power of maintenance is only available for what type of trust?
fixed trust
What is the power of advancement?
- relates to capital rather than income
- can be excluded in a trust deed -> if not excluded it is implied in trust
- allows trustee to advance capital for beneficiary’s interest (U18 or adult with contingent interest) for their benefit before they are entitled ot i.
- able to use capital from trust to improve beneficiary’s situation
If there is a life tenant, can a trustee use power of advancement?
only if life tenant consents in writing
What are 2 types of breach of trust
- positive misapplication
Paying out to wrong beneficiary/ investing in an unauthorised investment.
- negligence of trust administration
failure to manage with due care and skill
If there has been a positive misapplication of the trust -> what must a trustee do?
restore the trust fund to the value it would have been but for the breach.
e.g. unauthorised purchase of shares for £200 -> shares sold for £100 -> trustee must personally make up the difference of £100
Is liability of trustee a personal one?
yes -> trustee not liable for breach of their co-trustees unless acting together -> in this case they would be jointly and severally liable
What are the4 defences available to trustees for breach of trust?
- beneficiary was involved/ consented to the breach
note: if only 1 consented where there are multiple, other beneficiaries may still be able to bring a claim.
note: if one beneficiary asked/ instigated breach -> court can impound their interest
- Court -> can relieve trustee if it believed trustee acted honestly and with integrity
- exemption of liability clause in trust deed
- lapse of time -> 6 year limitation period from the date the cause of action accrued
What is the limitation date for a claim in breach of trust
6 years from the date the cause of action accrued
note: does not apply to fraudulent breaches
if trustee has misappropriated property for their own purpose -> no time limit
what is the doctrine of “laches”
court has discretion to strike down a claim for breach of trust if there has been unreasonable delay
What is a fiduciary duty?
- legal obligation
- to act in the best interest of another
note: trustees have trustee and fiduciary duties
can a court impose a fiduciary duty?
yes if it is just to do so
What are the 2 key fiduciary duties owed by trustees?
- no profit
- no conflict with principal
What is meant by the trustee fiduciary duty of no profit?
- cannot take advantage of position
- e.g. use of info acquired as a result of position to gain a profit
- any advantage must be used for the principal’s advantage
- no commission -> e.g: introduces principal to a law firm; cannot profit
- only able to claim out-of-pocket expenses
- profit/ fees only permitted if allowed under the trust deed + all principals consent
What are the 2 subrules to the trustee fiduciary duty of no conflict?
- Self-dealing
Fiduciary cannot sell trustee property to themselves as they are both the seller and the buyer. (otherwise transaction is voidable)
- fair-dealing
cannot purchase property from principals without proper procedure
What is the remedy for breach of fiduciary duty where the trustee has profited
- profit must be handed over to principal.
- profit returned via personal remedy or proprietary remedy
- personal remedy -> all profits handed over straight away
- proprietary remedy -> constructive trust over profits held for benefit of principal
Where there has been a breach of fiduciary duty where the trustee has profited, there are 2 available remedies:
- personal remedy
- proprietary remedy
what are the benefits of 2.
constructive trust means that profits can be traced if used to buy replacement asset -> able to make a proprietary claim on the replacement asset
constructive trusts survive the insolvency of fiduciary
