Trustees' Duties Flashcards
what are trustees duties?
- duty of care
- duties of new trustees
- duty to act impartially between Bs
- duty to act carefully and distribute assets correctly
- duty to act personally and unanimously
- duty to exercise powers properly
- duty to provide information
- duty to invest
- fiduciary duty
what powers do Bs have in relation to Ts duties?
- Bs can compel Ts to perform their duties (but not powers)
how can S impact T’s duties?
they can limit / exclude T’s liability for breach/loss in the trust
explain duty of care
Standard of care (objective) > T must act as a reasonably-prudent business man would and take such precautions as they would their own affairs
i.e. taking professional tax advice. If T failed to do this and resulted in loss to the trust, Bs could sue in negligence.
- The standard of care would be higher if a paid professional was being used
T would be expected to exercise care and skill reasonably expected of their profession
re: duty of care
what is the standard of care?
Standard of care (objective) > T must act as a reasonably-prudent business man would and take such precautions as they would their own affairs
The standard of care would be higher if a paid professional was being used
T would be expected to exercise care and skill reasonably expected of their profession
what duties do new trustees have?
These apply whether T is appointed at the start or part way through. T must:
o Ensure they have been properly appointed;
o Ascertain the TP and take reasonable steps to obtain control of it (i.e. ensuring the new T has legal title to the property)
o Ensure there is an inventory for any chattels held on trust;
o Review the trust and paperwork to understand it (the Ts must provide it);
o Enquire into trust history and remedy any breaches
re: duties of new trustees
when might they be liable?
If T does not take this action and it causes loss to the trust, T may be liable
explain ‘duty to act impartially between Bs’
Where two Bs interests’ conflict and T must choose a B, T must act impartially
T cannot benefit one B at the expense of the other
give an example re: duty to act carefully and distribute assets correctly
- i.e. in a life interest trust, not advancing capital to the remainderman without permission of the life tenant
re: duty to act impartially between Bs
what does this not require?
This does not require:
o T to give Bs equal treatment;
o T to consult either or both Bs; or
o T to give either B a fair hearing
However, T cannot benefit one B at the expense of the other
explain the duty to act personally and unanimously
- Co-Ts must take decisions unanimously (unless the trusts provides otherwise)
- Ts must be personally active in running the trust (unless they have appointed a deputy)
re: duty to act personally and unanimously
when would T be in breach of this duty?
Ts must be personally active in running the trust, i.e. a T cannot:
o Leave matters to the co-Ts without enquiry
o Allow TP to be in the sole control of one T
o Fail to monitor and correct (where necessary) conduct of co-Ts
o Fail to act if they know a co-T is about to or is committing a breach
re: duty to act personally and unanimously
when would a T be liable?
Give an example
- Passive Ts may be liable to remedy any loss
i.e. John sets up a trust. He tells Ts to make certain early payments (in accordance with the trust) and they do. The Ts would be in breach because they must act personally and not be dictated but someone else.
Ts can take professional advice but Ts are ultimately responsible for the decision
explain ‘duty to exercise powers properly’
If Ts exercise a power, they must do so rationally, in good faith and for the purposes it was created, with regard to:
o Relevant materials and facts; and
o Any legitimate expectation B might have that a power be exercised
re: duty to exercise powers properly
what must Ts have regard to when exercising this duty?
o Relevant materials and facts; and
o Any legitimate expectation B might have that a power be exercised
re: duty to exercise powers properly
do Ts need to give reasons for their decisions?
Give an example
- Ts do not need to give reasons for their decision, but if they do the court can enquire into their soundness
- However, if Ts are going to exercise their discretion in a way that is different to as expected, they need to give reasons and advance warning
i.e. Ts have been giving Ada advance capital for 10 years. They cannot stop this without giving warning and Ada the opportunity to persuade them.
re: duty to provide information
what information are Bs entitled to see?
Bs are entitled to see the following documents:
o Trust / will
o Trust accounts
o Documentation which shows how TP has been
re: duty to provide information
what documents are Bs not entitled to? How would they obtain these?
Bs do not have a duty to provide the below. They would need to apply to the court for disclosure:
o Reasons for their decisions
o Documents not listed above i.e. records of deliberations, trust diaries, meeting minutes, letters of wishes
re: duty to provide information
when will the court order disclosure? when might the court refuse?
- Disclosure will not be ordered unless it is in the sound administration of the trust (i.e. there is evidence Ts may have breached the trust)
- The court may refuse if disclosure may lead the family to fall out or if it would reveal confidential information about the health or finances of Bs
re: duty to invest
what is the general position regarding liability?
So long as Ts have followed the right process, they cannot be liable for loss if an investment performs badly
the trust may contain an exclusion clause meaning the trustees limiting their liability for loss
re: duty to invest
explain the position regarding types of investment
The trust may specify what Ts can/can’t invest in
If permitted, Ts should consider the following when choosing an investment:
o B’s interest i.e. vested, contingent, successive
o Length of trust and investments i.e. short or long term investments
o Size of trust fund
o Tax position of trust and Bs
re: duty to invest
what should trustees consider when picking an investment type?
o B’s interest i.e. vested, contingent, successive
o Length of trust and investments i.e. short or long term investments
o Size of trust fund
o Tax position of trust and Bs
re: duty to invest
name some investment types
shares
bonds and gilts
property
cash in the bank
re: duty to invest
explain the capital and income returns in relation to shares
income - Y – dividends
capital - Y – rise in value of shares
re: duty to invest
explain the capital and income returns in relation to bonds and gilts
income - Y – the coupon
capital - N – unless sold on secondary markets
re: duty to invest
explain the capital and income returns in relation to property
income - Y (if let) – rent
capital - Y – rise in property value
re: duty to invest
explain the capital and income returns in relation to cash in the banks
income - Y - interest
capital - N
re: duty to invest
what are the points to consider re shares?
- Longer investment = greater return
- Investments should be spread
- PLC & blue chip companies = safer
Higher risk = greater returns
re: duty to invest
what are the points to consider re bonds and gilts?
loan which is repaid to investor with interest
Gilts = less risky
re: duty to invest
what are the points to consider re cash in the bank?
Safest form of investment
