Trustees: duties & powers

Question 1

What are 4 of the key duties of a trustee?

Answer 1

Duty of care

Duty to provide information

Duty to invest

Duty to distribute trust property in accordance with trust terms

Question 2

What is the trustees’ duty of care?

Answer 2

In administering trust, each trustee must exercise reasonable care & skill → run it in the same way as an ordinary prudent business-person would run their own affairs

Question 3

What are 3 duties of a trustee when they start out?

Answer 3

(1) Ensure have been properly appointed

(2) Ascertain what the trust property consists of (& ensure it is placed in the joint control of all the trustees)

(3) Review the affairs of the trust (look at documentation to see how it works, no prev breaches etc.)

Question 4

Do trustees need to give reasons for their decisions to trutees?

Answer 4

Should exercise their powers soundly, in good faith & rationally but do not need to give reasons for decisions

Question 5

What is the extent of the trustees’ duty to provide information?

Answer 5

Beneficiaries are entitled to inspect all trust documents, accounts, schedules of investments

but trustees do not need to disclose documents that record the reasons for their decisions

Question 6

What are the two sources of trustees’ powers?

Answer 6

Trust Instrument + Statute

Question 7

What are the 3 main statutory powers of trustees?

Answer 7

INVESTMENT: power to invest trust property to increase the property available for the beneficiaries

MAINTENANCE: power to use trust income for maintenance, education or benefit of beneficiaries

ADVANCEMENT: power to advance capital to beneficiaries

Question 8

What is the trustees’ power of maintenance?

Answer 8

Trustees have power to use trust income to pay for the maintenance, education or benefit of minor beneficiaries

Arisen? Unless stated otherwise in trust deed, implied power from s31 TA 1925

Beneficiary entitled? Must be a minor who is not absolutely entitled + no one else entitled to that income

Question 9

What are the entitlement requirements of the beneficiary as part of the trustees’ power of maintenance?

Answer 9

1 - Must be a minor

2 - Must have an interest in the income (can be vested or contingent)

3 - Must be no prior interests to the income ie. no one else entitled to the income (eg. can’t use where there is a life tenant)

Question 10

‘A trust for my husband for life, remainder to my son’

Can the trustees use their power of maintenance to give trust income to the son?

Answer 10

No → husband is life tenant: during his lifetime, he has a prior interest in the income which must be respected

Question 11

Can trustees be compelled to use trust income for maintenance of minor beneficiary?

Answer 11

No - it is a power, not an obligation

ie. discretionary!

Question 12

If trustees wish to apply income for a minor beneficiary’s maintenance, education or benefit, do they pay it directly to the beneficiary?

Answer 12

No (minors can’t give good receipt) → pay to parent, guardian, maintenance/education/benefit provider

Question 13

What is the trustees’ duty to pay income to certain beneficiaries (s31 TA)?

Answer 13

Adult contingent beneficiaries are entitled to income as of right

Whilst their interest is contingent, the trustees have a duty to pay the income (eg. interest on trust property)

£100k to my trustees to hold on trust for my son if he attains 30 → until son turns 30, interest is contingent, but trustees under to duty to pay income of interest on the £100k to son between ages of 18 & 30

Question 14

What is the trustees’ power of advancement?

Answer 14

Trustees have the discretionary power to advance capital early if -

1. No contrary provision in trust deed (if silent, implied power of advancement under TA)
2. Beneficiary must have an interest in the capital (ie. cannot be a life tenant)
3. Payment must be for the beneficiary’s advancement or benefit (ie. improves their material situation)
4. Cannot exceed the beneficiary’s share or entitlement

Question 15

Can the trustees exercise their power of advancement to a beneficiary where there is also a life tenant?

Answer 15

Must get the written consent of the life tenant before the advancement of capital to any of the beneficiaries

Question 16

What are the trustees options if a beneficiary wants money earlier?

Answer 16

Assuming there are no relevant terms in the trust instrument & the trustees wish to exercise their discretion to act:

Does the beneficiary have an interest in the income or in the capital?

→ In the income:

• If under 18 can apply income for maintenance, education or benefit (paid to parent or TP)
• If 18 or over, trustees should already be paying income to beneficiary

→ In the capital:

• Must be for the beneficiary’s advancement
• For Oct 2014 trusts- can advance up to all of beneficiary’s shares (for pre Oct 2014, can advance up to half)
• If prior interest beneficiary, trustees must get their written consent

Question 17

What are some of the trustees’ duties during the lifetime of the trust as part of their duty of care?

Answer 17

Act impartially between beneficiaries

Only act on decisions that have unanimous consent

Take an active role - supervise the actions of your co-trustees

Question 18

When will the trustees power of investment arise?

Answer 18

If trust instrument is silent, it is implied under TA that trustees have power to invest

Question 19

Where trustees are making their own decisions about investments, what kind of investment can they make and what should they have regard to?

Answer 19

Can make authorised investments of any kind they could if they were absolutely entitled to the trust
(If land, must be situated in UK)

When selecting or reviewing investments,
1 - Must have regard to the standard investment criteria: suitability + diversification

2- should obtain & consider proper investment advice if they consider it appropriate / necessary (but don’t have to follow it as long as give proper consideration)

3- Review investments from time-to-time

Question 20

Are trustees required to consider making ethical investments?

Answer 20

If the trust instrument is silent, their only requirement is to nurture the financial interests of the company - free to invest ethically as long as does not compromise financial returns

If there is an express provision in the trust instrument, still need to think about suitability & diversification etc

Question 21

Can trustees invest in land?

Answer 21

Can purchase land for any purpose - but must be in the UK

Question 22

Can trustees delegate their powers of investment?

Answer 22

Yes - can appoint an agent to make decisions, but must ensure follow correct procedure & select someone who is suitably qualified

Should review agent’s actions from time-to-time

Question 23

What is the procedural requirements for appointing an agent to make decisions about investments?

Answer 23

Must appoint agent in writing & provide the agent with a written policy statement

Agent must be suitably qualified & have no conflicts of interest

Question 24

Will trustees be liable for the defaults of an agent appointed to make decisions about investments?

Answer 24

No - so long as investment agent was properly selected, properly appointed, properly reviewed

(if not, trustee may be liable for breach of the appointment/process duties)

Question 25

Can trustees delegate their investment powers to a beneficiary?

Answer 25

No

(prohibited under s12 TA even if beneficiary is suitably qualified etc)