Trustees: duties & powers Flashcards
What are 4 of the key duties of a trustee?
Duty of care
Duty to provide information
Duty to invest
Duty to distribute trust property in accordance with trust terms
What is the trustees’ duty of care?
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
What are 3 duties of a trustee when they start out?
(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.)
Do trustees need to give reasons for their decisions to trutees?
Should exercise their powers soundly, in good faith & rationally but do not need to give reasons for decisions
What is the extent of the trustees’ duty to provide information?
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
What are the two sources of trustees’ powers?
Trust Instrument + Statute
What are the 3 main statutory powers of trustees?
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
What is the trustees’ power of maintenance?
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
What are the entitlement requirements of the beneficiary as part of the trustees’ power of maintenance?
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)
‘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?
No → husband is life tenant: during his lifetime, he has a prior interest in the income which must be respected
Can trustees be compelled to use trust income for maintenance of minor beneficiary?
No - it is a power, not an obligation
ie. discretionary!
If trustees wish to apply income for a minor beneficiary’s maintenance, education or benefit, do they pay it directly to the beneficiary?
No (minors can’t give good receipt) → pay to parent, guardian, maintenance/education/benefit provider
What is the trustees’ duty to pay income to certain beneficiaries (s31 TA)?
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
What is the trustees’ power of advancement?
Trustees have the discretionary power to advance capital early if -
- No contrary provision in trust deed (if silent, implied power of advancement under TA)
- Beneficiary must have an interest in the capital (ie. cannot be a life tenant)
- Payment must be for the beneficiary’s advancement or benefit (ie. improves their material situation)
- Cannot exceed the beneficiary’s share or entitlement
Can the trustees exercise their power of advancement to a beneficiary where there is also a life tenant?
Must get the written consent of the life tenant before the advancement of capital to any of the beneficiaries
What are the trustees options if a beneficiary wants money earlier?
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
What are some of the trustees’ duties during the lifetime of the trust as part of their duty of care?
Act impartially between beneficiaries
Only act on decisions that have unanimous consent
Take an active role - supervise the actions of your co-trustees
When will the trustees power of investment arise?
If trust instrument is silent, it is implied under TA that trustees have power to invest
Where trustees are making their own decisions about investments, what kind of investment can they make and what should they have regard to?
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
Are trustees required to consider making ethical investments?
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
Can trustees invest in land?
Can purchase land for any purpose - but must be in the UK
Can trustees delegate their powers of investment?
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
What is the procedural requirements for appointing an agent to make decisions about investments?
Must appoint agent in writing & provide the agent with a written policy statement
Agent must be suitably qualified & have no conflicts of interest
Will trustees be liable for the defaults of an agent appointed to make decisions about investments?
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)
Can trustees delegate their investment powers to a beneficiary?
No
(prohibited under s12 TA even if beneficiary is suitably qualified etc)
