Trustees’ Duties When Running a Trust Flashcards
What is the difference between powers and duties?
Beneficiaries can compel trustees to perform their duties but have very little control over the exercise of powers.
What are the two conditions trustees must satisfy when it comes to their powers?
Trustees must consider from time-to-time whether to exercise them.
AND
If they do decide to exercise them, they must ensure that they do so properly.
What is a trustee’s duty of care?
A trustee must take ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’
On what standard is the duty of care assessed?
On an objective standard but professional or paid trustees are subject to a higher standard.
What are the duties of a newly appointed trustee?
Ensure that they have been properly appointed.
Ascertain what the trust property consists of and take all reasonable and proper measures to obtain control of the trust property.
Review the trust document and associated paperwork to familiarise themselves with the trust and how it works.
Enquire into the past business of the trust to ensure that there have been no past breaches of trust, and to take appropriate action to remedy any breaches.
Where there are chattels held on trust, ensure that a proper inventory is drawn up.
What does the duty to act impartially between beneficiaries entail?
A trustee must not benefit one beneficiary at the expense of another.
What does the duty to act personally and unanimously involve?
Co-trustees must generally take decisions unanimously (unless the trust document provides otherwise).
Trustees must be personally active in the running of a trust and outside of statutory powers to delegate decision-making to others trustees cannot sit back and allow others to take decisions on their behalf.
Whilst trustees can take advice from experts – legal, financial or otherwise – they cannot allow the experts to take decisions for them.
In what situations may a passive trustee be liable to make good any loss that the beneficiaries suffer?
They leave matters in the hands of a co-trustee without enquiry;
They allow trust funds to remain in the sole control of a co-trustee;
They fail to watch over and, if necessary, correct the conduct of their co-trustees; or
They fail to take action knowing that a co-trustee was committing, or about to commit, a breach of trust;
How can trustees exercise their discretionary powers properly?
By exercising their powers:
In good faith;
Rationally;
For the purpose for which it was created;
With regard to relevant material matters and without regard to irrelevant ones;
With regard to all relevant facts; and
With regard to any legitimate expectation that a beneficiary might have that the power be exercised in a particular way
When will trustees be obliged to give reasons for their decisions?
Where a particular beneficiary has a legitimate expectation that a discretion will be exercised in their favour, the trustees may be obliged to give reasons and advance warning if they are thinking of exercising their discretion differently.
What documents are beneficiaries entitled to see?
The trust document or will that created the trust;
The trust accounts;
A schedule of trust investments or other documents that show how trust property is invested.
What documents are beneficiaries not allowed to demand?
Documents that record trustees’ deliberations on a discretion or power such as trust diaries, minutes of trust meetings and a settlor’s letter of wishes.
What can beneficiaries do if they want to see documents that record the reasons trustees took for exercising or not exercising a power in a particular way?
They can apply to the court for disclosure.
How will a court decide an application for disclosure of reasons?
The court will usually start with the presumption that such documents should not be disclosed, unless such disclosure is in the interest of the sound administration of the trust.
The court may refuse disclosure where it would cause family members to fall out, or if it were to reveal confidential information about the finances or state of health of individual beneficiaries.
