Trustees Duties, when running a trust

Question 1

What is the duty of care owed by trustees, and how does it apply in trust management?

Answer 1

Trustees owe a duty of care to manage trust property as a reasonably prudent businessperson would manage their own affairs (Speight v Gaunt [1883]).

Key Principles:

1. Objective Standard:
   * The standard is external and does not depend on the trustee’s personal skills or experience.

• Professional trustees (e.g., solicitors, accountants) are held to a higher standard based on their expertise.

2. Examples of Reasonable Precautions:

• Seeking professional advice when necessary (e.g., legal or financial).
• Diversifying investments to reduce risk.
• Ensuring trust property is properly insured.

3. Higher Standard for Professionals:

• Professionals must use their specialized skills and knowledge (Bartlett v Barclays Bank Trust Co Ltd [1980]).

Practical Application:

• Trustees must regularly review investments, consider market changes, and take steps to protect the trust from foreseeable risks (e.g., inflation, taxation).
• Example: Trustees who fail to obtain tax advice, resulting in unnecessary liabilities, may breach their duty of care.

Case Law:
* Speight v Gaunt [1883]: Established the “prudent businessperson” standard.

• Bartlett v Barclays Bank Trust Co Ltd [1980]: Professional trustees must act with greater diligence due to their expertise.

Question 2

What steps must a newly appointed trustee take to fulfill their responsibilities?

Answer 2

1. Ensure Proper Appointment:
   * Verify the appointment complies with the trust deed or court order.
2. Identify and Secure Trust Property:

• Ascertain the assets included in the trust (e.g., real estate, investments).
• Ensure all property is transferred into the joint names of the trustees.
• Press for overdue transfers from previous trustees or third parties.

3. Familiarize with Trust Terms:
   * Review the trust deed, letters of wishes, and other relevant documents to understand the settlor’s intentions.
4. Investigate Past Administration:
   * Assess whether previous trustees committed breaches of trust.

• Take corrective action where necessary.

5. Create an Inventory of Chattels:
   * Record tangible trust assets, such as artworks or jewelry, to avoid disputes.

Example:

A trustee who fails to secure control of trust property or investigate past mismanagement may be personally liable for losses.

Case Law:
* Re Brogden (1888): Trustees must investigate and address prior breaches.
* Re Beloved Wilkes’ Charity (1851): Trustees are responsible for ensuring proper administration from their point of appointment.

Question 3

What does the duty to act impartially between beneficiaries require of trustees?

Answer 3

Trustees must balance the interests of all beneficiaries without favoring one at the expense of another.

Key Considerations:

1. Impartiality Does Not Mean Equality:

• Trustees must follow the terms of the trust, which may prioritize some beneficiaries over others (e.g., income for a life tenant and capital for remaindermen).

2. Conflicts Between Life Tenants and Remaindermen:

• Trustees must ensure fair management of income and capital. For example, they should avoid over-investing in income-producing assets that may deplete capital for remaindermen.

3. Avoiding Consistent Bias:

• Trustees should avoid a pattern of favoring one beneficiary’s interests over another’s.

Example:
If trustees favor a life tenant by distributing all income while neglecting capital growth for remaindermen, they breach their duty of impartiality.

Case Law:

• Nestlé v National Westminster Bank plc [1993]: Emphasized balancing income and capital for life tenants and remaindermen.

Question 4

What does the duty to act personally and unanimously entail for trustees?

Answer 4

Trustees must actively participate in trust management and make decisions unanimously unless the trust deed specifies otherwise.

1. Acting Personally:
   * Trustees cannot delegate decision-making authority to co-trustees or third parties.

• Trustees must be involved in all major decisions and monitor co-trustees’ actions.

2. Unanimity Requirement:
   * All trustees must agree on decisions unless the trust document allows majority decisions.
3. Liability for Inaction:
   * Trustees who fail to monitor co-trustees or take corrective action for breaches may be liable.

Example:

If a trustee allows another to manage trust property without supervision and losses occur, they are jointly liable.

Case Law:
* Pilkington v IRC [1964]: Highlighted the importance of active involvement by all trustees.

Question 5

What principles must trustees follow when exercising discretionary powers?

Answer 5

Trustees must exercise discretion:

1. In Good Faith: Decisions must align with the trust’s purpose.
2. Rationally: Avoid arbitrary or perverse decisions.
3. For a Proper Purpose: Powers must be used as intended by the settlor.
4. Based on Relevant Facts: Consider all material facts and disregard irrelevant ones.
5. Considering Legitimate Expectations: Take into account patterns of past decisions if they create reasonable expectations for beneficiaries.

Question 6

What trust information must trustees disclose to beneficiaries, and what are they not required to disclose?

Answer 6

Required Disclosures:

1. Trust Deed or Will: The founding document of the trust.
2. Trust Accounts: Comprehensive records of income, expenditures, and balances.
3. Investment Schedules: Details of how trust property is invested.

Not Required to Disclose:

• Trustee Deliberations: Minutes or notes of meetings where decisions are discussed.
• Letters of Wishes: Settlor’s non-binding guidance for discretionary trusts.
• Reasons for Decisions: Trustees are not obligated to provide justifications for their decisions unless ordered by a court.

Example:

If beneficiaries request sensitive deliberation records, trustees can refuse unless disclosure is necessary for proper trust administration.

Case Law:
* Re Londonderry’s Settlement [1965]: Established limits on beneficiaries’ rights to disclosure.

Question 7

When are trustees required to give reasons for their decisions?

Answer 7

Trustees are generally not required to provide reasons, but they must do so if:

1. A legitimate expectation exists (e.g., beneficiaries have received consistent payments in the past).
2. Discontinuing payments without warning could prejudice a beneficiary.

Example:

If trustees stop annual payments to Ada after 10 years without warning, they must explain their decision and provide her an opportunity to respond.

Question 8

How do trustee powers differ from trustee duties?

Answer 8

Duties:
* Mandatory: Trustees are obligated to perform duties (e.g., distribute assets as required by the trust).
* Enforceable: Beneficiaries can compel trustees to fulfill their duties through court action.

Powers:
* Discretionary: Trustees may choose whether to exercise powers (e.g., advancing capital early).
* Limited by Good Practice: Powers must be exercised properly, considering relevant factors and excluding irrelevant ones.

Example:

Trustees cannot be compelled to advance capital to a beneficiary, but their decision must be rational and in good faith.

Case Law:
* Tempest v Lord Camoys (1882): Trustees must exercise powers prudently and without improper purpose.

Question 9

What are the key duties of trustees when running a trust?

Answer 9

When Starting Out:
* Ensure proper appointment.
* Take control of trust property.
* Review the trust’s affairs, including past administration.

During the Trust’s Lifetime:
* Act impartially between beneficiaries.
* Only act on decisions with unanimous consent (unless the trust document states otherwise).
* Take an active role and supervise co-trustees’ actions.

Decision-Making:
* Exercise powers soundly, in good faith and rationally.
* Trustees are not required to give reasons for decisions.

Disclosure to Beneficiaries:
* Beneficiaries are entitled to:
* The trust document.
* Trust accounts.
* Investment schedules.
* Trustees are not required to disclose deliberations or reasons for decisions (though beneficiaries may apply to court for access).