Trustees Liabilities

Question 1

What are the two main types of duty for trustees?

Answer 1

Trustee duties and fiduciary duties.

Question 2

What is a primary duty of trustees?

Answer 2

To comply with the terms of the trust and to exercise custodial duty over the property.

Question 3

What are fiduciary duties of trustees?

Answer 3

A duty not to create conflict between personal interests and duties to beneficiaries, and a duty not to make unauthorized profit from their role.

Question 4

How can trustees commit a breach of trust?

Answer 4

By acting outside their powers or failing to act in accordance with their duties.

Question 5

What is an example of acting outside their powers?

Answer 5

Distributing trust property to someone other than a beneficiary or making an unauthorized investment.

Question 6

What questions should be asked to establish liability for breach of trust?

Answer 6

Did the trustee(s) act in accordance with their powers? Did they comply with their trustee duties?

Question 7

What happens if the answer to either question regarding trustee powers or duties is ‘no’?

Answer 7

There has been a breach of trust, and further issues must be considered.

Question 8

What must be identified when a trust has more than one trustee?

Answer 8

Which of the trustees has committed the breach.

Question 9

What is the liability of multiple trustees who have breached the trust?

Answer 9

They will be jointly and severally liable.

Question 10

When will a trustee not be liable for a breach of trust?

Answer 10

For a breach that took place before they were appointed.

Question 11

What should a trustee do upon discovering a breach of trust after their appointment?

Answer 11

Commence proceedings to recover from the former trustee.

Question 12

Will a trustee continue to be liable after retirement?

Answer 12

Yes, for any breaches committed during their time as a trustee.

Question 13

In what cases will a retired trustee be liable for breaches that occur after retirement?

Answer 13

If they retired to facilitate the breach or parted with trust property without due regard.

Question 14

How can the liability of trustees be excluded or limited?

Answer 14

By an exemption clause in the trust instrument.

Question 15

What does s 61 Trustee Act 1925 provide?

Answer 15

The court discretion to excuse a trustee who acted honestly and reasonably.

Question 16

What is the limitation period for bringing a claim for breach of trust?

Answer 16

Six years from the breach.

Question 17

When does the limitation period start for beneficiaries with future interests?

Answer 17

When their interest vests in possession.

Question 18

What can protect trustees from liability?

Answer 18

Obtaining indemnity insurance.

Question 19

What is required for trustees to be excused from liability for breach of trust?

Answer 19

Fully informed consent of the beneficiaries or acquiescence.

Question 20

What remedies can beneficiaries seek after a breach of trust?

Answer 20

Recovery of misapplied property, compensation for loss of value, or removal of the trustee.

Question 21

What is the broad rule regarding compensation for loss to the trust fund?

Answer 21

Trustees are liable for losses where their breach can be shown to be a ‘but for’ cause.

Question 22

Can trustees offset losses against gains?

Answer 22

Generally no, but they can offset losses against profits from the same transaction.

Question 23

What does the Civil Liability Contribution Act 1978 allow?

Answer 23

Trustees to seek contribution from co-trustees for the same damage.

Question 24

What is the significance of the joint and several liability of trustees?

Answer 24

Beneficiaries can choose who to sue and recover the full amount from any one of the trustees.

Question 25

What can trustees do to protect themselves from liability before taking on the role?

Answer 25

Require an ouster or exemption clause in the trust instrument or take out trustee liability insurance.

Question 26

What is trustee liability insurance?

Answer 26

Insurance against personal liability for breach of trust, protecting against negligence but not fraudulent breaches.

Question 27

What is trustee liability insurance?

Answer 27

Trustee liability insurance protects trustees against personal liability for breach of trust, but it does not cover fraudulent breaches. Premiums can often be paid from the trust fund.

Question 28

What should trustees do if they seek legal advice on trust terms?

Answer 28

Trustees may rely on legal advice, but this does not prevent liability if the advice is incorrect. Good advice will indicate the lawyer’s confidence and suggest further protective steps.

Question 29

What are some protective steps trustees can take after receiving legal advice?

Answer 29

Trustees can seek court directions, apply for High Court authorization under s48 AJA 1985, surrender their discretion to the court, or obtain beneficiary consent.

Question 30

Why might trustees seek court directions?

Answer 30

Trustees seek court directions to clarify their obligations and protect themselves from breach of trust claims, especially when the trust instrument is ambiguous.

Question 31

What is the process under Section 48 AJA 1985?

Answer 31

Trustees can seek a legal opinion from an experienced lawyer and apply for High Court authorization to rely on that opinion, often without a full hearing.

Question 32

What does surrendering discretion to the court involve?

Answer 32

Trustees may surrender discretion to the court when there is a deadlock or conflict of interest, allowing the court to make decisions for them.

Question 33

How can trustees protect themselves by seeking beneficiary consent?

Answer 33

Trustees can seek fully informed consent from all beneficiaries to actions that may breach trust, but must provide full information and ensure all beneficiaries are locatable.

Question 34

What can trustees do after a breach of trust has occurred?

Answer 34

Trustees should identify their liability scope and consider defenses, such as beneficiary instigation, statutory limitations, and seeking relief under s61 TA 1925.

Question 35

What is the significance of beneficiary instigation or consent?

Answer 35

Trustees may not be liable for breaches if they have received fully informed consent from beneficiaries. Partial defenses may apply if only some beneficiaries consent.

Question 36

What is the statutory limitation period for breach of trust claims?

Answer 36

The limitation period is six years from the breach for beneficiaries with vested interests. It does not apply to fraudulent breaches or proprietary claims.

Question 37

What is the equitable defense of laches?

Answer 37

Laches allows trustees to argue that a beneficiary has delayed too long in bringing a claim, making it unconscionable for them to assert their interest.

Question 38

What does s61 TA 1925 provide for trustees?

Answer 38

s61 TA 1925 allows the court to excuse trustees for breaches if they acted honestly and reasonably, considering all circumstances.

Question 39

In what situations is s61 TA 1925 likely to be applied?

Answer 39

s61 is often applied when a trustee inadvertently acts outside their powers, especially if they sought advice before acting.

Question 40

What actions can trustees take against third parties after a breach?

Answer 40

Trustees may consider claims against third parties, such as negligent advisers, to recover losses incurred from breaches.

Question 41

What is the Civil Liability Contribution Act 1978?

Answer 41

This act allows trustees who compensate for a breach to seek contributions from co-trustees based on their level of culpability.

Question 42

What conditions might lead to a full indemnity under the Civil Liability Contribution Act?

Answer 42

A full indemnity may be granted if a trustee is morally culpable, is also a beneficiary, or acts as a solicitor to the trust.

Question 43

What is the importance of case law regarding solicitor trustees?

Answer 43

Case law illustrates how courts may grant or deny indemnities based on the actions and responsibilities of solicitor trustees in breach cases.

Question 44

How can trustees seek contributions from third parties?

Answer 44

Trustees may seek contributions from third parties involved in the breach, including negligent advisers or those benefiting from the breach.

Question 45

What is the purpose of protecting trustees when distributing trust funds?

Answer 45

Trustees and personal representatives protect themselves against liability for potential breaches of trust when making distributions to beneficiaries.

Question 46

What challenges do trustees face with missing or unknown beneficiaries?

Answer 46

Trustees may struggle to identify or locate beneficiaries, leading to potential liability if they distribute only to known beneficiaries.

Question 47

What is a Benjamin Order?

Answer 47

A court order allowing trustees to distribute trust property based on the assumption that a missing beneficiary is presumed dead.

Question 48

What must trustees demonstrate to obtain a Benjamin Order?

Answer 48

Trustees must make full inquiries to establish the true position and show no reasonable prospect of knowing it without disproportionate expense.

Question 49

What is the implication of a Benjamin Order for trustees?

Answer 49

It relieves trustees from personal liability if the assumption about the missing beneficiary turns out to be incorrect.

Question 50

What is a Section 27 TA 1925 notice?

Answer 50

A notice published by trustees to inform unknown beneficiaries of their intention to distribute to known beneficiaries.

Question 51

What is the effect of a Section 27 TA 1925 notice?

Answer 51

After a two-month notice period, trustees can distribute to known beneficiaries without personal liability to unknown beneficiaries.

Question 52

What are the rights of beneficiaries who come forward after a distribution?

Answer 52

They can only make a proprietary or personal claim against the recipient of the property, not against the trustees.

Question 53

What is the purpose of retaining a fund?

Answer 53

To set aside trust assets to discharge liabilities if missing beneficiaries come forward after distribution.

Question 54

What is the risk of retaining a fund?

Answer 54

It may lead to claims against trustees for incorrect amounts paid to known beneficiaries.

Question 55

What is the purpose of paying funds into court under s 63 TA 1925?

Answer 55

To give the court legal control over funds when trustees cannot locate all beneficiaries.

Question 56

What is missing beneficiary insurance?

Answer 56

Insurance taken out by trustees to guard against the risk of unknown beneficiaries emerging after distribution.

Question 57

What is the benefit of obtaining an indemnity from beneficiaries?

Answer 57

It allows trustees to distribute the trust fund while having a promise from beneficiaries to reimburse them if claims arise.

Question 58

What are the options available to trustees when distributing trust property?

Answer 58

1. Benjamin Order 2. Section 27 TA 1925 notice 3. Retaining a fund 4. Payment into court 5. Missing beneficiary insurance 6. Obtaining an indemnity from beneficiaries.

Question 59

What is a key difference between a Benjamin Order and a Section 27 TA 1925 notice?

Answer 59

A Benjamin Order is for missing beneficiaries, while a Section 27 notice is for unknown beneficiaries.

Question 60

What is a potential downside of seeking an indemnity from beneficiaries?

Answer 60

An indemnity does not protect trustees from claims and relies on the indemnifying beneficiary’s ability to pay.