Trustees- Liability

Question 1

how can trustees commit a breach of trust?

Answer 1

1. acting outside their powers.
2. failing to act in accordance with their duties.

Question 2

will a trustee be liable for breach of trust that took place before the trustee was appointed?

Answer 2

NO!

Question 3

will a trustee be liable for any breaches committed during their time as a trustee, even after they have retired?

Answer 3

YES IF
1. trustee retired to facilitate the breach.
2. trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustee.

Question 4

can trustees use an exemption clause in the trust instrument?

Answer 4

yes, but other than when the breach is fraudulent.
if no exemption clause, court has discretion to excuse a trustee if they acted honestly and reasonably, and ought fairly to be excused for the breach of trust.

Question 5

what are the legal limitation periods for breach of trust?

Answer 5

• six years from the breach, for claims by beneficiaries with interests vested in possession.
• for beneficiaries with future interests, the limitation period only starts to run when their interest vests in posession.
• limitation period DOES NOT apply FOR FRAUDULENT BREACHES OR PROPRIETARY CLAIMS AHAINST A TRUSTEE (for the trust property itself).

Question 6

CAN TRUSTEES offset losses against gains?

Answer 6

yes, but only where they arise from the same transaction or course of dealing.

Question 6

what is fair dealing?

Answer 6

where the trustee directly transacts with the beneficiary to buy their beneficial interest under the trust.
not as bad as self- dealing, but is still voidable. UNLESS
Trustee can demonstrate that they made full disclosure to the beneficiary, acted honestly and fairly and did not take advantage of the beneficiary.

Question 7

what is the situation with a potential conflict of interests and consent?

Answer 7

if authorised by the trust instrument, trustee can proceed.
If unauthorised, the trustee must obtain the full informed consent of their principals.
(if a minor cannot get consent)

Question 8

remedy for breach of no profit rule?

Answer 8

1. account of profits.
2. constructive trust (allowing them to trace into any subsequent profits made)

Question 9

what is the effect of s61 TA 1925?

Answer 9

court has discretion to relieve a trustee from liability if they acted honestly and reasonanly and ought to fairly be excused for the breach considering all the circumstances.

Question 10

if an investment causes a loss to the trust fund?

Answer 10

obtain compensation from trustee to recover it.