Trustees Powers and Duties

Question 1

How do trustee’s powers operate?

Answer 1

Trustee powers are permissive: They determine what a trustee may do. They are acts which are authorised but not compulsory.

Question 2

How do trustee’s duties work?

Answer 2

Trustee duties are mandatory: They determine what a trustee must do.

Question 3

Where can you find the duties and powers of a trustee?

Answer 3

If the terms of the trust are contained in a written document (whether that’s a trust deed, will or something else) then that document - known as the ‘trust instrument’ is your first port of call. The trust instrument may well contain express provisions setting out the powers and duties of the trustees. It is also important to check whether it expressly excludes or modifies any default statutory rules.
The key statutes you need to be aware of for these purposes are:
Trustee Act 1925
Trustee Act 2000

Question 4

What are administrative powers and duties?

Answer 4

Administrative powers and duties, which relate to the management of the trust property while it is held on trust; and

Question 5

What are dispositive powers and duties?

Answer 5

Dispositive (or ‘distributive’) powers and duties, which relate to the distribution of trust property in accordance with its terms.

Question 6

When do trustees breach the trust?

Answer 6

A trustee will breach the trust if they either act outside their powers or fail to comply with their duties.

Question 7

True or false: Trustees must provide beneficiaries with reasons for the way they have exercised their powers.

Answer 7

False

Question 8

A trustee holds a trust fund on trust for A for life, remainder to B and C in equal shares. The trustee is considering how to invest the trust fund.

What should the trustee be trying to achieve from their investment strategy?

Income and capital growth

Income only

Capital growth only

Answer 8

Income and capital growth

The trustee must attempt to strike a fair balance between the life tenant who is entitled to the income and the remaindermen who are entitled to the capital.

Question 9

What should trustees do when exercising the general power of investment?

Answer 9

When exercising the general power of investment, trustees must:
* Consider the standard investment criteria set out in s 4 TA 2000
* Take advice in accordance with s 5 TA 2000

Question 10

What should trustees consider when looking at the standard investment criteria?

Answer 10

Suitability (s4(3)(a)): Trustees must consider the suitability of the proposed investments. There are two key questions to consider:
* General suitability: Is the investment of a suitable kind?
* Specific suitability: Is the particular investment suitable?
Diversification (s4(3)(b)): Trustees must also consider the need for diversification of trust investments. The extent to which diversification is needed will depend on the size and nature of the particular trust.

Question 11

Take advice in accordance with s 5 TA 2000?

Answer 11

‘Proper advice’ is defined in s 5(4) as being provided by a person ‘who is reasonably believed by the trustee to be qualified to give it’ by their ‘ability in and practical experience of financial and other matters relating to the proposed investment’.
There is an exception set out in s 5(3) which provides that trustees need not seek advice if they reasonably conclude that in all the circumstances it is unnecessary to do so. This will depend on the circumstances but might, for example, include situations where the cost of the advice outweighs the benefit of obtaining it or cases where the trustee has sufficient knowledge and expertise to make the decision without advice.

Question 12

What is the statutory duty of care?

Answer 12

The statutory duty of care is found in s 1 TA 2000 and requires trustees to ‘exercise such care and skill as is reasonable in the circumstances’.

• Section 1(1)(a) requires the assessment to take into account ‘any special knowledge or experience’ that a trustee has or holds themselves out as having.
• Section1(1)(b) applies to professional trustees and requires the assessment to take into account the any ‘special knowledge or experience’ that it is reasonable to expect of a person acting in that capacity.
  In other words, the standard of care is always higher for professional trustees, because they are being paid to provide a service.
  It is also raised for lay trustees who may have been appointed on the basis of having (or purporting to have) particular skills that would make them desirable trustees.

Question 13

What is the common law duty of care?

Answer 13

equires trustees to exercise the standard of diligence and care expected of an ordinary prudent business person.

Question 14

Power to acquire land?

Answer 14

Section 8 TA 2000: Trustees have a statutory power to acquire freehold or leasehold land in the UK (but not overseas). This power may be exercised for investment purposes but also more widely (including for occupation by a beneficiary).

Question 15

Power of delegation?

Answer 15

Section 11 TA 2000 provides trustees with broad powers of delegation. Although there are some functions which trustees cannot delegate (such as their distributive obligations) they are permitted to delegate their powers of investment and powers to acquire land.
Trustees cannot delegate their investment powers except by an agreement evidenced in writing (s 15TA 2000). This agreement should include a term ensuring compliance with a written ‘policy statement’ to be prepared by the trustees. The ‘policy statement’ should give guidance as to how the agent should exercise their functions ensuring they are in line with the best interests of the beneficiaries.
The agent to whom the function is delegated is bound by any restrictions on the exercise of its investment powers in the same way the trustee would be (s 13(1) TA 2000).

Question 16

Why might a trustee wish to delegate their functions?

Answer 16

The trustee may be incapable of discharging their duties for a limited period.
The trustee lacks the expertise to discharge the particular responsibility and prefers to have an expert do this.
Trustees are required to comply with the statutory duty of care both with respect to selecting agents and entering into agreements with those agents.

Question 17

A trustee of a life interest trust decides that they will invest £500,000 of trust money in a property for the life tenant to live in. The trustee decides to buy a property in the north of France, where the life tenant is currently living. The trust instrument does not contain any express provisions relating to the acquisition of land.

True or false: The trustee has acted in breach of trust.

Answer 17

True

The land is abroad and therefore is not an authorised investment. See section 8 Trustee Act 2000.

Question 18

A trust fund is worth £500,000. It has two trustees, who are both property lawyers. The trustees decide to invest £50,000 of trust money in company shares. They discuss the matter together and decide to make the investment. The trust instrument does not contain any express provisions relating to investment.

Which ONE of the following best describes the position?

The trustees have not breached their statutory duties because they have a statutory power to invest in company shares.

The trustees have breached their statutory duties because they do not have the power to make this kind of investment.

The trustees have breached their statutory duties because they have not diversified their investments

The trustees have breached their statutory duties because they have not obtained proper advice with regards to the investment.

The trustees have breached their statutory duties because company shares are not a suitable investment for this trust fund.

Answer 18

The trustees have breached their statutory duties because they have not obtained proper advice with regards to the investment.

The trustees are required to take proper advice in accordance with section 5 Trustee Act 2000 unless they reasonably consider it unnecessary to do so in the circumstances. There is nothing in the fact pattern that suggests that this is an investment where it would not be necessary to take advice.

Question 19

Which of the following powers are trustees permitted to delegate using their statutory powers of delegation?

Powers of investment and powers to acquire land

Powers of investment only

Powers of investment and powers to distribute trust property to beneficiaries

Powers to acquire land and powers to distribute trust property to beneficiaries

Powers to distribute property to trust beneficiaries only

Answer 19

Powers of investment and powers to acquire land

Trustees can delegate their powers of investment and powers to acquire land but cannot delegate their powers to distribute property to a beneficiary.

Question 20

When do trustees distribute trust property?

Answer 20

There are three broad circumstances in which trustees distribute trust property:
· When they have an obligation to do so under the terms of the trust.
· When directed to do so by beneficiaries with Saunders v Vautier rights.
· In exercise of a dispositive power such as a power of appointment, maintenance or advancement.

Question 21

How should trustees distribute trust property?

Answer 21

Trustees have a duty to distribute trust property in accordance with the trust terms.

Question 22

When should trustees distribute capital?

Answer 22

· When the duty to distribute capital arises, the trustees must do as soon as possible.
· Trustees must also distribute the capital as soon as possible if directed to do so by beneficiaries in exercise of their Saunders v Vautier rights.

Question 23

Dispositive duty in discretionary trusts?

Answer 23

· The trustees of discretionary trusts have a dispositive duty to exercise their discretion and distribute the trust property within a reasonable time.

Question 24

Obligation to accumulate income?

Answer 24

· If the trustees have an obligation to accumulate the income, they must add it to the capital and distribute it with the capital when the obligation to do so arises.

Question 25

Obligation to accumulate trust income?

Answer 25

· Trustees will sometimes have an obligation to accumulate the trust income and sometimes have an obligation to distribute the income as it arises.
· If the trustees have an obligation to distribute the income as it arises, they must do so as soon as possible.

Question 26

True or false: Trustees do not need to make payments to beneficiaries until the beneficiaries make a request.

Answer 26

False

When beneficiaries have a right to income or capital under the terms of a trust, the trustees are under an obligation to make the payments to the beneficiaries as soon as possible. The trustees must not wait for the beneficiaries to demand the payment.

Question 27

power of maintenance?

Answer 27

This gives them the power to pay income for the maintenance, education or benefit of a minor beneficiary. It applies both to beneficiaries with vested interest and contingent interests which carry the intermediate income. It does not apply in cases where someone else has a prior interest in the income, ie a successive interest trust.

Question 28

True or false: The power of maintenance can only be exercised where a beneficiary has a vested interest in the trust capital.

Answer 28

False

The power of maintenance can also be exercised when a contingent interest carries the intermediate income

Question 29

Power of advancement?

Answer 29

Power to pay capital to or for the benefit of a beneficiary before their interest vests in possession.

Question 30

Power of maintenance?

Answer 30

Power to pay income for the benefit of a minor beneficiary before they reach the age of 18.

Question 31

When can the power of maintenance be used?

Answer 31

Section 31 TA 1925 provides that the power can be used for the ‘maintenance, education or benefit’ of the minor beneficiary.
This gives the trustees a very broad discretion in respect of the trust income. Common uses might include:
· school fees or other training
· medical bills
· food, clothing and rent
· leisure and holidays
This is a non-exhaustive list.

Question 32

Who is the income for the power of maintenance paid to?

Answer 32

It should be paid either to the child’s parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary (eg the trustees could pay school fees directly to the school).

Question 33

What should be considered when exercising the power of maintenance?

Answer 33

· The power of maintenance is a fiduciary power. The trustees must consciously consider the exercise of the power and, if they choose to exercise it, must act in good faith in the interests of the beneficiary.
· The income must be used for the primary benefit of the minor beneficiary, but it does not matter that it may indirectly benefit their parent or guardian (eg by reducing a cost that they would otherwise incur).
· It is an improper exercise of the power to unquestioningly pay it to the minor’s parent or guardian, assuming that they will use it for the minor’s benefit. See e.g. Wilson v Turner (1883) 22 Ch. D. 521

Question 34

What income can the power of maintenance use?

Answer 34

The power of maintenance can be used in respect of both current income and accumulated income

Question 35

When is the power of advancement available?

Answer 35

The statutory power of advancement:
· May be used by both adult and minor beneficiaries.
· Applies to both vested and contingent interests.
· Can be modified or excluded by the trust instrument: s 69(2) TA 1925.

Question 36

How much capital can be paid through the power of advancement?

Answer 36

The trustees may use the power of advancement to pay up to 100% of a beneficiary’s prospective entitlement to the capital (even if they have a contingent interest).

Question 37

To whom should the capital be paid through the power of advancement?

Answer 37

If the beneficiary is an adult, the trustees can pay it directly to them but must ensure that it has been used for the requested purpose. The trustees could instead use the capital to purchase an asset or services on the beneficiary’s behalf.
If the beneficiary is a minor, the trustees should not pay the capital directly to them as a minor cannot give good receipt. It should be paid either to the child’s parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary (eg the trustees could use capital to purchase a car to be used by the beneficiary).

Question 38

Do trustees need to check the money is being used for the correct purpose for the power of advancement?

Answer 38

If paid to the beneficiary (or their parent or guardian) the trustees must check that the payment has been used for the correct purpose.

If it is not being used for the correct purpose they should pay the money to a third party

Question 39

For the power of advancement, when applicable, would you need consent from beneficiaries with prior interest?

Answer 39

Consent of beneficiary with prior interest
Because the exercise of the power may prejudice other beneficiaries, the power may only be exercised with the written consent of beneficiaries with a prior interest (but note that the consent of a beneficiary with a subsequent interest, such as the recipient of a gift-over, is not required).

Question 40

Trustees hold £50,000 on trust for A for life, remainder to B and C in equal shares if they survive A. B (age 17) has asked the trustees for £25,000 to buy equipment to start a business. The trustees agree that this would benefit B but A (age 40) and C (age 21) do not consent.

Why should the trustees refuse B’s request?

because B is a minor.

because A does not consent.

because B has asked for too much money.

because B has a contingent interest.

because C does not consent.

Answer 40

because A does not consent.

A has a prior interest to B so the power of advancement cannot be exercised without A’s written consent

Question 41

Question 1
A woman was appointed to act as a trustee under a trust deed dated 16 March 2009 and
is holding property currently valued at £200,000 on behalf of a boy aged 17 years and a
girl aged 15 years. The boy and girl have equal shares in the trust property. There are no
administrative provisions in the trust deed.
The boy wants to start his own car garage and has asked the trustee to use £80,000 of the
trust fund to buy spare parts for his business. The girl’s parent has asked the trustee for
£5,000 to pay for some additional tuition to help the girl pass her upcoming exams.
Which of the following best describes how the trustees should respond to these
requests?
A The trustee must pay the monies requested because the boy and girl have vested
interests in the trust.
B The trustee can pay the monies requested but does not have to – whether or not the
monies are paid is within the trustee’s discretion.
C The trustee can pay the monies requested on behalf of the boy but not the girl,
because the request must come from the beneficiary and not the beneficiary’s parent.
D The trustee can pay the monies requested on behalf of the girl but not the boy,
because the boy is asking for too much money.
E The trustee cannot pay the monies requested because the beneficiaries are both under
the age of 18 years.

Answer 41

Option D is correct. The trustee can pay the monies requested on behalf of the girl if the
trustee chooses, because the girl is interested in capital, the amount requested is within
the permitted statutory limits, and the money will improve the girl’s material situation. The
girl’s request meets all of the relevant statutory criteria listed in s 32 of the TA 1925 for the
advancement of the monies sought. This is not true of the boy’s request, which is for more
than the statutory maximum permitted. As this trust was created before October 2014, the
trustees can only exercise their discretion up to half of his presumptive share, in this case
£50,000.
Option A is wrong. The trustee is not obliged to satisfy monetary requests from beneficiaries
under the age of 18 years, even if the interests of those beneficiaries are vested.
Option B is wrong. Whilst it is correct to say that s 32 of the TA 1925 confers a discretionary
power on the trustee to advance capital, that power is not completely unfettered. Any advance
must satisfy the statutory criteria listed in s 32 of the TA 1925. The sum requested by the boy
does not.
Option C is wrong. Any capital advanced must be for the beneficiary’s benefit – it must
improve that beneficiary’s material situation in life. The request for capital to pay for the girl’s
extra tuition will satisfy this requirement, even if the request for the money came from her
parent.
Option E is wrong. The trustee can use her power under s 32 of the TA 1925 to advance
capital on behalf of a beneficiary under the age of 18 years, so long as the statutory criteria
listed in that section are met.

Question 42

Question 2
A barrister executed a trust deed that contained the following provision:
‘The Trustees shall distribute the Trust Fund to my daughter should she reach the age of
25 years, but if not to my brother.’
There are no relevant administrative provisions in the trust deed.
The daughter is currently aged 21 years and complains that the trustees have not paid
her any money since the trust was created. She claims that she has repeatedly asked the
trustees for money to help pay her living expenses while she was at university. The brother,
who did not go to university himself, was always against the trustees helping the daughter
out with her living expenses.
Which of the following best describes whether the daughter was entitled to any money?
A The daughter should have been paid money because she is the only beneficiary under
the terms of the trust.
B The daughter should have been paid capital from the trust as that would have been a
proper advancement.
C The daughter should have been paid income generated from the trust over the last
three years.
D The daughter should not have been paid any money because until her interests vest,
the trustees can only pay money with the consent of the brother.
E The daughter should not have been paid any money because her interests are currently
contingent.

Answer 42

Answer
Option C is correct. The daughter is an adult, contingent beneficiary. As such, under s 31 of
the TA 1925, she is entitled to income as and when it arises, and the trustees were under a
duty to pay her income from when she became 18 years old.
Option A is irrelevant. If there were two or more adult, contingent beneficiaries, then they
would all be paid their share of income as and when it arose.
Option B is wrong. Whilst the trustees had the discretionary power to advance capital to the
daughter, they were not under a duty to do so.
Option D is wrong. Whilst the views of the brother would be relevant if the daughter was
thinking of bringing the trust to an end (as his consent would be required to engage the rule in Saunders v Vautier), his views do not change the trustees’ duty to pay income to the
daughter now that she is an adult.
Option E is wrong (certainly as it relates to income). Whilst the daughter’s interest is
contingent, now that she is an adult s 31 of the TA 1925 entitles her to be paid income as and
when it arises

Question 43

Question 3
A woman executed a lifetime trust on 16 March 2018 that contained the following provision:
‘My Trustees shall hold the Trust Fund [currently valued at £200,000] for my sister for life, and
for my son and daughter in remainder’.
There are no relevant administrative provisions in the trust deed.
The daughter is aged 16 years. The daughter recently secured good GSCE grades and has
been selected to attend a fee- paying school for her A- levels (which will take her two years
to complete). The school charges £10,000 for each term of tuition.
Which of the following best describes whether the trustees can help the daughter in
paying the school fees?
A The trustees must advance money to the daughter because the daughter has an
interest in trust capital.
B The trustees can advance money to the daughter because the payment would be for
the daughter’s advancement or benefit.
C The trustees can advance money to pay the school because the payment should be
within the limits of what the trustees can advance.
D The trustees must advance money to the daughter so long as the sister agrees in
writing.
E The trustees can advance money to pay the school so long as the sister agrees in
writing.

Answer 43

Option E is correct. The daughter’s request for money meets most of the statutory criteria
set out in s 32 of the TA 1925 for the advancement of trust capital, but the trustees can only
exercise their power to advance that capital if the sister agrees in writing. This is because
the sister, as life tenant, has a prior interest. Also note that the daughter is still a minor and
therefore cannot give good receipt. The trustees would be ill- advised to pay any money
directly to the daughter. It would be better if they pay that money to the school.
Options A and D are wrong. The trustees are under no duty to advance money to the
daughter. Section 32 of the TA 1925 merely confers a power on the trustees, which they may
exercise in their discretion.
Option B is wrong. Whilst the money would be for the daughter’s advancement or benefit, the
trustees should not advance any money directly to her as she cannot give good receipt for
that money. (Option D contains the same problem.)
Option C is not the best option. As the trust was created after 1 October 2014, the trustees can
advance up to the limit of the daughter’s presumptive share, ie up to £100,000. Assuming that
her A- levels take two years to complete, the total fees will fall under this limit. However, this is
not the only statutory criteria that the trustees must consider. The main issue in this scenario
is that the trustees must secure the sister’s prior written consent. Without that consent, the
trustees cannot advance anything to the daughter.

Question 44

What docs are beneficiaries entitled to see?

Answer 44

Beneficiaries are entitled to see the following documents:
(a) the trust document or will that created the trust;
(b) the trust accounts; and
(c) a schedule of trust investments or other documents that show how trust property is
invested.

Question 45

Question 1
Three trustees – a man, woman and a lawyer – have been appointed to administer a trust
for a (female) life tenant and a remainderman. There are no relevant express provisions in
the trust deed.
The trustees agreed that the lawyer should take all decisions in the running of the trust. The
lawyer recently advanced 90% of the trust capital to the remainderman without informing his
fellow trustees or the life tenant. The life tenant is unhappy with this.
Which of the following best describes whether the life tenant can bring a claim arising
out of the advancement of capital?
A The life tenant cannot bring a claim, because the trustees were under a duty to
advance capital to the remainderman.
B The life tenant cannot bring a claim, because the advancement of capital is a matter
for the trustees in their sole discretion.
C The life tenant cannot bring a claim, because the advancement of capital was lawfully
undertaken.
D The life tenant can bring a claim, because the life tenant’s prior written approval should
have been obtained, but only against the lawyer.
E The life tenant can bring a claim, because the life tenant’s prior written approval should
have been obtained, and can bring that claim against all the trustees.

Answer 45

Option E is correct. The lawyer has breached trust because he advanced capital to the
remainderman without first obtaining the written consent of the life tenant, who has a prior
interest and whose written approval to the advancement is a condition set out in s 32 of
the TA 1925 to the exercise of this power (see Chapter 8). The other two trustees have
also breached their duties because they have failed to act personally in the running of the
trust. Their passivity means that they have failed to supervise and correct the actions of the
lawyer. All the trustees therefore are in breach of trust.
Options A to C largely required you to remember and apply material covered in Chapter 8.
Option A is wrong. The advancement of capital is a power exercisable by the trustees, not
a duty.
Options B and C are wrong. Whilst it is correct to say that the advancement of capital is
largely a matter for the trustees’ discretion, if the trustees are thinking of advancing capital
under s 32 of the TA 1925, they must first ensure that all the relevant statutory conditions are
satisfied, which is not the case here. The life tenant did not provide her prior written consent
to the advancement.
Option D is wrong. All the trustees are in breach of trust and a claim can therefore be
brought against all of them.

Question 46

Question 2
The trustees are holding property on trust valued at £500,000 for the settlor’s grandchildren
who reach the age of 25 years. There are currently two grandchildren both under the age
of 25 years. There are no relevant express provisions in the trust deed.
The grandchildren are unhappy with the way that the trustees have run the trust to date. In
particular, two years ago, each grandchild requested that the trustees advance the sum of
£10,000 to them for different purposes. The trustees discussed these requests at a meeting
(‘the Advancement Meeting’) and agreed to advance £10,000 to one grandchild, but not
the other. The grandchildren are starting to make various demands of the trustees.
Which of the following best describes what documentation (if any) the trustees must
provide to the beneficiaries?
A The trustees must, upon request, supply the beneficiaries with copies of the trust deed,
accounts, schedule of investments and the minutes of the Advancement Meeting.
B The trustees must, upon request, supply the beneficiaries with copies of the trust deed,
accounts and schedule of investments.
C The only document to which the beneficiaries are entitled is the minutes of the
Advancement Meeting.
D The trustees need not supply any documents or information to the beneficiaries.
E The trustees need not supply the minutes of the Advancement Meeting, but in the
interests of fairness must give reasons as to why they advanced capital to one
beneficiary but not the other.

Question 47

Question 2
The trustees are holding property on trust valued at £500,000 for the settlor’s grandchildren
who reach the age of 25 years. There are currently two grandchildren both under the age
of 25 years. There are no relevant express provisions in the trust deed.
The grandchildren are unhappy with the way that the trustees have run the trust to date. In
particular, two years ago, each grandchild requested that the trustees advance the sum of
£10,000 to them for different purposes. The trustees discussed these requests at a meeting
(‘the Advancement Meeting’) and agreed to advance £10,000 to one grandchild, but not
the other. The grandchildren are starting to make various demands of the trustees.
Which of the following best describes what documentation (if any) the trustees must
provide to the beneficiaries?
A The trustees must, upon request, supply the beneficiaries with copies of the trust deed,
accounts, schedule of investments and the minutes of the Advancement Meeting.
B The trustees must, upon request, supply the beneficiaries with copies of the trust deed,
accounts and schedule of investments.
C The only document to which the beneficiaries are entitled is the minutes of the
Advancement Meeting.
D The trustees need not supply any documents or information to the beneficiaries.
E The trustees need not supply the minutes of the Advancement Meeting, but in the
interests of fairness must give reasons as to why they advanced capital to one
beneficiary but not the other.

Answer 47

Answer
Option B is correct. The beneficiaries are entitled to see the trust deed, accounts and
information about investments as of right. The trustees cannot refuse to hand over such
documents.
Option E is wrong. The trustees are under no duty to give reasons for their decisions (and
this is unlikely to be a case where the beneficiaries have a legitimate expectation that such
reasons be given).
Options A and C are wrong for similar reasons. The beneficiaries are not entitled to
documents that record why trustees exercised their powers in a particular way, such as the
minutes of the Advancement Meeting (although the beneficiaries could go to court and
attempt to secure the disclosure of those minutes under the court’s inherent supervisory
jurisdiction).
Option D is wrong. The beneficiaries are entitled as of right to those documents listed in
option B.
Question 3

Question 48

Question 3
A man executed a trust deed 20 years ago for ‘such of my children, grandchildren and
great- grandchildren and in such shares as my Trustees in their discretion see fit’.
As at today’s date, there are four such children and five such grandchildren. Over the past
20 years, various children and grandchildren have written to the trustees to request monies
from the trust fund, but have received no response. No distribution from the trust fund has
been made to anyone in the past 20 years.
One of the grandchildren is about to start a trek across the Australian Outback. Six months
ago, he asked the trustees to distribute part of the trust fund to him to help meet the costs.
The trustees have not responded. The grandchild has recently found out that the trustees
have never met over the past 20 years.
Which of the following best describes whether the trustees are in breach of trust?
A The trustees cannot be in breach of trust because they have exercised their discretion
not to distribute money from the trust to the grandchild.
B The trustees are in breach of trust because they have failed to consider over the past
20 years whether they should distribute money from the trust.
C The trustees are in breach of trust because they have failed to give any reasons for
their refusal to distribute any money to the grandchild.
D The trustees cannot be in breach of trust because they have an absolute discretion over
whether money from the trust fund will be distributed.
E The trustees are in breach of trust because the grandchild had a legitimate expectation
that he would receive money from the trust.

Answer 48

Answer
Option B is correct. The trust is a discretionary trust. This trust imposes a duty on the trustees to
consider from time- to- time whether they should exercise that discretion to distribute property
to selected individuals within the class. Given that there have been a number of requests for
property to be distributed over the past 20 years, none of which the trustees have responded
to, it would appear that the trustees are in breach of this duty.
Option A is wrong in that it misrepresents the facts of the scenario. As the trust is discretionary,
it is correct to say that the trustees cannot be in breach of trust for deciding not to distribute
money to an individual. However, that does not appear to have happened on the facts.
Rather, the trustees appear not to be taking any decisions at all.
Option C is wrong. Trustees are generally under no duty to give reasons for their decisions.
Option D is wrong. The trustees of a discretionary trust do not have an absolute discretion
over whether trust money should be distributed. They have a discretion in relation to whom
money can be distributed – but they must distribute the trust money.
Option E is wrong. There is nothing on the facts to suggest that the grandchild had a
legitimate expectation that his request for money would be accepted. This is the first time that
he has made such a request.

Question 49

When can a trustee acquire a leasehold in land?

Answer 49

(a) as an investment;
(b) for occupation by a beneficiary; or
(c) for any other reason.

Question 50

What must trustees have regard to when purchasing or reviewing investments?

Answer 50

the ‘standard
investment criteria’.

(a) The investments must be suitable for the trust.

(b) There is a need for diversification (insofar as is appropriate to the circumstances of the
trust). We have already seen that it is important to purchase different types of investments
where possible so as to minimise the chances of an investor losing all their money on one
investment or one type of investment.

Question 51

What are trustees’ non-statutory duties for investments?

Answer 51

(a) Trustees must act impartially between beneficiaries. In their choice of investments,
trustees must strike a fair balance between the needs of all the beneficiaries, for instance
a life tenant (who wants income) and a remainder beneficiary (who wants capital
appreciation). Allowing one beneficiary the use of trust property without compensation for
another beneficiary would also breach this duty.
(b) Trustees must secure the best return for the beneficiaries. This does not necessarily mean
that the trustees must secure the highest return as that might entail accepting too much
risk for the trust.

Question 52

When may trustees taken ethical concerns into account for investments?

Answer 52

(i) if an investment in an ethical concern is likely to yield as good a return as an
investment that is more morally dubious, the trustees can invest in the ethical concern;
(ii) if the trust is charitable, the trustees can properly refuse to invest in things that might
be at odds with the charitable purposes of the trust and that might alienate the
charity’s supporters; and
(iii) the settlor can set out in the declaration of trust that trustees should not invest in
specific sectors that the settlor considered to be unethical.

Question 53

What processes should trustees comply with when delegating investments?

Answer 53

(a) They must retain the investment agent by written agreement.
(b) They must prepare a written statement (known as the ‘policy statement’) that gives
guidance as to how the agent should exercise their asset management functions in the
best interests of the trust.
The trustees must exercise reasonable care and skill in putting the policy statement
together.
(c) The written agreement under which the agent is retained must include a term to the effect
that the agent will secure compliance with the policy statement.
(d) The agent must comply with the same statutory and non- statutory investment duties that
would otherwise apply to the trustees.
(e) The trustees must regularly review the arrangements under which the agent is acting and
how those arrangements are working. That might include considering whether to revise or
update the policy statement, or assessing whether the agent is complying with the policy
statement and bringing the retainer to an end if they believe the agent is not.
(f) Importantly, the trustees must select a suitably qualified person to whom their asset
management functions will be delegated. That selection must be made with reasonable
care and skill.

Question 54

Question 1
The trustees appointed to manage a large trust fund decide to delegate investment
decisions to someone else. They ask their friends down the local pub for ideas and
ultimately appoint the person (‘the agent’) with the most recommendations. The
appointment is contained in a written agreement annexed to which is a written statement
with guidance on how the agent should act in the best interests of the trust and provides
that the agent must meet with the trustees to update them on the status of investments
whenever required to do so.
Two years later, during one of their regular meetings to discuss investments, the agent
advises that he purchased £325,000 worth of shares in a company that has recently gone
into liquidation. The shares are now worthless.
Which of the following best describes whether the trustees will be liable for the loss in
value to the trust fund?
A The trustees may be liable if they failed to use reasonable care in selecting the agent.
B The trustees will be liable if the agent was negligent in choosing to purchase the
shares.
C The trustees will be liable because the appointment of the agent can only last for a
maximum of 12 months.
D The trustees will not be liable because they appointed the agent in writing.
E The trustees will not be liable because they arranged regular meetings with the agent
to discuss investments.

Answer 54

Answer
Option A is correct. Trustees are not vicariously (or automatically) liable for the defaults of
investment agents. However, trustees may remain liable if they have breached their own
personal duties in appointing and supervising the investment agent. For instance, the trustees
must take reasonable care and skill in appointing a suitably qualified agent, which is unlikely
to have happened on the facts.
Option B is wrong. Just because the agent was negligent in choosing to purchase the shares
does not mean that the trustees are automatically liable for any loss in value. Trustees are not
vicariously liable for the negligence of their investment agents.
Option C is wrong. This option confuses collective delegation under the TA 2000 (which need
not be time- limited in duration, but where the trustees must review the activities of their agent)
and individual delegation under the TA 1925, where attorneys can only be in place for up to a
maximum of 12 months (see Chapter 7).
Options D and E are correct insofar as they go – trustees must appoint investment agents in
writing and they must supervise the activities of the agent from time- to- time. However, these
are not the only personal duties that trustees owe when collectively delegating investment
functions to an agent, so the fact that they got these things right does not necessarily make
the trustees immune from any liability. These options therefore do not constitute the best
advice to the trustees

Question 55

Question 2
Trustees are appointed to manage a trust fund worth £875,000 for the benefit of the settlor’s
grandchildren so long as they reach the age of 21 years. There are four grandchildren, all
under the age of 21 years. There are no relevant express provisions in the trust deed.
One of the grandchildren – a grandson aged 19 years – asks the trustees to make an
unsecured loan of some trust money. He wants the money so the company he has just set up
can purchase a warehouse and promises to pay the money back to the trust with interest.
The trustees are unwilling to use their powers of advancement.
Which of the following best describes whether the trustees can use their investment
powers to help the grandson?
A The trustees must lend the money to the grandson as requested because the grandson
is of full age and capacity.
B The trustees can lend the money to the grandson as requested, but do not have to
because how they invest trust property is a matter for them.
C The trustees can lend the money to the grandson as requested, but only if they
reasonably conclude this is a suitable use of money and they take a mortgage over the
warehouse in exchange for the loan.
D The trustees cannot lend the money to the grandson because, when exercising their
investment powers in respect of land, that land must be either occupied or used by the
beneficiary (and not a company belonging to the beneficiary).
E The trustees cannot lend the money to the grandson because the only way that trust
money can be given to a beneficiary before their interests vest is by the trustees
exercising their powers of advancement.

Answer 55

Answer
Option C is correct. A loan secured on land is a type of investment that falls within the
trustees’ general power of investment, but the trustees must consider whether this loan is an
appropriate use of trust money, by reference to the standard investment criteria (suitability and
diversification) and whether they are treating all the beneficiaries impartially.
Option A is wrong. The decision to exercise powers of investment is a decision for the trustees.
The beneficiaries cannot dictate to the trustees how to exercise those powers.
Option B is wrong. An unsecured loan is generally not considered to constitute an investment.
Option D is misleading – the investment is the loan secured on land (not the land itself). In
any event, if the trustees were considering whether to purchase the warehouse as a form
of investment for the trust, the fact that the warehouse is not being used by the beneficiary
himself would not prevent the trustees from using their investment powers under s 8 of the
TA 2000.
Option E is wrong. It is possible for the trustees to lend money properly secured to a
beneficiary as opposed to exercising their statutory powers to advance capital to that
beneficiary (under TA 1925, s 32). Whether that is an appropriate use of their investment
powers is another issue.

Question 56

Question 3
An independent financial adviser has been appointed a trustee for a management
consultant for life and a student in remainder. The trust fund has been valued at more than
£900,000. The trustee uses all of the trust fund to purchase shares in a large international
company headquartered in India whose shares trade on the Dow Jones (New York stock
exchange). The company’s share- value has recently posted significant growth and the
company has a reputation for paying significant dividends to its shareholders.
Which of the following statements best describes why the trustee is likely to be in
breach of trust?
A The trustee is only permitted to purchase shares in UK companies.
B Shares are not an authorised form of investment.
C The shares are not a suitable form of investment.
D The shares do not represent a diverse form of investment.
E The trustee failed to take proper investment advice before purchasing the shares.

Answer 56

Option D is correct. When purchasing investments, trustees must have regard to the
standard investment criteria – suitability and the need for diversification. In this case, using
the entire trust fund to purchase shares in one company does not respect the need for
diversification. If the company gets into financial difficulties, the value of the trust fund may
be materially and adversely affected.
Option A is wrong. The general power of investment contained in s 3 of the TA 2000 is not
limited to the UK. Trustees can purchase investments based in any part of the world (so
long as the trustee complies with the other investment duties in this chapter). This is different
to purchasing land, where the power contained in s 8 of the TA 2000 is limited to land in
the UK.
Option B is wrong. Shares are capable of producing both capital and income returns and
are therefore a classic form of authorised investment.
Option C is wrong. Shares, in general, are a good investment for this trust. The trustee must
consider the income needs of the management consultant and the capital needs of the
student. Shares are capable of meeting these two needs. Focusing on the company itself,
there is nothing on the facts to suggest that the company is a bad investment – it has a history
of capital growth and dividend payments. The real issue here is one of diversification.
Option E is wrong. Whilst generally it is the case that trustees must take proper advice before
purchasing investments, they do not need to do so when they reasonable conclude that it is
unnecessary to do so. The trustee is an independent financial adviser and it is reasonable
to conclude that the trustee can take investment decisions without needing assistance from
someone else.

Question 57

When can trustees keep personal profits?

Answer 57

Trustees can keep personal profits if:
(a) this is authorised by the declaration of trust;
(b) all the beneficiaries are aged 18 years or over, know the full facts and consent; or
(c) this is authorised by a court order or by statutory provision.

Question 58

Competition with the trust?

Answer 58

Where the trust includes a business, the trustee must not set up their own business in
competition. If they do so, they will be liable to account for any profits made by their
competing business. If the beneficiaries become aware that the trustee is planning to set up a
competing business, they can obtain an injunction to prevent this from happening.

Question 59

Remuneration of trustees?

Answer 59

Trustees cannot demand payment for their services from trust funds unless authorised by:
(a) Express provision in the trust deed. Trustees can charge fees if there is a clause
authorising remuneration in the declaration of trust. It is relatively common for trust deeds
and wills to contain such clauses. They are often referred to as ‘charging clauses’.
(b) The beneficiaries consenting. If the beneficiaries are all 18 years or above, they can
agree to pay the trustees remuneration. However, the agreement must be fair and the
trustees must make full disclosure of all relevant facts, otherwise the beneficiaries can set
aside the agreement at a future date.
(c) Court order. The court should order remuneration if it is in the interests of the beneficiaries
because, for instance, the trust needs the skill of the trustee in question and their fees are
not excessive compared with those of other professionals.
(d) The TA 2000. Save where the trust deed makes any provision about remuneration:
(i) a trust corporation, or
(ii) a trustee who acts in a professional capacity and who is not a sole trustee, and
where the other trustees have agreed in writing,
is entitled to receive reasonable remuneration. A trustee acts in a professional capacity
if they act in the course of a profession or business that consists of or includes the
provision of services in connection with the management or administration of trusts.
What is reasonable to charge will depend on the individual facts of each case. That will
include considering the nature of the services to be provided, the size of the trust and the
attributes of the trustee who is seeking to charge.

Question 60

Use of information or opportunity?

Answer 60

A trustee is liable to account for any profits they receive where they received that profit by
exploiting an opportunity that belonged to the trust. Likewise, a trustee who makes use of
confidential information for their own personal gain when they only became aware of the
information due to their trusteeship will have to account for any profits they receive. This is the
case whether or not the trust could have taken advantage of the opportunity or was interested
in the information.

Question 61

When can a trustee keep their personal profit?

Answer 61

Authorisation as a defence. If the trustee secures a personal profit from their position as
trustee, they will only be allowed to keep that personal profit if (a) the trust deed allows
this, (b) the beneficiaries consent (the trustee must secure the consent of all beneficiaries,
who must be 18 years or over and fully informed of the material facts) or (c) the court or
statute authorises this.

Question 62

Question 1
Two trustees were appointed to manage a trust fund comprising the freehold of a block
of flats in Lincolnshire. The trustees secured an independent, professional valuation on the
premises, which concluded that the current freehold value was £425,000 but that the local
real estate market was in difficulty and that the value was likely to drop considerably in
the future. Having considered the interests of the beneficiaries, the trustees decided that it
would be in their best interests to sell the freehold and buy other investments more likely to
generate capital growth.
The trustees decided to sell the freehold at auction two months ago. The auction was
conducted by an independent, professional firm of auctioneers with experience of selling
real estate. One of the trustees decided to take part in the auction and made the highest
bid for the property at £450,000.
The beneficiaries have just found out about this.
Which of the following best describes whether the beneficiaries can set aside the sale
of the block of flats?
A The sale must be set aside because the trustees failed to get the beneficiaries’ prior
approval.
B The sale can be set aside by the beneficiaries, so long as they do so within a
reasonable timeframe.
C The sale cannot be set aside by the beneficiaries because the trust has not suffered a
loss, the purchase price being higher than the current market value for the property.
D The sale cannot be set aside by the beneficiaries because the trustees secured
professional advice on the valuation of the property and its sale.
E The sale cannot be set aside by the beneficiaries because the property was sold by
auction, which ensures that the trust got best value for the sale.

Answer 62

Answer
Option B is correct. This is an example of ‘self- dealing’ – one of the trustees has sold trust
property to themselves. The transaction can be set aside at the request of the beneficiaries,
so long as that decision is taken within a reasonable timeframe.
Option A is wrong. Whether or not the beneficiaries set aside the transaction is a matter for
them – they are not obliged to do so (and might not given that the purchase price was higher
than current market value).
Options C, D and E are wrong. Beneficiaries are allowed to set aside a ‘self- dealing’
transaction regardless of how honest the trustee’s actions were or how fair the transaction is.
Such matters are irrelevant. The fact that the trust has not suffered a loss, that professional
advice was obtained and that the sale was conducted via auction do not provide the
purchasing trustee with any kind of defence.

Question 63

Question 2
Three trustees have been appointed to manage trust property: an accountant, a piano
teacher and a solicitor. At their first trust meeting held six months ago, the trustees agreed
in writing that the accountant and the solicitor could each charge the trust £150 for every
hour spent on trust business and that the piano teacher could charge the trust £100 for
every hour spent on trust business.
The trust deed contains no provisions about whether trustees can or cannot charge fees.
Which of the following best describes whether the trustees can charge the fees they
have agreed?
A All the trustees can as they are all entitled to be paid reasonable remuneration for
services they provide and have agreed this in writing.
B The accountant and the solicitor can so long as £150 an hour is reasonable.
C Only the solicitor can because only the solicitor is a professional trustee entitled to
charge remuneration.
D Only the piano teacher can as her agreed charge- out rate is lower than the others.
E None of the trustees are entitled to be paid remuneration for services they provide.

Answer 63

Answer
Option B is correct. In the absence of any express provision in the trust deed, professional
trustees are entitled to reasonable remuneration for their services, so long as there is more
than one trustee in office and the agreement to charge fees is in writing. The accountant
and the solicitor are both likely to satisfy the statutory definition of a ‘professional trustee’
(both acting in the course of a profession or business that consists of or includes the
provision of services in connection with the management or administration of trusts).
Options A and D are wrong. The piano teacher is not a professional trustee and therefore
cannot rely on the TA 2000 to authorise the payment of her fees. In the absence of beneficial
consent or court authorisation, the piano teacher will not be allowed to charge fees to the trust.
Option C is wrong. Both the accountant and the solicitor are likely to satisfy the definition
of a professional trustee, and therefore both should be able to rely on the statutory
authorisation to charge fees as set out within the TA 2000.
Option E is wrong. Trustees can only be paid remuneration from the trust fund if this has
been authorised. Such authorisation can be provided by the TA 2000 (the trust deed does
not contain any express provision excluding the operation of the Act).

Question 64

Question 3
Three trustees – an actuary, a business analyst and a chartered accountant – are
appointed to manage a large trust fund. The trust owns various retail buildings in the local
town centre. At a trust meeting last month, the trustees agreed (with the benefit of advice
from an external adviser) that they were happy with the investments in the trust fund and
were not minded to make any changes to the current portfolio over the next six months.
As the meeting was coming to a close, over coffee, the external adviser told the chartered
accountant that an office block next door to one of the trust’s retail buildings was going to
come on the market in a few weeks. The external adviser told the chartered accountant that
the office block was in a prime location and that if the chartered accountant got in before
it went on the market, he could probably purchase it at a discounted price. The chartered
accountant spoke to the trust’s solicitor, who advised that there was no reason why he could
not buy the office block himself. After some quick negotiations with the owners, he did so.
The other trustees have just found out and are unhappy with the course of action taken by
their fellow trustee. They claim that they would have been interested in buying the office
block had they known about it.
Did the chartered accountant breach a fiduciary duty?
A Yes, because he has allowed his own personal interests to conflict with those of
the trust.
B Yes, because he has engaged in self- dealing.
C No, because his actions could not reasonably be regarded as likely to give rise to a
conflict of interest.
D No, because the trust’s solicitor authorised him to purchase the office block.
E No, because the trustees had just agreed not to purchase any further investments for
the time being.

Answer 64

Option A is correct. As a trustee, the chartered accountant must ensure that his own interests
do not conflict with the interests of the trust. He became aware of the opportunity to purchase
the office block at the end of a trust meeting – that information properly belonged to the trust.
He has therefore used trust property to gain a personal advantage. He should have shared
that opportunity with his fellow trustees to see whether they wanted to take advantage of the
opportunity on behalf of the trust.
Option B is wrong. This is not a case of self- dealing. Self- dealing occurs when a trustee sells
property to or purchases property from the trust. Neither has happened here.
Options C and E are wrong. These options suggest that there has been no breach of fiduciary
duty given that the facts imply that the trust was unlikely at the time to have taken advantage
of this opportunity had the other trustees known about it, and therefore any potential conflict
is more hypothetical than real. However, a trustee can still breach a fiduciary duty by taking
advantage of an opportunity that properly belonged to the trust, even when the facts suggest
that the trust would not have taken advantage of that opportunity or was not interested in it.
In this situation, the chartered accountant should have tried to persuade the other trustees that
the opportunity was a valuable one for the trust, failing which, if he wanted to purchase the
property himself, he should have secured authorisation from the beneficiaries or the court.
Option D is wrong. The approval from the solicitor to purchase the office block is not a valid
form of authorisation allowing the chartered accountant to do so. In the absence of anything
set out in the trust deed, the only people who could provide the required authorisation would
be the beneficiaries or the court.