Trusts 4 - Trustees duties Flashcards
Running a trust
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Powers and Duties
Bs can compel duties.
e.g. fixed interest duty to distribute at right time to right beneficiary.
Bs have little control over powers.
Powers -
Must consider
a) whether to exercise them
b) to do so properly
Express provisions -
exclude, modify or amplify law.
Duty of care -
all precautions which an ordinary prudent man of business would take in managing similar affairs of his own.
Objective
Higher for professional
Duties when starting out -
(a) ensure that they have been properly appointed;
(b) ascertain what the trust property consists of and take all reasonable and proper
measures to obtain control of the trust property – if the transfer of trust property to the
new trustee is outstanding, the new trustee must press for that transfer to take place;
(c) review the trust document and associated paperwork to familiarise themselves with
the trust and how it works – the other trustees must produce papers relating to the
administration of the trust;
(d) 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; and
(e) where there are chattels held on trust, ensure that a proper inventory is drawn up.
Duty to act impartially between Bs -
must not benefit one at expense of another.
May find breach if continually prefer
Duty to act personally and unanimously -
Personally - personally active in running of a trust.
Outside powers to delegate to deputy
If;
leaves matter in hands of co-trustees without enquiry
allows trust funds to remain in sole control of co-trustee
fails to watch over and if necessary correct conduct of co-trustees or
fails to take action knowing that a co-trustee was committing or about to commit a breach of trust
May be liable to make good any loss suffered.
Cannot allow experts to make decisions for them when seeking advice.
Duty to exercise discretions properly -
Can intervene if powers exercised improperly
Must exercise power in;
(a) in good faith;
(b) rationally;
(c) for the purpose for which it was created;
(d) with regard to relevant material matters and without regard to irrelevant ones;
(e) with regard to all relevant facts; and
(f) with regard to any legitimate expectation that a beneficiary might have that the power be
exercised in a particular way
Reasons -
do not generally need to give reasons, but if do Bs and court can enquire into soundness.
Where particular B has legitimate expectation discretion will be exercised in their favour may be obliged to give reasons and advance warning if thinking of exercising differently.
Disclosure of information -
Entitled to see
a) trust document or will that created trust
b) trust accounts
c) schedule of trust investments or other documents that show trust property invested.
Not obliged to demand deliberations or reasons.
Not obliged to give reasons
Cannot demand sight of letters of wishes from settlors.
May have non-binding letter of wishes in discretionary
If want to see reasons for exercise of decisions may apply to court.
Court start with presumption documents should not be disclosed.
UNLESS
such disclosure is in interest of sound administration of trust.
Court refuse if family to fall out, or reveal confidential information about finances or state of health of individual Bs.
Investment
Best practice take advice
If perform badly and followed duties generally cannot complain.
Objectives
Consider -
interests Bs have
Circumstances of Bs
How long trust last for (short or long-term)
Size of fund
Tax positions
Investment types
Income and/or capital return
Shares -
Incoe - dividends
Capital - rise in value
Worth spreading investment in various sectors and geographies.
-Blue chip (safe)
Bonds -
Income - coupon
Capital - can generate when sold on secondary
Loan be repaid.
Gilts (government safe)
Property
Income - rent
Capital - rise in value
Cash in bank
Income - interest
Capital - no capital growth
Safe but long-term should have small proportion.
Not classed as investments
Run-around car
Bets
Unsecured loans - (cannot do so unless express provision).
Settlor may expressly identify investments.
must be followed.
Can exclude liability of trustees
Authorised investments -
Can make any type they would as if were absolutely entitled to assets - save for land.
S8 may acquire freehold or leasehold in UK either -
-as an investment
-for occupation by B
-for any other reasons.
Duties when investing
Standard investment criteria (s4 TA 2000)
- must be suitable for trust
(Two-step process)
Whether trust should invest in (example -shares)
What shares next and size of investment.
Need for diversification
Must review from time-to-time.
Must have regard to standard investment criteria.
Question of fact
Six months fine, but if economic crisis should have then.
When reviewing or selling/purchasing - should obtain proper advice from someone they reasonably believe to be qualified to give such advice.
Unless reasonable conclude improper to do so.
Must still exercise powers personally.
must exercise such care and skill as reasonable in the circumstances (overarching duty of care)
Professional held to higher standards.
Non-statutory duties -
Common duties -
a) must act impartially between Bs. (life tenant and remainders)
b) must secure best return for Bs. Financial considerations over other considerations. Not guided by own ethical or moral views.
May take ethical considerations into account -
-if investment in ethical concern likely to yield as good return as investment that is more morally dubious, can invest in ethical conner
-if trust charitable, can properly refuse to invest in things that might be at odds with charitable purpose of the trust and might alienate supporters
-settlor can set out in declaration should not invest in specified areas or unethical areas.
Delegation
Collectively delegate to third party or one of their number (so long as suitably qualified)
Cannot delegate to a B.
Third party can be paid reasonable renumeration.
Must comply with;
-must retain investment agent by written agreement
-prepare written statement (policy statement) that gives guidance as to how agent should act. Exercise reasonable care and skill in putting policy statement together.
-written agreement under which agent retained must include a term to effect agent will secure compliance with statement
-agent must comply with same statutory and non-statutory investment duties
-trustees must regularly review arrangements and how working - whether to revise or update policy statement
-must select suitably qualified person to whom their asset management functions delegated - made with reasonable care and skill.
S23 - not liable for any act or default of the agent, unless breached duties above.
Fiduciary duties
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Fiduciary?
Someone who has undertaken to act for or on behalf of another in particular matter in circumstances that give rise to a relationship of trust and confidence (Bristol and West Building Society v Mothew 1988)
People who are in this category -
trustees
company directors
business partners
agents (owed to principal)
senior employees with access to confidential information
solicitors to client
Core fiduciary duty
Must not
-put themselves in a position where their own interest conflict with interest of the principal (no conflict rule)
-make unauthorised personal profit form their position or use principal property to make such a profit (no profit rule).
Obliged to account for profit.
Liability applied strictly
When they can make a personal profit -
a) authorised by declaration of trust
b) Bs aged 18 or over, know full facts and consent
c) authorised by a court order or statutory provision
Breach of fiduciary duty
Self-dealing -
selling from themselves (from trust)
Bs can set transaction aside at later date.
Not automatically void.
Set aside for any reason within reasonable time limit.
Cannot get around by retiring from trust.
Competition with trust -
where trust includes business, must not set up own business in competition.
Liable for profits of business.
If Bs become aware can obtain injunction
Renumeration of trustees -
Cannot demand payment from services unless authorised by
-express provision
-B’s consenting - (18 or above) - must be fair and trustee must disclose all facts, otherwise can set aside at later date
- Court order - If in intents of Bs - e.g. needs skills and not excessive compared to other professionals
-TA 200 - trust corporation or trustee in professional capacity who is not sole trustees and other trustees agreed in writing, entitled to receive reasonable renumeration
Can be reimbursed for any expenses properly incurred when acting on behalf of trust.
Incidental profits - director salary -
if In shares consider appointment on board of directors.
Absence of express agreement
Must surrender salary to trust if only by virtue of being a trustee.
Use of information or opportunity -
liable to account for parity where receive profit by exploiting opportunity belonging to the trust.
If make use of confidential information for own personal gain only become aware of information due to trusteeship, account for profits receive.
Whether or not trust could have taken advantage of opportunity.
Boardman v Phipps (1967) -
slight conflict of interest not allowed.
must contain consent of all Bs
Remedies
If breached and not obtained authorisation
Bs can bring;
Personal claim - surrender personal profit
does not need to suffer loss e.g. commission from trustee
Proprietary claim
