Trusts 7 Flashcards
What are 2 the fiduciary duties specific to trustees?
- Duty not to profit from trusteeship* Duty not to purchase trust property (rule against self-dealing)
What are the 9 equitable duties of trustees?
- Duty to observe terms of the trust* Duty of care* Duty to act jointly* Duty to act personally* Duty to take possession of trust property* Duty to keep accounts and disclose information* Duty to act impartially* Duty of confidentiality* Duty to invest
In what ways can beneficiaries control trustees?
- Right to compel exercise of duties (but not to control exercise of discretion)* Right to inspect trust documents* Right to appoint new trustees and bring trust to an end only when all are absolutely entitled
What is the duty not to profit from the trusteeship?
Where any profit is made by the trusteeship, equity imposes a constructive trust to prevent the trustee from profiting (arisies from duty to avoid conflicts of interest). This includes:* Directors’ fees (trustee only entitled if they would be appointed anyway)* Profts from information or opportunity even where no obvious conflict arises* Remuneration (exceptions: charging clause, professional trustee charges, trust corporations, consent of beneficiaries, court approval)
Can a trustee who obtains remunerative employment by virtue of the trusteeship holds keep the remuneration?
No, the remuneration is held on constructive trust for the trust beneficiaries. * Often applies where a trustee has been appointed to be a company director by virtue of the fact that they hold shares in the company as trustee. * However, if it can be shown that the trustee would have been appointed as a director even without the voting rights attached to the company shares, the rule does not apply.
A trust holds 40% of the shares in a family company, X Co Ltd. The trustee holds a further 5% of the shares in his personal capacity, and the remaining 55% are held by other family members. The trustee is voted in as a director by a 60% majority including the votes attached to the trust shares. If the trustee is paid director’s fees, are they entitled to keep them?
No, the trustee holds their director’s fees on trust. If the 60% majority had consisted of the votes of the trustee and the remaining family members, the rule would not apply and the trustee could retain his director’s fees.
If there is no obvious conflict between the interests of the trust and the trustee, can the trustee keep any personal profit made as a result of opportunities or information gained from their trusteeship?
No, the trustee holds that profit on constructive trust, even where there is no obvious conflict
The property of a trust includes shares in a private company. T, the trustee, as a shareholder, discovers that the company is not running efficiently. T acquires shares in the company in their personal capacity so that, together with the trust shares, T gains control of the company. T proceeds to manage the company’s affairs in such a way as to make a profit for T and the trust. Can T retain any personal profits for herself?
No. Even though T has acted in the interests of the trust, T holds the personal profit T has made on constructive trust and must hand it over. However, on similar facts, a court awarded the trustee generous remuneration for their time and effort.
A trust includes a shareholding in Company A. This enables a trustee to obtain information about that company. The trustee then purchases shares in that company, in their personal capacity, and uses the information gained as trustee to inform their voting as a shareholder so as to generate personal profit. Can they keep this personal profit?
No, they must hand over the profit made, since this results from their trusteeship.
Are trustees permitted to charge for their services?
Generally, no although they may recover out-of-pocket expenses. The following exceptions apply:* Charging clauses in the trust instrument * Professional trustee charges* Trust corporation* Consent of beneficiaries* Court authorisation
What are the 3 requirements for a professional trustee to be permitted to charge for their services?
A professional trustee, other than a trust corporation, may charge reasonable remuneration for their services, provided that:* They are not the sole trustee * The co-trustee(s) give their written consent and * There is no express provision in the trust instrument relating to the trustees’ charges (whether a charging clause or a prohibition on charging)| Trustee Act 2000
A and B are trustees holding a large portfolio of shares on discretionary trusts for a defined group of beneficiaries. They wish to appoint C, an accountant, to share their duties. The trust instrument does not include any special administrative powers. A and B may appoint C to be an additional trustee. C wants to be paid for her services. Is this permitted?
C may be paid reasonable remuneration for her services provided that A and B agree in writing to her charges.
Can a trust corporation charge for its services?
A trust corporation may charge reasonable remuneration for itss services even if it acts as a sole trustee.| Trustee Act 2000
In what circumstances can the beneficiaries authorise remuneration of trustees?
If all the beneficiaries are of full age and capacity, they can agree to a trustee receiving payment.
When will the court authorise remuneration of trustees?
The court may authorise payment to a trustee when the trust is exceptionally onerous or when the trustee has performed exceptional services.
What is the rule against self-dealing by trustees?
- A trustee may not purchase any property owned by the trust-even if the trustee pays full value or the purchase is made in the open market. * Any such purchase by a trustee is voidable at the instance of the beneficiaries. * A trustee’s good faith or actual benefit to the trust is irrelevant. Note: in exceptional circumstances, the court may permit a self-dealing transaction to go aheadThe rule does not apply to the beneficial interest of a beneficiary which may be purchased in certain circumstances
A trust’s assets include 2,000 shares of Google common stock. Determining that there is a need to diversify the trust’s investments, the trustee purchases 1,000 shares of Google stock from the trust, paying the market value as determined by the stock exchange quotes on the day of the purchase. Is this transaction permitted?
No. This is improper self-dealing. If the Google stock later goes up in value, the trust beneficiaries can demand that the trustee return the Google stock to the trust and take back the purchase price without interest.
What is the exception to the rule against self-dealing?
In exceptional circumstances, the court has the authority to permit a transaction of self-dealing to go ahead.
One of three executors of an estate wished to purchase the trust property. The executor was open and honest about his intention, informed the parties, the purchase was made at a public auction, and at the material time the executor in question had only undertaken minor activities on behalf of the estate. Is this transaction permitted?
Generally, no, this is self-dealing. However, the court considered the case sufficiently exceptional to allow the transaction to proceed, notwithstanding the general prohibition on self-dealing.
Is the beneficial interest of a beneficiary subject to the rule against self-dealing?
There is no rule to prevent a trustee from purchasing the beneficial interest of a beneficiary, but such a transaction will be voidable if:* the trustee cannot show that the trustee paid a fair price, * made full disclosure of all material facts to the beneficiary, and * in no way abused their position.
A trustee is holding funds for J for life, with remainder to R. J wishes to raise a capital sum and offers to sell his life interest to the trustee for a lump sum. Is the trustee permitted to buy this?
The risk is that the trustee may have information about the trust and its investments of which J is unaware. If the trustee wishes to make the purchase, the trustee may do so but should have the interest professionally valued and must disclose all relevant information to J.
Why is a trustee under a particular duty to observe the terms of the trust?
The settlor may limit or extend the trustees’ powers and duties by making specific provision in the trust instrument when the trust is created. The trustee has a duty to familiarise themselves with the trust document and observe its terms.
How is the standard of care determined in relation to trustees?
Yes, in exercising their duties and discretions, trustees must meet the requisite standard of care. * In relation to the exercise of certain statutory powers (e.g. to invest/appoint agents), the duty of care is statutory under the Trustee Act. * In relation to other powers and duties the standard of care is that developed by case law. In either case, it is open to the settlor to modify the relevant standard in the trust instrument.
What is the statutory test for the standard of care of trustees?
The trustees must exercise “such care and skill as is reasonable in the circumstances” taking into account any special knowledge the trustee has, or holds himself out as having (i.e. professional trustees are held to a higher standard e.g. ‘reasonable accountant’).
What is the general test (i.e. developed by case law) for the standard of care of trustees?
When the statutory duty does not apply, the traditional test remains. Trustees are under a duty to act with the “prudence of an ordinary man of business” acting in relation to their own affairs e.g. this applies where trustees are exercising their statutory powers of maintenance and advancement.
What is required under the duty of trustees to act jointly?
If there is more than one trustee, they must act jointly. This means that:* each trustee must remain active in the running of the trust, and * the trustees must act unanimously in the exercise of their discretions. Of course, trustees may act by majority decision if there is a clause in the trust deed allowing this or if the court authorises a majority decision.
In what 2 situations may trustees act by majority decision rather than jointly?
If* there is a clause in the trust deed allowing this or* the court authorises a majority decision.
What is required under the duty of trustees to act personally?
Trustees must act personally and have no general power to delegate their functions. However, three statutory exceptions apply to:* administrative functions * investment decisions in certain circumstances* executing a power of attorney to endure for a fixed term not exceeding 12 months (can delegate to an individual or trust corporation)
What administrative functions are trustees permitted to delegate?
Trustees, acting together, may delegate purely administrative functions to an agent e.g. the preparation of tax returns, accounts, or legal documents on behalf of the trust.* Note, they may not delegate the exercise of discretions. * The trustees must exercise due care in selecting and supervising agents. * If the trustees select and supervise agents in accordance with the statutory duty of care, the trustees are not liable for acts or omissions of the agents.
When will trustees be liable for acts or omissions of agents to whom they have delegated administrative functions?
If they fail to exercise due care in selecting and supervising the agents.
Up to how long can a trustee delegate their power under a power of attorney?
12 months
If a trustee delegates their power under a power of attorney, in what circumstances will they be liable for the acts or omissions of the agent?
Always. The trustee remains liable for the acts and omissions of the attorney as if they had acted personally.
What is required under the duty of trustees to take possession of trust property and when will it be particularly relevant?
Trustees must ensure that all the trust property is in their joint possession and control.If there is more than one trustee and trust property is left in the control of one of them, the co-trustees will be liable if that trustee misappropriates the property.
Why is the duty of trustees to keep accounts and disclose information important?
Trustees must keep accounts and records, and they must produce them to the beneficiaries when required. Disclosure enables the beneficiaries to hold the trustees to account.
What is required of trustees under the duty to act impartially?
The duty of loyalty requires that the trustee act impartially with respect to all beneficiaries, unless the trust instrument specifies otherwise.
In what type of situation is it particularly difficult for trustees to act impartially?
Where the beneficiaries are entitled to successive benefits e.g. a life interest for A with remainder to B. * The trustee has a duty to A to see that the trust property produces income. The trustee violates their duty to A if the trust property is not income-producing. * On the other hand, to carry out their duty to B, the trustee must ensure that the trust property will not depreciate in value.
What is the scope of a trustee’s duty of confidentiality?
Any information obtained in the course of the discharge of their functions as trustees. * Information gained by the trustees in their capacity as trustees cannot be exploited for their own personal gain. * However, beneficiaries may consent to waive this duty if they are fully informed by the trustees (i.e. the trustee would have to disclose what they intend to do with the information).
What is required for beneficiaries to be able to waive a trustee’s duty of confidentiality?
They are fully informed by the trustees (i.e. the trustee would have to disclose what they intend to do with the information).
What are the 4 elements of a trustee’s duty to invest?
Trustees must ensure that: * The investments they select are authorised either by statute or the trust instrument* They take into account the relevant criteria in selecting investments (‘standard investment criteria’)* They take any necessary advice in making investments and* They keep their investments under appropriate review. Trustees are under a duty to invest trust funds in order to produce income. Their investment powers are regulated by the Trustee Act, subject to any modification set out in the trust instrument.
What are ‘authorised investments’ in the context of a trustee’s duty to invest?
General power of investment - power of beneficial owners* Trustees may make any kind of investment (except land) that they could make if they were absolutely entitled to the trust assets. Power to Acquire Land * Trustees may acquire freehold or leasehold land in the UK, for occupation by a beneficiary or for any other reason. * Purchase of land outside the UK, whether as an investment or for any other reason, is not authorised unless the trust deed provides otherwise. Provisions in Trust Instrument* The statutory powers may be extended or restricted by the trust instrument e.g. exclude certain sectors such as the tobacco or arms industries, usually for ethical reasons.
What specifically does ‘investment’ mean in the context of the duty of trustees to invest?
Traditionally, ‘investment’ was interpreted to mean the purchase of an income-producing asset, but in more recent years, it has been accepted that a purchase primarily aimed at producing capital growth could fall within the definition e.g. companu shares, valuable antiques etc.
What are the standard investment criteria in the context of the duty of trustees to invest?
Trustees must have regard to: * The suitability to the trust of the type of investment proposed and the particular investment under consideration and * The need for diversification of investments of the trust so far as appropriate to the particular circumstances of that trust. This applies to investements permitted under statute and the trust instrument
Trustees are holding a fund of £10,000 for a beneficiary aged 17. The trust will end next year on the beneficiary’s 18th birthday. In performing the duty to invest, what must the trustees consider in relation to the standard investment criteria?
The trustees will take into account the fact that the fund is relatively small and that the assets will need to be realised within a year. They are likely to select an asset which is easily realisable, such as a bank deposit account, and there is little need to diversify.
Trustees are holding a fund of £300,000 on trust for B for life, with remainder on his death to his children in equal shares. B is aged 21 and as yet has no children. In performing the duty to invest, what must the trustees consider in relation to the standard investment criteria?
The trustees will need to balance the need to produce income for B with the need to maintain the value of the capital for the children. They will be considering long-term investments, which might be a mixture of different types of shares and government stock, to ensure that the investments are diversified.
What advice is required in the context of the duty of trustees to invest?
“Proper advice” about how to invest with regard to the standard investment criteria must be obtained and considered before they exercise any power of investment* It must be from a person the trustees reasonably believe to be qualified to give it by reason of their ability and practical experience (they don’t need to be a qualified financial advisor). * The belief must be genuine (subjective test) and reasonably held by the trustees (objective test). * Advice is not necessary if the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate.
In the context of the duty of trustees to invest, are truestees required to be advised by a professional?
No, the adviser does not have to be a qualified financial adviser but merely a person experienced in such matters and suitable to provide investment advice
In the context of the duty of trustees to invest, when is advice not required?
If the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate.
Trustees are holding a fund of £10,000 for a beneficiary aged 17. The trust will end next year on the beneficiary’s 18th birthday. Are the trustees required to take advice on the investment?
The trustees may conclude that it is unnecessary to take professional advice given the short-term nature of the investment and their intention simply to place the money on deposit.
Trustees are holding a fund of £300,000 on trust for B for life, with remainder on his death to his children in equal shares. B is aged 21 and has no children. Are the trustees required to take advice on the investment?
In this case, the trustees should take advice from a professional financial adviser about how, based on the standard investment criteria, the likely long-term nature of the investments and the need to balance income and capital returns, they should invest the trust funds.
What specifically must trustees review in the context of their duty to invest?
- Trustees must keep their investments under review and consider whether, having regard to the standard investment criteria, they should be varied.* Proper advice should be obtained when making such reviews
What is the standard of care applicable to the duty of trustees to invest?
The statutory standard i.e. to act with such care and skill as is reasonable in all the circumstances
Can a trustee’s duty to invest be delegated?
Yes. Trustees have the power to delegate the choice of investments to an asset manager. * There are detailed provisions requiring the preparation of a written policy statement for the asset manager to follow, which must include full details of the trusts (e.g. no. and ages of beneficiariaries, size of fund etc) and the investment objectives. * This policy statement must be incorporated into the contract between the trustees and the asset manager.* These powers also enable the trustees to vest the trust investments in a nominee in order to enable the asset manager to deal with the investments.| Trustee Act 2000
What must be in place for investments to be permitted according to the moral and ethical considerations of the settlor or beneficiaries?
- Express provisions in the trust deed to that effect or* Beneficiaries’ consent. Example: a charitable trust may limit its powers to purchase certain investments if it would be inconsistent with its purposes e.g. an environmental charity might not want to invest in oil and gas companies.
How do trustees avoid liability for losses in trust investments?
- Complying with all the requirements i.e. making authorised investments by taking into account the standard investment criteria with proper advice and keeping investments under review.* If they do, they will not be liable to the beneficiaries for losses where trust investments go down in value or fail to appreciate in line with inflation.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
What 5 rules apply in relation to the power of trustees to pay maintenance out of income?
- Income can only be used for the maintenance, education or benefit of the minor if the beneficiary has an interest in the income* Income accumulated in earlier years may be used for maintenance, education or benefit/reinvested* Beneficiary is entited to income at 18 (accumulated income depends on whether interest is vested or contingent)* Settlor may amend the power in the trust instrument* Income payabe on pre-1 October 2014 trusts is limited to ‘income as is reasonable in all the circumstances’
What is ‘income’ and ‘accumulated income’ in relation to a trust?
- Income is the money generated by the investment of the trust property (minor beneficiaries have no right to income during minority)* Accumulated income means the income that was not used but instead kept for future use. Example: interest earned on money in a bank, dividends received on shares
Trustees are holding a fund on trust for B, to be distributed when B attains the age of 25. B is 15 years old. Can B access any of the fund?
B has an interest in the income, and the power of maintenance applies. The trustee may use the income from the trust assets to support B until he is 18.
Trustees are holding a fund on trust for L for life, with remainder to B. L is 45 and B is 15. Can B access any of the fund?
L is entitled to the income of the fund, and the trustees must pay it to her. B has no interest in the income, and so the power of maintenance does not apply. If L dies before B is 18, he will then have an interest in the income and the power will apply.
What is the first thing to check in an exam question regarding the power of trustees to apply income for the maintenance, education or benefit of a minor?
Whether the beneficiary actually has an interest in the income (e.g. if there is a life interest for someone else with remainder to the beneficiary, the life interest beneficiary is entitled to the income, not the remained beneficiary)
When trustees are applying income for the maintenance, education or benefit of a minor, can the money be paid directly to the minor?
No, the beneficiary is not capable of giving a valid receipt. The income must be:* applied directly to the purpose required or * given to a parent or guardian for use in the beneficiary’s interest. Note, trustees must accumulate any surplus income if there is any left over.
If there is a request for income of a trust to be applied for the maintenance, education and benefit of a minor, must the trustees apply the income?
No, they have full discretion and may instead decide to accumulate the income in the trust.
While a beneficiary is under 18, what options are available to trustees in relation to any accumulated income on the trust?
- Use income accumulated in earlier years for the child’s maintenance, education, or benefit. * The accumulated income also may be reinvested to generate future income.
Trustees are holding a fund for a beneficiary, B. In year one of the trust, B is 12. The trustees give some of the income to B’s parents towards her maintenance and accumulate the rest. In later years, the cost of B’s education increases. Are the trustees limited to giving B’s parents only the income generated in the relevant year?
No, the trustees may use the accumulated income as well as the income of the current year if they wish.
When does a trustee’s power of maintenance end?
On the beneficiary’s 18th birthday. From that date the beneficiary is entitled to claim the income as of right. The implications depend upon the nature of the beneficiary’s interest (i.e. vested in income only, vested in income and capital, contingent interest in capital).
What are an 18 year old beneficiary’s entitlements in relation to trust income where they have:* a vested interest in the income * a vested interest in the income and capital* a contingent interest in the capital
Vested interest in the income e.g. life interest* They are entitled to claim the income arising after their 18th birthday and also any income accumulated during their minority. Vested interest in the income and capital* The trust will end on the beneficiary’s 18th birthday, and the trustees must transfer all the trust property, including any accumulated income Interest in the capital contingent on reaching an age greater than 18* Beneficiary is entitled to claim all the income arising after their 18th birthday. Any remaining income accumulated during the beneficiary’s minority will accrue to capital.
Trustees are holding a fund on trust for L for life with remainder to R. During L’s minority, the trustees have been applying some of the income for L’s maintenance and accumulating the surplus. L has just reached the age of 18. What is she now entitled to?
Now that L is 18, the trustees must pay all future income to L, including the income accumulated while she was under 18.
Trustees are holding a fund on trust for B absolutely. B is 16 years old. There are no conditions attached. When B reaches 18, what is he entitled to?
B’s interest is vested. While B is under the age of 18 the power of maintenance applies. The trustees have power to use the income for B’s maintenance, education, or benefit and must accumulate any surplus income. Once B is 18, he is entitled to claim the whole fund, including the accumulated income
Trustees are holding a fund on trust for B provided she attains the age of 25. The fund produces £100 of income per month. B just turned 16 years of age. The trustees use £80 per month for B’s educational costs and accumulate the extra £20 per month income for 24 months (until B reaches the age of 18). When B turns 18, what is she entitled to?
B’s interest is a contingent interest. When she turns 18, the trustees must pay all £100 per month income to Beth. However, the £480 of income (£20 per month x 24 months) that the trustees accumulated during B’s minority accrues to capital, which means that B will not receive it until she is 25. If B dies before she is 25, her contingent interest fails. The fund, including the £480 income the trustees accumulated during B’s minority, will pass under any substitutional gift in the trust instrument. If there is none, the trustees will hold the fund on resulting trust for the settlor or the settlor’s estate if the settlor is dead.
Can the settlor amend the statutory power to pay maintenance out of income?
Yes, by making a specific provision in the trust instrument at the time when the trust is created e.g. to postpone a beneficiary’s entitlement to income beyond the age of 18, giving the trustees power to decide how much income the beneficiary receives until the beneficiary has attained a specified age.
When does a trust in a will take effect?
Date of death
Trusts made before what date are subject to limitations on the power to pay maintenance out of income?
01-Oct-14
What is the limitation on the power to pay maintenance out of income on trusts made before 1 October 2014?
Trustees’ power is to pay or apply only such an amount of income as is reasonable in all the circumstances.
What are the 5 conditions required in order for a trustee to exercise the power to advance capital?
- Beneficiary must have an interest in the capital (whether in possession, in remainder, vested or contingent)* The advance should be for the beneficiary’s advancement or benefit* The amount advanced must not exceed entitlement (vested or presumptive entitlement)* Any advances must be brought into account on final distribution of the fund* Consent of a person with a prior interest is required
If an advance of capital is requested, are the trustees required to pay/apply the advance?
No, their power to advance is discretionary up to the amount of the beneficiary’s presumative entitlement
If a beneficiary has a life interest, can the power of advancement be used?
No, the beneficiary must have an interest in the capital
Trustees are holding a fund on trust for L for life with remainder to R. Can L request an advance?
No. L is entitled to the income of the fund; she has no interest in the capital. R has a vested interest in remainder; that is, she has an interest in the capital of the fund and there are no conditions attached. The trustees have the power to advance capital funds to R but not to L.
Trustees are holding a fund on trust for B provided she attains the age of 25. Can the trustees advance funds to B?
Yes. She has a contingent interest in the capital of the fund.
If a question asks why a payment of capital was a breach of trust, what is the first thing the check for?
Whether the beneficiary had an interest in the capital
Trustees are holding a fund on trust for B provided she attains the age of 25. B is 18 and she wishes to go to university. The income is insufficient to pay her fees. Can B access the fund early?
Yes, the trustees have power to use the capital for this purpose, either by paying it to B or by using it directly to pay the fees.
S Settlor has three children, A, B, and C. Trustees are holding a £300,000 fund for those of S’s three children who attain the age of 25. If more than one attains age 25, they will take in equal shares. Can capital be advanced to A before attaining the age of 25?
Each child has a contingent interest in one-third of the capital. The trustees have power to advance capital of any of the three children. In each case, the amount advanced must not exceed one third of the fund (presently £100,000), the child’s presump. tive share.
S Settlor has three children, A, B, and C. Trustees are holding a £300,000 fund for those of S’s three children who attain the age of 25. If more than one attains age 25, they will take in equal shares. The trustees advance £50,000 to A. When the fund is later distributed, will A be entitled to a share equal to B and C?
No, the £50,000 advance to A must be taken into account when determining his share.
If an advance is to be made to a beneficiary but another beneficiary has a prior interest in the trust, what is required?
If an advance will prejudice any beneficiary entitled to a prior interest, the power applies only if that beneficiary is of full age and capacity and gives their written consent e.g. a person who has a life interest.
Trustees are holding a fund on trust for L for life, with remainder to R. The trustees are considering making an advance of capital for the benefit of R. Can the trustees make this advance?
L must consent in writing to the advance. Any such advance will prejudice L because it will reduce the amount of income she receives.
Trustees are holding a fund on trust for those of the settor’s three children, A, B, and C, who attain the age of 25. If more than one attains age 25, they are to take in equal shares. When A is 22 years old, he asks the trustees to make an advance of capital to him to help set him up in business. Can the trustees make this advance?
Such an advance could ultimately prejudice B and C because if A dies before he is 25, his share will accrue to them. However, they do not have a ‘prior’ interest in A’s share, so the requirement for consent does not apply.
Can the power of advancement be used by trustees if a beneficiary is under 18?
Yes. Note, a beneficiary under the age of 18 cannot give a valid receipt to the trustees, so any advance must either be:* applied directly for the required purpose e.g. the payment of school fees, or * paid to the beneficiary’s parent or guardian for a specified purpose. In such a case, the trustees must ensure that the advance is used for the purpose specified.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
Trusts made before what date are subject to limitations on the power to pay maintenance out of income?
01-Oct-14
What is the limitation on the power to pay maintenance out of income on trusts made before 1 October 2014?
Trustees’ power is to pay or apply only such an amount of income as is reasonable in all the circumstances.
Trusts made before what date are subject to limitations on the power of advancement?
01-Oct-14
What is the limitation on the power of advancement on trusts made before 1 October 2014?
The amount of the advance is limited to one-half of the beneficiary’s vested or presumptive share
What right does a beneficiary have where trustees are not carrying out their duties?
The beneficiaries may compel the trustees to do so, if necessary by application to the court.Note, this does not extend to beneficiaries having control over the way in which trustees exercise their discretion (except in cases of irrationality and capriciousness) provided trustees act within their powers
T and V are holding a large fund on trust for L for life, with remainder to R. The trustees have placed the entire fund in a bank account where it is not earning interest. Can L and R do anything about this?
T and V are in breach of their duty to invest in authorised investments, to consider the standard investment criteria, and to take proper advice. L and R can compel them to carry out their investment duties.
When can beneficiaries challenge the exercise of discretion of trustees?
Only if they can show that the way in which trustees exercised their discretion was irrational or capricious. Note, this can be difficult as trustees are not obliged to give reasons (except where there is a legitimate expectation).
Are trustees obliged to disclose their reasons for the way in which they exercise their power?
No. * This rule applies to powers relating to the disposition of funds (e.g. under a discretionary trust) and also to the exercise of administrative powers (e.g. choice of investments).* Exception: where the trustees have given beneficiaries a legitimate expectation that their discretion will be exercised in a particular way, they may be expected to warn the beneficiary if they intend to change their policy e.g. if trustees of a discretionary trust have been paying a beneficiary the same sum each year for the last 10 years, this exception suggests that they should warn the beneficiary in advance if they intend to discontinue the payments.
Trustees are holding funds on discretionary trusts for the settlor’s children and grandchildren. One of the grandchildren, G, is aggrieved because the trustees have not appointed any funds in his favour. Can G do anything about this?
G has no grounds to question the trustees’ decision unless he can show that the decision was based on irrational grounds. G cannot demand reasons from the trustees as to why they have taken their decision. If the trustees tell G that they have excluded him because, e.g. they dislike the colour of his hair, G can show that the decision is irrational and may challenge the decision by application to the court.
What documents are beneficiaries entitled to inspect?
All the trust documents, including:* the trust instrument* trust accounts, and * minutes of trustees’ meetings, except where those documents contain details of the trustees’ discussions in relation to the exercise of their discretions.
What powers do beneficiaries who are absolutely entitled to trust property have?
If all the trust beneficiaries are of full age and capacity and between them they are absolutely entitled to the entire equitable interest, they may, by agreement:* require the current trustees to retire and appoint new trustees of the beneficiaries’ choice; and * bring the trust to an end and require the trustees to transfer the trust funds to them in the shares they agree.
T and V are holding a large fund on trust for L for life with remainder to R. Both L and R are over 18 and of full mental capacity. What powers do L and R have?
- L and R could agree together to end the trust and require the trustees to share the fund between them. L and R would need to agree on their respective shares of the capital, and should take actuarial advice based on L’s age and life expectancy. * Alternatively, L and R could require T and V to retire under their statutory power and appoint new trustees chosen by L and R.
Trustees are holding a fund on trust for L for life with remainder to those of L’s children as are living at L’s death, if more than one, in equal shares. L has three children all of full age and capacity. Are L and the 3 children together absolutely entitled?
No, the children’s interests are contingent upon their surviving L, and if all three died before L their interests would fail. In the absence of a substitutional provision in the trust instrument, the interest in remainder would be held on trust for the settlor or his estate.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
In what way are the statutory powers of maintenance and advancement “discretionary powers”?
The trustees are under no obligation to exercise them. If they decide to use them, they can apply income and capital for the benefit of the beneficiaries in specific circumstances. Note, they may be amended or excluded by the settlor in the trust instrument.
