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’).