Trusts Law Flashcards
Who can be a trustee?
Most adults with mental capacity. Except, there are certain statutory disqualifications in relation to more specialised trusts, e.g. pension trusts.
A company can also act as a trustee, so long as it is authorised to do so by its constitutional documents.
How many trustees does a trust over land need?
At least two human trustees or a sole trust corporation.
This is to make sure that any beneficial interests can be overreached.
Trusts over land cannot have more than four trustees.
How many trustees do trusts of personalty need?
These can have a sole trustee, although as a practical matter it is generally better to appoint more than one to ensure that each trustee can supervise what the other is doing.
Trusts of personalty can have more than four trustees.
How many trustees should an express trust have?
As express trusts can involve a mixture of both land and personalty, always best to have been two and four trustees.
In what act are the powers that trustees can exercise set out?
Trustee Act 1925
In what act are the powers that beneficiaries can exercise set out in?
Trusts of Land and Appointment of Trustees Act 1996
How can a trustee retire?
(1) The trust instrument may contain an express power for trustees to retire but this is unusual.
(2) Section 39 TA 1925 allows a trustee to retire without being replaced. Conditions:
- there will be two trustees or a trust corporation left
- the trustee retires by deed
- the other trustees consent by deed
(3) Section 36(1) TA 1925 says that a retiring trustee must be replaced by the appointment of a new trustee. Who appoints the new trustee?:
(a) the person nominated in the trust instrument to exercise the s36 power, but if none
(b) the continuing trustee(s) (which includes the retiring trustee if they are willing to join in the appointment).
s36 states that the appointment must be in writing. It is advantageous to use a deed because under s40 a deed automatically vests the trust property (apart from company shares and some other limited forms of property) in the continuing and new trustee.
Is a trustee who has retired liable for breaches of trust?
A retiring trustee remains liable for their own breaches but will not be liable for future breaches unless they retired to facilitate the breaches.
How can a trustee be removed?
(1) The trust instrument may contain an express power to remove and/or replace trustees but this is unusual.
(2) s36(1) TA 1925. Grounds for replacing a trustee:
- death
- remains outside UK for more than 12mths
- desires to be discharged (retire)
- refuses to act (disclaims)
- is unfit to act
- is incapable of acting
- is a minor
Who effects the replacement? Either the person nominated in the trust instrument if any, then the continuing trustees but if they are all dead the PRs.
(3) s41 TA 1925. Grounds? The court will replace a trustee if it is expedient to do so and it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance.
The court makes the appointment following an application by the trustees or the beneficiaries.
The court will only replace a trustee if it is not in the best interests of the trust for them to continue. Mere dislike of a trustee is generally insufficient.
(4) s19 TLATA 1996 allows beneficiaries to serve a written direction on a trustee or trustees to retire and appoint the person specified in the direction.
s19 does not apply if the trust instrument:
- excludes it
- nominates someone to appoint new trustees.
s19 only applies if the beneficiaries are of full age and capacity and taken together are absolutely entitled to the trust property.
The trustee then retires by deed (subject to the retirement conditions).
How can additional trustees be appointed?
(1) The trust instrument contains an express power to appoint new trustees but this is unusual.
(2) s36(1) TA 1925 - person nominated or continuing trustees
(3) s41 TA 1925 - court
(4) s19 TOLATA 1996 - beneficiaries
What happens if a trustee dies?
If two or more trustees are appointed, they will hold legal title to trust property as joint tenants, with the result that if one dies, the legal title will devolve to the surviving trustees.
If there is only one surviving trustee left, that trustee should be advised to appoint a replacement trustee under s36(1) TA to ensure the continuity of trust administration.
Can a trustee delegate their duties?
A trustee can delegate their functions in running a trust to an attorney in form described under s25 TA 1925.
Delegation can run for a period of up to 12 months. Written notice of such must be given to all other trustees and any other person with the power to appoint new trustees within 7 days of delegation.
Trustee automatically liable for acts/defaults of attorney.
Do trustees have the power to give income to beneficiaries who are minors?
Yes - under s31 TA 1925. They have power to use income to pay for the maintenance, education and benefit of a beneficiary under 18 so long as the following conditions are satisfied:
- there is no contrary provision in the declaration of trust; and
- the trustees can only exercise this power in favour of minors who have some kind of interest in income, whether vested or contingent, but not where there are any ‘prior interests’ to income.
Income should be paid to beneficiary’s parent or guardian or straight to e.g. maintenance provider.
This is not an obligation. Trustees may pay this.
Are adult beneficiaries entitle to income?
s31 TA 1925 - adult contingent beneficiaries are entitled to trust income as it arises and trustees must pay that income to them, pending the vesting of their beneficial interests.
If an adult contingent beneficiary dies before the condition is satisfied, their estate will receive nothing - no capital and no accumulated income.
Do trustees have the power to pay or apply trust capital early for beneficiary’s advancement or benefit?
Yes. As long as the following conditions are satisfied:
(a) There is no contrary provision in the declaration of trust.
(b) The beneficiary has an interest in capital. Such beneficiaries include:
- beneficiaries with a vested interest in trust capital (whether in possession or in remainder); and
- beneficiaries with a contingent interest in trust capital.
(c) the payment must be for the beneficiaries advancement or benefit.
(d) for trusts created after 1 October 2014, the advance payment must not exceed the beneficiary’s entitlement.
For trusts created on or before 1 October 2014, the trustees can only advance up to half the beneficiary’s entitlement.
(e) the payment is taken into account when the beneficiary becomes entitled to trust capital.
(f) if there is a beneficiary with a prior interest, an advancement to another beneficiary can only take place if the prior interest-holder is an adult and has given written consent to the advancement, e.g. life tenant.
Remember s32 gives them the power to advance trust capital - they do not have to.
What is the standard of the duty of care for a trustee when running a trust?
A trustee must take “all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own”.
Standard can be higher for paid, professional trustees.
What must a trustee do when faced with a choice between two beneficiaries?
Act impartially.
It doesn’t mean that they have to consult either or both, or give them equal treatment. However, a trustee must not benefit one beneficiary at the expense of another.
How do co-trustees make decisions?
Co-trustees must generally take decisions unanimously.
They must also be active in the running of the trust.
What are duties that trustees have?
Duty of care
Duty when starting out as a trustee
Duty to act impartially between beneficiaries
Duty to act personally and unanimously
Duty to exercise discretions properly
What are beneficiaries entitled to see?
a) the trust document or the will that created the trust
b) the trust accounts
c) a schedule of trust investments or other documents that show how trust property is invested
What should trustees consider when deciding their investment strategy for the trust?
a) What sort of interests do beneficiaries have?
b) What are the circumstances of the individual beneficiaries?
c) How long will the trust last for? Are they investing for short-term or long-term?
d) What is the size of the trust fund?
e) What is the tax position of the trust and the beneficiaries?
What investments are authorised?
Under s3 TA 2000, a trustee can make any kind of investment that they could make if they were absolutely entitled to the assets of the trust, save for investments in land.
When it comes to land, s8 TA 2000 provides that a trustee may acquire freehold or leasehold land in the UK either:
a) as an investment;
b) for occupation by a beneficiary; or
c) for any other reason.
What is the ‘standard investment criteria’ which trustees must have regard to when purchasing or reviewing investments?
a) The investments must be suitable for the trust.
c) There is a need for diversification (insofar as is appropriate to the circumstances of the trust).
How often should trustees review the investments of the trust?
It is a question of fact and will depend on the circumstances of each trust.
When reviewing, they should receive advice from someone qualified unless unnecessary to do so (e.g. a trustee is a financial advisor).
