Trusts - Trustee (5) Flashcards
What are trustees?
Trustees: Trustees manage the trust. They are subject to a number of duties, and have several powers.
How many trustees are requiered for a trust?
Number of Trustees: The minimum and maximum number of trustees will differ by instrument and law.
(1) Trusts of Pure Personalty: These may have an unlimited number.
(2) Trusts of Land: These may have a maximum of four trustees (s34 LPA).
(3) Charity Trusts: These usually require at least three trustees.
How are trustees appointed?
Appointment: Trustees may be appointed in several ways. Often a deed is required to transfer trust assets.
(1) Original: Original trustees are appointed in the trust instrument. The settlor cannot appoint after execution, unless the trust instrument permits them.
Court Appointment: If no trustee is appointed, the court may do so, as ‘equity never wants for a trustee’.
Disclaimer: Original trustees can disclaim appointment any point before intermeddling or accepting.
(2) Replacing Incapables: If a condition is met, then a person nominated to appoint, or the surviving trustees (and retiring if willing) can replace a trustee in writing (s36(1)). These conditions are:
Conditions: a) Dead; b) Outside UK for more than 12 Months; c) seeks discharge; d) refuses or is unfit to act; e) is incapable; f) is a child; g) is dissolved corporate body.
Effect: They are replaced as if they are dead.
Order of Priority: a) Nominee; b) Surviving Trustees; c) PR of last surviving trustee; d) court.
Deed: Need not be deed, but usually helpful to transfer trust assets.
(3) Discretionary Appointments: If there are three trustees or fewer, an additional trustee may be appointed, but not beyond four trustees. This is done by nominated party or surviving trustees in writing (s36).
(4) Court Appointment: If expedient to do so, and impractical without court order, the court can appoint a new trustee, including by replacement. This usually required evidence of necessity (s41 TA).
(5) Beneficiaries Appointment: The beneficiaries may collectively appoint a trustee if there is no nominated appointer, provided they are sui juris and capable, and collectively absolutely entitled to the trust (s19 TOLATA). This must be in writing to the other trustees.
Exclusion: The trust can exclude this power.
How are trustees retired or removed?
Retirement and Removal: Trustees may vacate their position in several ways.
(1) No Replacement: A trustee may retire without replacement if there remains a trust corporation or at least two trustees afterwards (s39 TA).
Requirements: Must be by deed, with the consent of other trustees by deed and vesting their property in them. This discharges their duties.
(2) Replacement: Replacement is required if there are fewer than two trustees after a retirement. This must be on the s36 grounds (above), meaning in writing by nominee or surviving trustees.
(3) Removal by Beneficiaries: Beneficiaries may collectively remove a trustee (if there is no nominee) in writing to the other trustees, provided sui juris and capable, and collectively absolutely entitled (s19 TOLATA).
Entitlement: This may be a PR or trustee-in-bankruptcy if share has passed to them.
Contingency: Contingent interests mean there is not absolute entitlement.
(4) Court Removal: The court has inherent jurisdiction to remove a trustee, either as part of wider administration proceedings or discrete application. Must be in best interests of beneficiaries.
What is the duty of care of trustees?
Duty of Care: Trustees owe a duty of care to perform to the standard expected of the prudent man of business, with professionals held to a higher standard (Speight v Gaunt).
(1) Mistakes: Trustees have a duty to correct mistakes, and watch over and remedy the mistakes of others (Styles v Guy).
(2) Appointment: On appointment, trustees may have a number of duties.
Ensure appointment was proper;
Ascertain trust property and ensure they are a legal owner;
Review trust documents and paperworks, and ensure they are familiar;
Enquiry into the past business of the trust, and remedy known breaches;
Take a proper inventory of chattels.
(3) Impartiality: Trustees must act impartially between beneficiaries.
(4) Unanimous Decisions: Trustees must act unanimously unless the trust permits otherwise.
(5) Active Role: Trustees must take an active role in the trust, otherwise they may be liable for passivity.
(6) Discretion: Discretionary powers must be exercised in good faith, rationally, for their intended purpose, and with regard to all relevant facts and legitimate expectations.
Duty to Provide Reasons and Evidence
Duty to Provide Reasons and Evidence: Trustees must provide some but not all information to beneficiaries.
(1) Reasoning: Beneficiaries cannot be compelled to provide the reasons for exercise, unless:
Legitimate Expectations: If a discretionary beneficiary has a legitimate expectation a power will be exercised in their favour, they are entitled to warning if this changes (Scott v National Trust).
Pension Trusts: Members of pension trusts pay for the trust, so can access reasoning.
Court Challenge: If reasons are provided willingly, their adequacy may be challenged in court (Klug v Klug).
(2) Trust Documents: Certain trust documents are compellable by beneficiaries.
Objective Documents: Objective documents are accessible, meaning those which lack reasoning for exercise (accounts, wills, share certificates, deeds, schedule of investments) (Schmidt v Rosewood).
Prohibited Documents: Beneficiaries are not entitled to demand documents which provide deliberations or reasoning for exercise (letters of wishes, trustees meetings) (Re Londonderry’s Settlement).
Reason: Causes resentment between beneficiaries and taints the office of trustee.
What powers do trustees have to invest?
Investments: Trustees have a duty to invest trust property in proper investments, subject to a number of requirements.
(1) Investments: Investments increase value of the trust, either in capital or income. They should be selected with regard to the interests of the beneficiaries. They may include shares, bonds, land, savings accounts etc.
(2) Non-Investments: Trustees are prohibited from certain investments, unless expressly provided in the trust.
Cars: Cars tend to depreciate in value, so are not an investment (vintage cars may be okay).
Gambling: Gambling is not a permitted form of investment.
Unsecured Loans: Offering unsecured loans is not an investment, as they are too risky.
(3) Power of Investment: Trustees can invest trust property as if absolutely entitled to trust assets, provided each investment is calculated to produce income or capital growth (as required).
Land: Land need not be purchased as an investment, provided it is in the United Kingdom.
Statutory Duties
Statutory Duties: When investing, trustees must follow the ‘Standard Investment Criteria’. It is a breach not to.
(1) Suitability: Investments must be suitable, both objectively and in regard to beneficiaries.
(2) Diversification: Investments should be diversified as far as practical to mitigate risk of loss.
Small Trusts: Diversification may be lower for smaller trust funds.
(3) Advice: Trustees must obtain and consider proper advice from an individual reasonably believed to be qualified to give that advice (though the trustees need not follow it).
Exception: Advice does not need to be sought if one of the trustees is a relevant professional.
(4) Review: Trustees must periodically review investments, considering the factors above.
Best Interests
Best Interests: Investments must be in the best interests of beneficiaries. This means their financial interests, not their moral interests. This is subject to four exceptions (Cowan v Scargill):
(1) Equal Return: Trustees may invest in an ethical source if returns are equal to an unethical source.
(2) Consent: Beneficiaries can unanimously request to avoid unethical investments if sui juris.
(3) Charities: Charitable trusts can avoid investments which contradict its charitable aims (Harries v CoE).
(4) Trust Instrument: A trust instrument may require or forbid certain types of investments.
What is the power of maintenance and advancement?
Maintenance and Advancement: Trustees have implied powers of maintenance and advancement, unless removed by the trust instrument.
Power of Advancement
Power of Advancement: Trustees can advance capital to a beneficiary who has an interest in capital prior to their interest vesting absolutely. This requires unanimous consent of the trustees.
(1) Sum: For trusts created since 1 Oct 2014, the entire capital interest may be advanced. Previously it was half.
(2) Accounting for Advance: When the full interest vests, any advanced sums must be accounted for.
(3) Consideration of Life Tenant: Advancement should not prejudice life tenants, meaning they must consent in writing (they must be adults). Advancement cannot be made to a tenant who is only interested in income.
(4) Benefit: Advancement must benefit the ‘material situation’ of a beneficiary. This is interpreted broadly (Pilkington v IRC).
(5) Minors: Minors cannot give good receipt for money. Any advancement in their favour must be made directly to the provider of a benefit for the child (i.e. a private school), or to their guardians to spend on their behalf.
>Trustees should be wary of adults attempting to ‘loot’ the trust fund (Re Pauling’s Settlement).
Power of Maintenance
Power of Maintenance: Trustees can advance income to children for their maintenance, education or benefit (s31).
(1) Maintenance: Made to parents or guardians, or directly to the benefit provider.
(2) On Adulthood: On adulthood/marriage, any interest in income should be applied directly to the beneficiary.
(3) Reinvestment: If income is not applied, it should be retained and reinvested until it vests.
What powers do trustees have to delegate?
Collective Delegation: All trustees may delegate their investment powers to an agent or body of agents (but not dispositive powers such as remuneration, distribution or delegation powers).
(1) Written Agreement: Must be in writing.
Compliance Clause: Written agreement must contract that the agent will comply with the policy statement.
(2) Policy Statement: Must be a policy statement guiding agent, drafted with reasonable care and skill.
(3) Duty of Agent: Agent must comply with the trustee investment duties.
(4) Review: Trustees must regularly review agent and arrangements, and update the policy statement or remove agent where necessary.
(5) Agent: The agent must be suitably qualified, and selected with reasonable care and skill.
Beneficiaries: Beneficiaries cannot act as agents, other than over trusts of land.
(6) Payment: May be reasonably remunerated from the trust (s32).
(7) Liability: Agent is personally liable. Trustees are not liable unless they have not been selected or reviewed with care and skill, and loss was caused as such.
Individual Delegation
Individual Delegation: A single trustee may delegate some or all of their role to an agent for up to 12 months.
(1) Deed: Must be appointed by deed, generally a power of attorney.
(2) Notice: Before or within 7 days of appointment, the trustee must give written notice of the date, reasons and delegated powers to: a) each person entitled to appoint a trustee by trust; and b) each trustee.
Failure: Failure to provide notice will not invalidate the acts of the agent.
(3) Liability: Trustee is liable for the acts and defaults of the agent as if made by themselves.
