💸Trusts: trustee appointment, retirement, removal, powers, duties, fiduciary

Question 1

Who can be appointed trustee

Answer 1

anyone with legal capacity (individual, trust corporation, company)

Question 2

Can you be a trustee and beneficiary?

Answer 2

Yes but must keep roles separate

Question 3

Can a trustee be compelled to accept office

Answer 3

NO and can disclaim appointment provided they do so before they’ve done any act showing acceptance

Question 4

What happens if a trust is set up with no trustees

Answer 4

court can appoint ‘equity never wants for a trustee’

Question 5

Min/max numbers of trustees for land, personalty, charities

Answer 5

○ Land
At least 2 human OR sole trust corp
Max 4 (as can only have 4 legal owners)
○ Personalty: Any number
○ Charity commission normally requires at least 3 trustees for charity

Question 6

How can a trustee retire?

Answer 6

1. Express power in trust instrument (fairly rare)
2. With replacement appointed in writing by:
   a) Person nominated in trust instrument to exercise s36 power
   b) IF NONE, Continuing trustees (inc retiring)
   c) If all died-PR of last surviving trustee.
3. WITHOUT REPLACEMENT IF:
   □ evidenced by deed
   □ co- truste es consent (in the same deed)
   □Leave at least 2 remaining trustees/ 1 trust corporation

Question 7

Trustees liability on retirement?

Answer 7

Retiring trustee remains liable for own breaches NOT future breaches unless they facilitate them

Question 8

4 ways for trustee to be removed/REPLACED

Answer 8

1. Trust instrument
2. REPLACEMENT IN WRITING by person in Ti/continuing Ts/PR of last remaining IF dead, outside UK over 12mo, retire, refuse/cant act, minor
3. REPLACEMENT BY COURT APP by Bs/Ts: if inexpedient, difficult or impractical w/o court assistance and in trusts bests interest
4. Written letter by Bs if Sanders v Vauteier
   AND trustees rights protected
   AND leave 2
   AND someone else replacing OR other trustees consent

Question 9

4 ways for new trustee to be appointed

Answer 9

1. Trust instrument
2. In writing by person in Ti/continuing Ts/PR of last remaining IF not over 4 once appointed
3. Court app by Bs/Ts: if inexpedient, difficult or impractical w/o court assistance and in trusts bests interest
4. Written letter by Bs if Sanders v Vauteier

Question 10

What happens if a trustee dies

Answer 10

• legal title will devolve to surviving (as Ts hold legal title as JT)
• If only 1 surviving left, T should be advised to appoint a replacement under s26(1)

Question 11

How can individual trustees delegate their work?

Answer 11

• Can delegate ANY functions if unavailable (should consider if unavailable for more than 2 weeks)
• Must be by DEED
• Max period of 12mo
• Must give written notice within 7d delegation to:
  
  • All other trustees
  • Any other person with power to appoint new trustees
• T Will be personally liable for acts/defaults of attorney

Question 12

What are trustees powers

Answer 12

1. Maintenance (aka. application of income) (s31)
2. Advancement of capital (s32)

Question 13

When can trustees use their power of maintenance and advancement?

Answer 13

ADVANCEMENT:
1. if interest in CAPITAL (contingent or vested)
2. For advancement or benefit of b (any use which will improve the material situation of the B)

MAINTENANCE
1. if interest is in INCOME (contingent or vested)
2. If over 18: entitled
If under 18 vested interest: for maintenance, education or benefit IF no life tenant alive (NOT anything risky like starting business)

Question 14

How much can trustees pay out using their power of maintenance and advancement?

Answer 14

ADVANCEMENT
Trusts before 1/10/2014: 1/2
After: whole

MAINTENANCE
Trusts before 1/10/2014: reasonable part of income
After: whole

Question 15

Conditions on trustees using their power of maintenance and advancement?

Answer 15

ADVANCEMENT
* will be deducted from overall share once absolutely entitled.
* Life tenant with prior interest must give written consent (as trustees have to treat beneficiaries fairly)
*cant be claimed through estate if the person receiving died

MAINTENANCE
Any income not used must be accumulated
NO life tenant alive
NOT anything risky like starting business

Question 16

Trustees general duty of care

Answer 16

Exercise such care as an ordinary prudent businessman would apply to managing their own affairs (higher soc for professional trustees)
Objective standards

Question 17

Trustees duties when newly appointed

Answer 17

1. Ensure properly appointed
2. Find what trust prop consists of and take all reasonable and proper measures to obtain control of it
3. Review/familiarise trust doc/paperwork/how trust works
4. enquire into the past business of the trust to ensure that there have been breaches/remedy any breaches
5. Ensure proper inventory drawn up of chattels held on trust

Question 18

Trustees duties when running trust

Answer 18

1. Act impartially between Bs
2. Act personally in the running and take decisions unanimously
3. Exercise discretions properly:
   In good faith
   Rationally
   For purpose created
   Regarding all relevant matters/not irrelevant ones
   Regarding any legit expectations of Bs

Question 19

What would be a breach of a trustees duty to act personally in the running of the trust

Answer 19

1. leaving matters in the hands of a co- trustee without enquiry;
2. allowing trust funds to remain in the sole control of a co- trustee;
3. fail to watch over and, if necessary, correct the conduct of their co- trustees; or
4. fails to take action knowing that a co- trustee was committing, or about to commit, a breach of trust;

Question 20

Must trustees give reasons for their decisions?

Answer 20

Generally NO
(if they do, beneficiaries +court can enquire into their soundness)
EXCEPT where B has legitimate expectation that a discretion will be exercised in their favour, T must give reasons and advance warning if they are thinking of exercising their discretion differently

Question 21

What documents are beneficiaries entitled to see?

Answer 21

‘Trust documents’:
1. trust doc or will that created trust
2. trust accounts
3. sch of trust investments/other docs showing how trust prop is invested.

NOT
1. Docs that contain Ts deliberations as not bound to disclose reasons
2. Letter of wishes(protected by confidentiality)

BUT courts have discretion to order disclosure
○ Will start with presumption they shouldn’t be disclosed unless in interests of sound administration of trust
○ Will probs refuse if it would cause family fall out/reveal confidential info abt finances/health of Bs

Question 22

5

What objectives should be considered when investing trust property?

Answer 22

1. Type of beneficial interest
2. Individual circumstances of beneficiaries
3. How long will the trust last for? short/long term investments?
4. Size of the trust fund?
5. Tax position of the trust and the beneficiaries?

Question 23

What is the view of investing trust in bonds

Answer 23

Income = the coupon (the interest that runs on the loan)
Capital = many bonds are often viewed primarily as income- producing investments, but can generate capital growth when sold on secondary markets

Question 24

3

What are NOT classed as investments for trusts?

Answer 24

○ ‘run around’ car-decreases in value
○ Betting on horses
○ Unsecured loans (unless trust doc permits)

Question 25

When can a trust fund be invested in a loan?

Answer 25

ONLY If secured on land via mortgage

Question 26

What are trustees statutory investment powers

Answer 26

General power of investment: can make any investments they would if 'absolutely entitled' to trust assets (inc lending provided they obtain mortgage over borrowers land) EXCEPT s8 land where can acquire freehold/leasehold for: - an investment -occupation by a beneficiary -any other reason

Question 27

Statutory investment duties including duty of care

Answer 27

1. DoC: **Exercise such care and skill as is reasonable in the circumstances having regard to any special knowledge** or skill they have, profess to have or should have because they are professionally qualified (also depends on trust fund size) 2. **Review** investment regularly (and consider standard investment criteria) 3. Take '**proper advice**' (advice of someone reasonably believed to be qualified to give the advice by reason of their experience in financial matters) UNLESS reasonably conclude that in the circumstances it is unnecessary/inappropriate to obtain such advice

Question 28

What are trustees non statutory-investment duties

Answer 28

1. To invest Impartially between beneficiaries 2. Secure best return for beneficiaries (not necessary highest as may be too much risk)

Question 29

Can trustees take ethical/moral considerations into account when investing?

Answer 29

No UNLESS 1. Ethical investment is likely to yield as good a return as a non ethical one 2. For charitable trust, if unethical investment is at odds with the charitable purposes of the trust and that might alienate the charity’s supporters 3. Settlor/testator express in trust instrument that trustees cant invest in certain sectors 4. All Bs are adults with v strong views for/against something

Question 30

What are the standard investment criteria?

Answer 30

a. **Suitability** (see investment objectives) Stage 1: is it a suitable type of investment? Stage 2: is the particular company a good choice? b. **Diversification**: to minimise loosing money in one (type of) investment (don’t put all eggs in 1 basket)

Question 31

Can trustees delegate their investment duties?

Answer 31

No unless they have the authority to do so

Question 32

Can trustees pay an agent?

Answer 32

Where delegation is permitted, trustees can pay the agent reasonable remuneration out of trust funds

Question 33

Who can trustees delegate investment to?

Answer 33

They can delegate collectively to: a. 3rd party b. One of their number NOT a beneficiary

Question 34

What duties can trustees delegate?

Answer 34

Any or all of their delegable functions' (functions relating to the general administration of the trust, inc appointing new trustees) NOT -dispositive' powers/discretions-distribution of trust capital/income among beneficiaries

Question 35

How to correctly delegate investments to an agent

Answer 35

1. Enter into agreement in writing 2. Prep written policy statement guiding how agent should exercise asset management functions in best interest of trust 3. Agent must comply with the same statutory and non- statutory investment duties 4. Keep arrangement under review 5. Select suitably qualified person (make selection with reasonable care and skill)

Question 36

Are trustees liable for defaults of attorneys or agents?

Answer 36

Attorneys: YES Agents: No unless breached personal duties in appointing agent

Question 37

What is a fiduciary?

Answer 37

someone who has undertaken to act for or on behalf of another in a particular manner in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of the fiduciary is the obligation of loyalty'

Question 38

How can a fiduciary relationship arise?

Answer 38

Status-based fiduciaries: (a) trustees (to beneficiaries) (b) co directors (to co) (c) business partners ( to each other) (d) agents (to principal) e) senior employees with access to confidential information (to employer) (f) solicitors, (to client) Fact based: arises because of circumstances

Question 39

What are fiduciary duties?

Answer 39

Of good faith inc: 1.**No conflict rule:** dont put themselves in a position where their own interest conflict with the interests of their principle 2. **No income rule**: dont make unauthorised profit from their position or use their principles property to make such a profit

Question 40

# 3 Fiduciary duties: when can a trustee keep a personal profit?

Answer 40

a. Its authorised by trust instrument b. OR all the Bs 18or over, know the full facts and consent c. OR Its authorised by a court order or by statutory provision

Question 41

What are 7 breaches of fiduciary duty

Answer 41

1. Self dealing (T wants to purchase trust property/sell to trust ) 2. Competition with trust business 3. Remuneration of trustees 4. Retaining commission 5. Retaining dir salary 6. Using info/opportunity 7. Fair dealing rule (buying Bs interest, undue influence presumed)

Question 42

What is NOT a way to get around the rule on self dealing?

Answer 42

CANT AVOID by retiring before purchasing trust property, if retired with this intention (unless a significant period of time has lapsed between the retirement and the purchase, eg. 12 years).

Question 43

3 exceptions to rule on self dealing

Answer 43

▪ If all the sui juris beneficiaries agreed and they're fully informed ▪ Express provision in trust instrument ▪ Authorised by court order

Question 44

What happens if a trustee sets up a business in competition with the trust?

Answer 44

Must account for profits made out of competing business Beneficiaries can obtain injunction

Question 45

What remuneration CAN trustees get from the trust?

Answer 45

Expenses properly incurred when acting on behalf of the trust (eg. cost of travelling to trustees’ meetings)

Question 46

# 4 When CAN trustees charge remuneration from the trust?

Answer 46

1. All legally competent beneficiaries consent (but undue influence presumed in negotiations so Bs can set aside unless agreement fair) 2. Express charging clause in trust instrument 3. Court order (granted if in the interests of Bs (ie. If need skill of trustee/fees not excessive) 4. Under Trustee Act 2000, following can recover (UNLESS trust deed makes provision about remuneration): a. Trust corporation b. Professional trustee whose not a sole trustee and other trustees have agreed in writing

Question 47

What must trustees do if they make a commission?

Answer 47

Must account to trust unless authorised to keep it (ie. Under terms of trust deed) Or will have profited from position and placed in positions where interests conflict with giving impartial advice

Question 48

Why may a trustee need to become a director?

Answer 48

If trust holds a substantial shareholding in a company, it may be necessary for the trustees to become actively engaged in the company’s affairs so as to safeguard the trust’s interest

Question 49

Can trustees retain a directors salary?

Answer 49

No, must surrender salary to trust if acquired directorship by virtue of being a trustee UNLESS ▪ Already a dir before becoming T ▪ appointed without reference to trust’s shares, notwithstanding they are a director as a result of the trust’s shareholding ▪ Authorisation in trust instrument ▪ Authorisation from court ▪Authorisation from beneficiaries

Question 50

What is the rule about trustees using information or opportunity

Answer 50

Must account for any profits received: 1. by exploiting an opportunity that belonged to the trust 2. By using confidential information for personal gain which they only became aware of due to being a trustee This is the case whether or not the trust could have taken advantage of the opportunity or was interested in the information.

Question 51

What is the fair dealing rule?

Answer 51

When buying a beneficiaries interest in the trust, Presumption of undue influence UNLESS Ts ensure: 1. they disclose all material facts to B prior to purchase. 2. the transaction is fair and honest 3. can show that they took no advantage, and that theB exercised an independent judgement/wasnt the subject of undue influence.

Question 52

Remedies for breach of fiduciary duty by trustees?

Answer 52

Beneficiaries can: a. Void sale of trust property/beneficial interest to trustee within reasonable time b. Bring a personal claim over unauthorised profit (Claimant need not have suffered loss) c. Bring a proprietary claim to recover replacement property

Question 53

Defence to breach of fiduciary duty by trustees?

Answer 53

authorisation from settlor/testator