WS 5 - Running a trust

Question 1

s.36 Trustee Act 1925

Answer 1

Power of appointing new/additional trustees
• The person nominated in trust instrument for appointing trustees, or if not, the remaining trustee(s)/the PR of the last surviving trustee can, by writing:
• (1) Appoint a new trust in substitution, if a trustee is:
• Dead; Out of the UK for a year; Desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant
• (6) Appoint additional trustees (only if not more than 3 trustees) by writing. No obligation to appoint unless trust instrument or statute provides to the contrary

Question 2

s.36(1)

Answer 2

• (1) Appoint a new trust in substitution, if a trustee is:
• Dead; Out of the UK for a year; Desires to be discharged from all or any of the trusts or powers reposed in or conferred on him, or refuses or is unfit to act therein, or is incapable of acting therein, or is an infant

Question 3

s.36(6)

Answer 3

• (6) Appoint additional trustees (only if not more than 3 trustees) by writing. No obligation to appoint unless trust instrument or statute provides to the contrary

Question 4

s.40 TA:

Answer 4

Vesting of trust property in new or continuing trustees
• (1) Where by a deed a new trustee is appointed to perform any trust, then –
• (a) if the deed contains a declaration by the appointor to the effect that any estate or interest in any land subject to the trust, or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees…vest in those persons as joint tenants

Question 5

s.41 TA

Answer 5

Power of the court to appoint new trustees
• (1) When it is expedient to appoint a new trustee/trustees, and it is found inexpedient, difficult or impracticable so to do without the assistance of the court, the court can make an order appointing a new trustee/trustees either in substitution or in addition

Question 6

Under what circumstances can a trustee retire without replacement?

Answer 6

• s.39 TA: A trustee can retire without replacement(new appointment) if:
o There are at least 2 trustees remaining or a trust corporation;
o He declares his discharge by deed
o The other trustees consent by deed to the discharge of the trustee and the vesting in the co-trustees alone of the trust property

Question 7

What are the requirements for a beneficiary to be able to appoint or remove trustees?

Answer 7

• S.19 TLATA: beneficiaries can remove and appoint trustees by writing if:
o No one nominated for the purpose of appointing new trustees; and,
o Beneficiaries are of full age, capacity and taken together are absolutely entitled to the trust property

Question 8

Power to appoint trustees is a crucial power:

Answer 8

• Potentially handling large values – honesty and judgement

* Cannot question exercise of discretion in absence of fraud, dishonesty or capriciousness

Question 9

Settling £1m on discretionary trust in your lifetime. Might appoint following as trustees:

Answer 9

• Myself/solicitor/accountant/trusted and intelligent person

Question 10

Why is it vital to know who is entitled to appoint the trustees?

Answer 10

• Appointment invalid if not made by persons entitled

Question 11

Distinction between s.36(1) TA and s.36(6) TA?

Answer 11

• S.36(1) – power to appoint in substitution

* S.36(6) – power to appoint additional trustee

Question 12

Distinction between retirement under s.36(1) and s.39?

Answer 12

• S.36(1) – retiring with replacement

* S.39 – retires without replacement (must leave at least two or trust corporation)

Question 13

What do you look at to see who is entitled to appoint trustees?

Answer 13

S.36 TA and the trust instrument.

Question 14

If there are only two trustees and one wants to retire, can he do so and under what legislation?

Answer 14

• s.36(1) TA – He would need to have a replacement as there would only be one remaining

Question 15

If trustee dies, and the remaining trustee dies, and trust instrument makes no provision for the appointment of new trustees, who should make the appointment?

Answer 15

• S.36 (1)(b) TA – The personal representatives of the last surviving trustee

Question 16

Seven circumstances in which an appointment may be made under s.36(1) TA 1925:

Answer 16

a) Trustee dies
b) Remains out of the UK for more than 12 months
c) Refuses to act
d) Unfit to act
e) Desires to be discharged
f) Incapable of acting
g) Trustee is an infant

Question 17

Why are appointments and retirements (discharges) generally contained in a deed?

Answer 17

• To benefit from automatic vesting under s.40 but note that as regards stocks and shares title does not vest until names of trustees are on the company register (old trustees will have to sign and lodge stock transfer forms in favour of new trustees)

Question 18

Three circumstances in which the beneficiaries might have a say in who should be appointed as a trustee

Answer 18

a) Trust instrument might give beneficiaries a say
b) S.19 TLATA in limited circumstances
c) In exceptional circumstances by application to court under s.41 TA

Question 19

When can beneficiaries insist upon the removal of a trustee?

Answer 19

a) s.19 Trusts of Land and Appointment of Trustees Act 1996 – allows B’s to give a written direction to a trustee or trustees to retire
b) Alternatively, or in addition, they can serve a written direction demanding the appointment of new trustee(s) of their choice. S.19 applies to trusts of personalty as well as land. Under s.19 all the Bs must be in agreement and must be sui juris (18 years or over and of sound mind)

Question 20

How does the standard of care differ for amateur trustees and professionals?

Answer 20

• Trustees must exercise an appropriate standard of care. Traditionally this meant using such care as would a prudent man of business (Speight v Gaunt [1883]) – relevant to amateur trustees. Higher standard expected of professional trustees – Trustees Act 2000

Question 21

Questions to ask when considering trust investment duties:

Answer 21

o Is the investment authorised by Trustee Act 2000
o Have the trustees complied with their duties in ss.4 and 5 TA 2000?
o Have the trustees discharged their duty of care under the 2000 Act?
o Have the trustees complied with their duties under the general law?

Question 22

Khoo Tek Keong [1934 - Privy Council])

Answer 22

Unsecured loan for a beneficiary is not an investment

Question 23

Harries v C of E Commissioners [1992].

Answer 23

Something expected to produce income and/or capital growth. Cook v Medway HA also supports this definition)

Question 24

List some general investment duties of trustees

Answer 24

o Only invest in authorised investments. If the trust document is silent, then statute governs what can be invested in
o Act impartially between Bs
o Not place self in position of conflict btw personal interests and trust obligations and not to make an unauthorised profit (see WS6 Fiduciary duties)

Question 25

Cowan v Scargill

Answer 25

o Act in best interest of B (=best financial interests) trustees of NUM pension fund had to put aside their social, moral and political views when deciding how to invest.

Question 26

What are the exceptions to general rule in Cowan v Scargill?

Answer 26

. If settlor in trust instrument specifies certain unethical investments
• Bs are adult and have strong relevant ethical views, may not be in their best interests to invest. These cases will be very rare; or
• May not be appropriate for charitable trustees to invest in a company whose objects are directly opposed to the purposes of the charity (Harries v C of E Commissioners
• Ethical investment yielded as good a return and unethical investment (Cowan v Scargill)

Question 27

s.3(1) Trustee Act 2000

Answer 27

Can make any investment they would make if they were absolutely entitled

Question 28

• S.8(1) Trustee Act 2000

Answer 28

Provides that the trustee may acquire land as an investment (8(1)(a))

Question 29

s.3(4) Trustee Act 2000

Answer 29

Allows trustees to lend money so long as they obtain mortgage over land

Question 30

• S.1(1) TA 2000

Answer 30

Statutory duty of care: “such care and skill as is reasonable in all circumstances:’ having regard to:
o S.1(1)(a): Any special knowledge/experience he holds himself as having; or
o S.1(1)(b): In the course of business/professional, what special knowledge/experience is reasonably expected

Question 31

Learoyd v Whitely (1886)

Answer 31

• In relation to investments, trustees must exercise the same standard of care as would a reasonable businessman or woman when investing for someone for whom they felt morally bound to provide

Question 32

Does the size of trust fund affect standard demanded?

Answer 32

Yes - higher

Question 33

Nestle v Nat. West Bank

Answer 33

Beneficiaries MUST SHOW THAT LOSS FLOWED FROM THE BREACH!! And…

The beneficiaries could only recover compensation for loss if the gain made by the trust fund was less than the gain a reasonable man would have made.) [Didnt keep up with inflation in this case]

Question 34

o Wight v Olswang

Answer 34

trustee is not liable for an investment decision unless it is one which no reasonable trustee with similar knowledge and skill would make

Question 35

s.4 TA 2000

Answer 35

When exercising a power of investment, trustees must have regard to standard investment criteria i.e.

Question 36

s.4(3)(a) TA 2000

Answer 36

Suitability of investment; and whether that particular investment is a suitable example of its type; and
• Also, with regards to the beneficiaries, will the investment benefit both life tenant and remainderman?

Question 37

s.4(3)(b) TA 2000

Answer 37

diversification

Question 38

s.5 TA 2000

Answer 38

Must obtain and consider proper advice about the way they should exercise their power of investment having regard to the standard investment criteria unless the trustees reasonably conclude that in the circumstances it is unnecessary or inappropriate to do so.

Question 39

s.5(2) TA 2000

Answer 39

When reviewing the investments of the trust, a trustee must (unless the exception applies) obtain and consider proper advice about whether, having regard to the standard investment criteria, the investments should be varied.

Question 40

What functions, under Trustee Act 2000, can trustees delegate?

Answer 40

•	s.11: Trustees can delegate delegable functions to agents. But cannot delegate (s.11(2)):
o	11(2)(a) ‘dispositive’ powers or discretions which involve the distribution of trust capital/income amongst Bs
•	Therefore, the powers of maintenance and advancement are not delegable

o 11(2)(c) Power to appoint new trustees

Question 41

Can a beneficiary be appointed as an agent?

Answer 41

• S.12 TA 2000: B cannot be appointed as an agent (even if also a trustee). Although allowed under s.9 TLATA for trusts of land

Question 42

• S.13 TA 2000

Answer 42

• S.13: Agents appointed under s.11 are subject to the usual conditions attached to such power (e.g. s.4 and s.5)

Question 43

s.15 TA 2000

Answer 43

• S.15: Asset Management: Special restrictions

o (1): Must enter into a written agreement with agent in order to delegate asset management functions

o Trustees must provide the agent with a written policy statement. (s.15(2)(a)) and the policy statement must be evidenced in writing (s.15(4))

Question 44

What must the policy statement to the asset manager under s.15 TA 2000 include?

Answer 44

o Statement must set out the investment objectives of the trust and how the agent is to exercise the delegated functions. It should ensure that the functions are exercised in the best interests of the trust (s.15(3)). This includes the following:

• Fact that client is a trust and the consequent fiduciary obligations
• Nature of the beneficial interests and that the priority is capital growth
• Any provisions in the trust instrument dealing with investment
• When the trustees will need to sell or realise the investment

Question 45

s.16 TA 2000

Answer 45

Permits the vesting of trust property in the nominees, which is an essential requirement when delegating asset management under s.15. Relevant conditions in s.19.

Question 46

ss.21 and 22 TA 2000

Answer 46

Trustees must meet regularly and review the performance of agents

Question 47

s.32 TA 2000

Answer 47

• S.32: Trustees can pay agents reasonable remuneration out of the trust funds
(i) Liability of agents
The trustees may be able to sue in negligence or breach of contract and hold the damages on trust for the Bs
(ii) Liability of Trustees: NOT vicariously liable for their agents breaches (compare with below)

Question 48

What statutory provision provides for individual delegation?

Answer 48

s.25 TA 1925: T may execute a power of attorney if he wishes to delegate his office

Question 49

Relevant provisions of s.25 TA 1925

Answer 49

• (1) and (2): can appoint an attorney to act as alter ego for up to 12 months, can delegate any of powers discretions and duties
• (4): within 7 days of giving a power of attorney, T must give written notice to anyone who can appoint (a) new trustees and all existing (b) trustees
• (7): trustees are vicariously liable for attorney’s acts
• NB – one of the amendments of the Trustee Delegation Act 1999 was that a sole co-trustee can be appointed to be an attorney