11) Trustee powers and duties - ADVANCEMENT Flashcards
(79 cards)
1
Q
Trustee powers
A
Trustee powers are permissive.
They are what the trustee “may” do, but are not compulsory
2
Q
Trustee duties
A
Trustee Duties are mandatory.
Deterining what a trustee must do
3
Q
Fiduciary duties
A
- How trustees go about performing their role, what trustees must not do.
4
Q
Source of trustee powers and duties
A
- Trust instrument
- Statute
5
Q
Trust instrument
Source of trustee powers and duties
A
- Written instrument, may well contain express provisions setting out the powers an duties of the trustees.
- Check whether it expressly excludes or modifies any default statutoru rules.
6
Q
Statute
Source of trustee powers and duties
A
- Many trustee powers and duties have their basis in statute or common law and apply as default, unless excluded, restricted or extended by the settlor.
- Trustee Act 1925
- Trustee Act 2000
7
Q
Categorising powers and duties
A
- Administrative powers and duties
- Dispositive
8
Q
Administrative Powers and Duties
Categorising powers and duties
A
Relate to the management of trust proeprty while it is held on trust
9
Q
Dispositive
Categorising powers and duties
A
- Relate to the distribution of trust property in accordance with its terms
10
Q
Administrative powers
A
- Comply with terms of the trust
- Role is custodial in nature
- Obligation to safeguard the trust property
ie income and capital growth = duty to invest
11
Q
Trustees have a power of investment
A
Designed to produce income, also have powers to buy and sell property.
May have power to raise money by charging existing trust property.
Also have powers to delegate some functions
12
Q
Trustees default administrative powers
A
TA 2000
Check in trust agreement whether these have been amended or excluded.
13
Q
A
14
Q
Administrative dutie
A
- Curtailed by associated duties.
- Duty to exercise administrative powers with prescribed standard of care and skill
15
Q
Dispositive duties
A
- Trustees are required to distribute the trust property in accordance with the terms of the trust.
- Required to accumulate income and add it to trust capital, to be paid out with capital at the end or pay out income.
16
Q
Dispositive powers
A
- Trustees have dispositive powers which giv them ability to distribute income or capital.
- An example is power of appointment
- More flexible than a discretionary trust, trustees are not mandated to exercise powers.
17
Q
Common trustee disppositive powers
A
- Powers of maintenance
- Powers of advancement
18
Q
Breach of trust
A
- Trustees may only act within their powers
- When doing so are subject to proper exercise of powers
- Breach if they act outside their powers or fail to comply with their duties.
19
Q
Examples of breach of trust
A
- Making an uauthorised investemnt
- Failing to act in accordance with their duty of care when making an investment
- Distributing proeprty to someon who is not a beneficiary
20
Q
Breach of fiduciary duty
A
- Important to distinguish fiduciary duties from trustee duties.
- Different cause of action with different consequences of breach of trust
- Can breach fiduciary duties, whether or not trust breached
21
Q
Example where trustee may be liable for breach of fiduciary duty, but not trustee duties
A
- Use of powers investment to benefit both the trust fund and themselves.
- Good investment, but put them in a position of fconflict
22
Q
Statutory Powers
A
- General power of investment s3 TA 2000
- Power to acquire land s8 TA 2000
- Power of delegation s11 TA 2000
23
Q
General power of investment
s3 TA 2000
A
- Trustee make any kind of investment they could make if they were absolutely entitled to the assets of the trust.
- Consider the standard investment criteria set out in s4
- Take advice in accordance with s5
- Act in accordance with general duty of care s1; as excluded/ restricted or extended by terms of trust.
24
Q
Standard investment criteria
s4 TA 2000
A
- Trustees must condier the criteria when deciding whether to make an investment s4(1)
- Trustees have a duty to regularly review investments with ref to the standard investment criteria
s4 TA 2000
25
Two key components of Standard Investment Criteria
* Suitability *s 4(3)(a)*
* Diversification *s 4(3)(b)*
26
Suitability
| s4(3)(a)
## Footnote
Key components of Standard Investment Criteria
* **General suitability:** Is the investment of a suitable kind
* **Specific suitability: **Is the particular investment suitabke
27
Diversification
| s4(3)b
## Footnote
Key components of Standard Investment Criteria
Trustees must also consider the need for diversification of trust investments.
The extent to which diversification is needed will depend on the size and nature of a particular trust
28
Suitability
## Footnote
Standard investment criteria
* Highly fact-specific
* Trustees must balance the duty to presrve the trust assets against the need to produce appropriate growth on investment
29
Key issues trustees will need to consider when
* Size of the trust fund
* The period of time for which the trust is intended to subsist.
* The respective rights of different beneficiaries
30
Trustees of a large commercial trust fund - key considerations
* Greater degree of freedom to invest in assets intednded to produce long term growth.
31
Trustees of funds that include both life and remainder interests
* Trustees also need to ensure any investments produce income for the life tenant as well as capital growth for the remainderman.
**Must act evenhandedly between beneficiairies. **
32
Cowan v Scargill
**Facts**
## Footnote
Invesstment principles
* Pension trust for British coalmine workers
* Trustees wanted to not invest in oil or overseas - though permitted.
* Decision made on principle and policy of *National Union of Mineworkers*
**Court found obligation was to produce best financial return for the trust fund, to preserve value**
* Duty of trustees to tak advantage of full range of investments authorised by terms of trust.
33
Investment principles
## Footnote
Cowan v Scargill
* When considering suitability of investments - trustee obligation to act in best financial interests of beneficiaries.
* Balance interests of all beneficiaries (current and future)
* Personal views of the trustees are not relevant.
* Trustees must exercise their powers fairly and honestly.
* Not for any ulterior purpose
* Moral and ethical concerns are rare in practice
* Cannot ignore advice because personally disagree.
34
Diversification
* Reflects modern portfolio theory
* Overall appraoch to risk profile of the trust fund.
* Overall approach to the risk profile of the trust.
* Rather than considering each individual investment
* Mix of high and low risk investments.
35
Qualifications to general pricniples
* Moral and ethical considerations not relevant
* Does not stop preference for ethical investments if economically the same.
* more scope for charitable trusts
36
Charitable trusts
* May refrain from making investments which might conflict with aims to hamper its work.
* Or is likely to undermine work of charity - eg by deterring donors.
* Balance risk to charity of financial loss angainst detriment
37
Obligation to obtain "Proper advice"
## Footnote
s5 TA 2000
* Obtain and consider "proper advice" re: standard investment criteria
* Before exercising powers of investment *s5(1)*
* When reviewing investments *s5(2)*
38
Meaning of "proper advice"
## Footnote
s5(4)
Provided by a person "who is reasonably believed by the trustee to be qualified to give it" by their "abilitiy in and practical experience of financial and other matters relating to the proposed investment
39
Exception to rerquirement for "proper advice"
## Footnote
s5(3)
* If trustees reasonably conclude in all the circumstances that it is unnecessary to do so.
* Will depend on circumstances, but may include situations where cost of advice outweighs the benefit of obtaining it
* Trustee has sufficient knowledge /expertise
40
Statutory Duty of Care
## Footnote
s1 T 2000
Trustees to "exercise such care and skill as is reasonabl in the cirucmstances"
* s1(1)(a) requires assessment to take into account "any special knowledge or experience" the trustee has / claims to have.
* s1(1)(b) applies to professional trustees and requires the assessment to take into account any *"special knowledge or experience* reasonably expected
41
Standard of care for professional trustees
* Always higher for professional trustees
* Being paid to provide a service
* Also applies for lay trustees appoitned for particular skills
42
To which acts does the statutory duty of care apply to?
Only those acts set out in Sch1 1 TA 2000
43
How atre trustees actions assessed?
Objectively with consdieration of their skills etc
44
45
Common law duty of care
* Applies more widely
* Requires trustees to exercise the standard of diligence and care expected of an **ordinary prudent business person**
* Same standard
46
Acquisition of land
## Footnote
s8 TA 2000
* Trustees have statutory power to acquire freehold or leasehold land in the UK
* This power may be exercised for investment or occupation.
47
Land acquired for investment purposes
## Footnote
s8 TA
* Trustees must consider the standard investment criteria and take advice in accordance with ss 4 and 5 TA 2000
* **Statutory duty of care** applies to all trustee powers to acquire land, whether they arise under s8 or otherwise and whether land is acquired for investment or other purposes.
48
Delegation
## Footnote
s11 TA 2000
* Trustees have broad powers of delegation
* Some functions that trustees cannot delegate
* Permitted to delegate their pwoers of investment and powers to acqurie land.
* Restrictions on person to whom powers can be delegate (*s12*)
* Cannot delegate decisions to beneficiaries
49
Who can trustees delegate to?
Restrictions under *s12* of TA 2000.
50
s15 delegation
Trustees cannot delegate investment powers **except by an agreement evidenced in writing**
* Include a term ensuring compliance with a written "policy statement" to be prepared by trustees = guidance of function
* Should give guidance as to how the agent should exercise their functions.
51
How is the function of a delegate of the trustee bound?
* Bound ny any restrictions on the exercise of investment powers in the same way the trustee would be ***s13(1) TA 2000***
52
Why may a trustee wish to delegate their functions?
* Trustee incapable of discharging their duties for a period.
* Trustee lacks expertise, would prefer an expert.
53
When delegating trustee should
* Ensure an appropriate agent is selected for the function
* The agreement complies with their requirements under statute.
* The arrangement is reviewed regularly
**If comply with their duties, trustees will not be vicariously liable for losses of agent's negligence.**
54
Are trustees liable for acts of agent?
* No if comply with duties when exercising poweer of delegation
* Will not be vicariously liable for any loss.
55
Three broad circumstances in which trustees distribute trust property
* When they have an obligation to do so under the terms of the trust.
* When directed to do so by beneficiaries with *Saunders v Vautier* rights.
* Exercise of a dispositive power: appointment, maintenance or advancement
56
Dispositive duties
* Trustees to distinguish between the trust capital and income
* Must dustrubute as soon as possible and not wait for demand.
* Delay in distribution is a breach of trust.
57
Duty to distribute capital
* Depends on terms of the trust.
* May be transfer of legal title at a particular time.
* May be at different times.
58
Duty to distribute or accumulate income
If the trust property generates income, the trustees will have an obligation to:
a) Distribute the income as it arises
b) Accumulate the income
Unless trust sets out specific rules
59
Adult beneficiaries
## Footnote
Distribution
* Must distribute income to adult beneficiaries as it arises.
* Includes beneficiaries with contingent interests that carry intermediate income.
* In practice common to defer beneficiary's right to income until capital vests in possession
## Footnote
s31(1) TA 1925
60
Minor beneficiaries
## Footnote
Distribution
* Subject ot any contrary terms in the trust instrument, if a trust has minor beneficiaries, the trust must accumulate the income that arises before they turn 18
## Footnote
s31(2) TA 1925
61
Capital Interest carrying intermediate income:
Trust fund which is held for a minor beneficiary until they reach the age of 25
The obligations of the trustees in respect of that income change over time:
(a) Before the beneficiary reaches 18 = accumulate the income.
(b) Between ages of 18 and 25 = must distribute the income to the beneficiary as it arises.
(c) When turns 25 = must distribute the accumulated income alongside the capital.
62
A trustee hodls property on trust for A for life, remainder to B.
Both beneficiaries are over 18.
## Footnote
Trustee Obligations
* A has vested (in possession) interest in the income. Distribute capital and income to A.
* B has a vested future interest in the capital. After A's death, B's interest will vest in possession. The must transfer the trust property to B.
* A and B can agree together to exericise *Saunder v Vautier*
63
A trustee holds £1,000 for A if they reach the age of 21, and if not to B. A is 14.
What is the trustees obligatiion when A reaches the age of 18? Then at the age of 21?
## Footnote
Trustee Obligations
* **Aged 18:**To distribute any income to A. Cannot use *Saunders v Vautier* alone, unless also with B.
* **Aged 25**To distribute capital and accumulated income to A
64
A trustee holds £2,000 for A and B in equal shares, to be distributed when they reach the age of 18. A is 14 and B has just turned 18
What are the trustees obligations?
## Footnote
Trustee Obligations
* B = vested in possession: distribute capital and accumulated income.
* A = vested in interest; Accumulate income.
* *Saunders v Vautier*?
65
A trustee hodls £3k for A, B and C in equal shares to be distributed when they reach 21.
A is 14; B has turned 21; C has turned 18
* A = Accumulate income and continue to hold on trust
* B = distribute £1k + accumulated income ASAP
* C = Retain capital, pay income as arises. If C requests share of capital, must distribute asap.
66
Discretionary Trusts
## Footnote
Dispositive duties
* Trustees of discretionary trusts also have dispositive duties
* Likely to entail a requirement to actually exercise discretion within a reasonable time
* Reasonable time depends on particular trust
67
Dispositive Powers
* Absence of express provisions there are default powers in TA 1925
* these can be amended or changed
68
Power of maintenance
| s31 TA 1925
## Footnote
Dispositive power
* Power to pay income for the maintenance, education ot benefit of a **minor** beneficiary.
* Applies o both beneficiaries wiht vested interests and contingent interests that carry intermediate income.
* **Does not apply where someone else has a piror interest in income eg successive trust**
69
Power to pay capital
| s32 TA 1925
## Footnote
Dispositive power
* Power to pay capital for the adancement of a beneficiary whose interest is vested in possesion.
* Does not apply just to minors, also to adults.
* Can be used by beneficiaries with vested and contingent interests
* Can be used in trusts where another beneficiary has prior interest - only with consent
70
Is the statutory power of maintenance available if a beneficiary has a prior interest?
Unless with consent!
71
REVIEW TRUSTEE POWER WORKED EXAMPLES
72
Power of advancement
* Beneficiary may want to receive capital before it vests in possession or interest.
* Trustees have the power to use capital for the "advancement or benefit" of a beneficiary before the beneficiary becomes absolutelty entitled to property
73
When is the statutory power of advancement available?
* Availiable to both adult and minor beneficiaries
* Applies to both vested and contingent interests
* Can be modififed or excluded by the trust instrument: **s69(2)**
74
How much capital can be paid in advance?
* Up to 100% of a beneficiary's prospective entitlement to the capital (even if they have a contingent interest)
* Power of adcancement can be used to give a beneficiary their capital interest even if do not have *Saunder v Vautier* rights
* **No obligation to distribute capital under this power**
75
Trust created before 1 October 2014
Can only advance up to a maximum of 50% of the beneficiary's prospective share of capital
76
Meaning of advancement
* Adcvancement or benefit.
* Broader meaning of advancement than limitation to areas of career, education and marriage.
* Can include avoidance of inheritance tax etc.
* Can also include improvement of moral well being for charibtable purposes.
77
Pilkington v Inland Revenue Commissioners
## Footnote
Advancement
Any use of money which will improve the material situation of the beneficiary/
78
Re Clore Settlements Trust
## Footnote
Advancement
Money can be advanced for charitable purposes, only to the extent tht the beneficiary would have otherwise used thier own resources
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