Trusts - Trustees and Their Duties Flashcards
1
Q
Appointment of Trustees
A
Original trustees:
- In the trust document or by the court
Additional trustees
- Must be expressly provided for in the trust document, if not the statutory rules will need to be followed as settlor does not have power to appoint new trustees once trust created
- Trust document may confer power to appoint additional trustees
- Existing trustees may appoint additional trustees but they cannot increase the number to more than four (even if the trust does not concern land)
Replacing trustees
- Existing trustee dies, refusing to act, unfit to act or incapable of acting
- Hierarchy which sets out who has power to replace trustee
- No obligation to replace trustees
- Power to replace trustees can also be used to increase number of trustees
- If appointment is by continuing trustees any retiring trustees should be a party to the appointment
- Should be made in writing (a deed will commonly be used to ensure all trust assets vest in replacement trustee)
2
Q
Order of who has power to replace trustee
A
- Person named in trust document
- Surviving or continuing trustees
- Personal representative of last trustee
- Court
3
Q
Beneficiaries’ power to appoint trustees
A
Unless a breach of trust has been committed the beneficiaries generally do not have the power to appoint trustees except in limited circumstances:
- Trust document does not nominate anyone else to appoint trustees
- Beneficiaries are of full age, have capacity, are absolutely entitled to trust property and agree unanimously
If this criteria is met the beneficiaries can order one or more of the existing trustees to retire and to appoint new trustee(s) of the beneficiaries’ choice
4
Q
When can the court appoint trustees?
A
When expedient to do so and when it would be inexpedient, difficult or impracticable to replace / appoint trustees without court’s assistance
5
Q
Retirement of Trustees
A
Possible for trustee to retire without replacement if:
- The retiring trustee obtains the consent by deed of co-trustees an any person named in document with the power to appoint trustees; and
- At least two trustees or trust corportation remain
Alternatively, they may procure the appointment of new trustee(s) in their place
6
Q
Removal of Trustees
A
Can be removed without their consent for the same reasons that they can be replaced due to incapacity or bankruptcy, for example, by beneficiaries or the court
7
Q
Trustees’ Duties
A
In a fiduciary position and have two main duties:
- Duty not to profit from trusteeship
- Duty not to purchase trust property (self-dealing rule)
8
Q
Duty not to profit
A
- Under a duty not to make a personal profit from their role as a trustee
- Profits from Information or Opportunity: If a trustee makes a personal profit from opportunities or information as a result of their role as trustee they must hand over the profit made (constructive trust imposed by equity)
- Directors’ Fees: Trustee who obtains paid employment by virtue of the trusteeship holds the funds on constructive trust for the beneficiaries (however, if it can be shown that they would have obtained this employment irrespective of their role as trustee this rule does not apply)
Generally trustee may not charge for their services unless:
- Trust document includes a charging clause (usually limited to professional trustees charging their normal rate);
- They are a professional trustee (provided other trustees agree, they are not the sole trustee and no provision that allows / prevents charging in trust document)
- Trust corporation (even if sole trustee)
- If all beneficiaries are over 18, have capacity and consent
- With court authorisation if trust particularly onerous or the trustee has performed exceptional services
9
Q
Self-dealing
A
- Duty not to purchase trust property
- Applies even if trustee pays full value for property on open market and acts in good faith
- If self-dealing rule is breached the transaction is voidable and the trustees can request that the transaction is set-aside
- Court may authorise a self-dealing transaction in exceptional circumstances
Trustee may purchase the beneficial interest of a trust beneficiary (fair dealing rule) if:
- The price paid is fair
- All material facts are disclosed to the beneficiary
- Must be no abuse of position by trustee
10
Q
Further duties of trustees
A
- Equitable duties whereby they must deal appropriately with trust property and ensure title to trust property is held appropriately and kept separate from trustees’ personal assets
- Observe terms of the trust and ensure that they follow it
- Traditional duty of care: act with prudence of ordinary person of business acting in relation to own affairs (applies when trustees exercising powers of maintenance and advancement)
- Statutory duty of care: exercise skill and care as is reasonable in the circumstances (any special knowledge or skill that the trustee has will be taken into account and so professional trustees held to a higher standard than lay trustees) - this standard applies to investment decisions
- Duty to act jointly if more than one trustee: trustees should act unanimously but a majority decision is valid if authorised by trust document or court
- Duty to act personally and should not delegate their role unless the function is administrative, to an investment manager or by executing a power of attorney (liable for acts and omissions of attorney)
- Duty to take possession of trust property and ensure that this is in their joint possession and control (if trust property left in the control of one trustee they are all liable if this is misappropriated)
- Duty for trustees to keep accounts and records and disclose these to beneficiaries if required
- Duty to act impartially in relation to all beneficiaries and treat them equally (unless trust document provides otherwise) - more difficult when beneficiaries are entitled to successive interests (e.g. A receiving income for life and B receiving trust capital at A’s death; trustee owes duty to A that property produces income and to B that property does not depreciate in value)
- Duty of confidentiality: beneficiaries can consent to waive this duty if they are fully informed by the trustees
- Duty to invest trust funds so as to generate income
11
Q
Duty to invest
A
Governed by statute and relevant provisions in trust document
- What investments are authorised?
- Criteria for selecting investments
- Taking advice on investments
- Keeping investments under review
12
Q
Authorised Investments
A
- Under trustees’ statutory powers, investments in land and investments in all other assets are treated differently
- Assets other than land: trustees have a general power of investment and can make any kind of investment they could make if the absolute owner (this includes assets that don’t generate income and are aimed at producing capital growth)
- Land: trustees can invest in freehold and leasehold land but this must be in the UK (land does not need to be income producing)
- Powers can be extended or restricted by trust document (most common is to restrict choice of investments so as to exclude investment in certain sectors)
13
Q
Standard Investment Criteria
A
- Suitability of type of investment to the trust
- Need for diversification of investments of the trust
14
Q
Taking Advice
A
- Trustees must obtain and consider proper advice before making investments
- Proper advice: advice of person trustees reasonably believe to be qualified to give it (judged subjectively and objectively) - belief must be genuine and reasonably held
- Advisor does not need to be a qualified financial advisor but merely a person experienced in such matters
When is proper advice not required?
- If trustees reasonably conclude that advice is unnecessary or inappropriate (e.g. investment is small amount of money for a short period of time)
15
Q
Delegating choice of investment
A
- Trustees generally cannot delegate their core duties
- Trustees are permitted to delegate the choice of investments to an asset / investment manager - there must be a written policy statement for the investment manager to follow
