8. Trustees' duties, powers and liability Flashcards
What general duty is on trustees?
To act
- honestly and
- in good faith,
-for benefit of beneficiaries
What is the difference between trustee duties and trustee powers?
Powers: authorised but not compulsory
Duties: mandatory
How can trustees be appointed?
-No minor can be one
- No fixed number necessary (except for trusts of land where max is 4)
- Usually appointed by settlor and for testamentary trusts, may be named in will e.g. the executors may be named trustees as well
What methods are there for appointing replacement trustees?
- Any express powers in trust instrument
- Beneficiaries exercising S v V rights
- Statutory powers
- The court
- Charity Commission for Charitable trusts
In what circumstance does the general statutory power to appoint replacement trustees apply and who is it exercised by:
- death of trustee,
- trustee abroad for over 1 year,
- minor/lacks capacity,
- wants to retire/refuses/unfit
Exercised by - persons nominated in instrument or - surviving/continuing trustees
- If all trustees are dead, by PRs of last to die
How do beneficiaries exercising S v V rights appoint a replacement trustee?
- In writing
- Cannot be used where instrument contains express power to appoint trustees
When shouldn’t the court appoint a trustee?
Where there’s dispute between beneficiaries as to whether they’d be appropriate
How can trustees be removed?
- Check trust instrument
- statutory powers
- Court can where trustee is bankrupt, lacks capacity or is a company in liquidation
- Charity Comission
In what 2 ways can trustees retire?
- Voluntary retirement
- Direction of beneficiaries: in writing & all agree
How can trustees voluntary retire?
- By deed
- Where at least 2 other people or 1 trust corporation are there to act as trustees
- Co-trustees & anyone else with power to appoint trustees consent
- Should also obtain formal discharge of liability from beneficiaries
If a trustee is given a power of appointment, what kind of power is it, and the consequence? And if not a trustee?
Trustee = fiduciary power (don’t need to exercise but must consider doing so periodically)
Not Trustee = personal power (don’t need to consider exercising it)
What words suggest a discretionary trust vs power of appointment?
Discretionary: ‘must’
Power: ‘may’
What words suggest a discretionary trust vs power of appointment?
Discretionary: ‘must’
Power: ‘may’
What are discretionary trusts?
Trustees must exercise discretion and do so within a reasonable time
If trustees of a discretionary trust don’t exercise it, what can beneficiaries do (and not do)?
Can sue to enforce trust and ensure discretion is exercised
Cannot compel them to exercise it in their favour
What trustee obligations are there for a discretionary trust?
- Consider range of possible beneficiaries
- Don’t require trustees to identify all people, just an appropriate survey of the class
- Is/Is Not Test: trustee must be able to say with certainty whether any given individual is a member of the class or not
- Requires conceptual certainty
- For evidential certainty, it’s for C to prove that they’re within the class
What happens with a discretionary trust and a power of appointment where the class of objects is too wide?
Discretionary = void
Power = remains valid
What is the trustees’ duty of care?
Must exercise such care and skill as is reasonable
- Consider any special knowledge/experience a trustee has
- Standard of care higher for professional trustees
- Doesn’t apply to all acts of a trustee
What is the power of investment for trustees?
A trustee may make any kind of investment they could make if absolutely entitled to the assets
Have a duty to invest where necessary
What must trustees do if they exercise the power to invest?
- Consider standard investment criteria: (a) suitability (general & specific), and
(b) diversification - Take advice (unless reasonably conclude not needed)
- General duty of care
What rules are there for taking advice when exercising power of investment?
They are not bound to follow the advice but can’t ignore it simply as they personally disagree with it - can only do so if a reasonably prudent trustee would do the same
Must obtain proper advice before exercising power & when reviewing instruments
Exception: don’t need to seek advice if reasonably conclude it’s unnecessary
What is the power to acquire land?
Trustees have statutory power to acquire freehold or leasehold in UK (not overseas)
Can be done for investment or wider purposes
If done for investment, relevant criteria apply
Statutory DoC applies
What is the power of delegation?
- Can delegate powers of investment and to acquire land, but cannot for distributive obligations
- Can’t delegate to beneficiaries
- Must be an appropriate agent, reviewed regularly with an agreement that complies with statute
- For investment, must be evidenced in writing
What is the duty to distribute?
must pay as soon as possible
