Administration of Trusts (Trustee Duties) Flashcards
(24 cards)
What is the Trustee Act 1893, and why is it considered outdated?
The Trustee Act 1893 governs trust administration but is considered outdated. The Law Reform Commission Report (LRC 92-2008) proposed a newer version, the Trustee Bill 2008, which has yet to be enacted.
What are the expectations of trustees in equity?
Trustees are expected to display honesty and integrity.
Professional trustees (e.g., banks) are paid and often experienced.
Non-professional trustees are unpaid and may lack expertise, but they are held to the same standards.
What happens if there are no trustees for a trust?
A trust will not fail due to a lack of trustees. Courts can appoint trustees under:
S.10 of the Trustee Act 1893: Allows appointment if a trustee is unwilling, deceased, or out of jurisdiction for 12+ months.
S.25 of the Trustee Act 1893: Courts can appoint trustees when expedient.
What are the rules for trustee retirement?
Trustees may retire under:
S.11 of the Trustee Act 1893: Requires at least two remaining trustees and co-trustee consent by deed.
S.25 of the Trustee Act 1893: Courts may order retirement. Trustees must renounce obligations at the outset or retire under specified circumstances.
What principles guide the removal of trustees?
Express provisions in the trust instrument.
S.25 of the Trustee Act 1893: Courts focus on beneficiary welfare, not punishment.
Arnott v Arnott: Persistent non-cooperation can justify removal.
Moore v McGlynn: Trustees should not remain in positions where duties conflict with self-interest.
Spencer v Kinsella: Trustees must prioritize beneficiary welfare over personal preferences
What are the duties of trustees in equity?
Trustees must:
Ascertain the nature and extent of trust property.
Understand the terms of the trust
Understand the nature and extent of powers.
Ensure property is under their control
Satisfy himself no evidence of breach of trust
Pursue the trust’s aims in good faith (Greene v Coady)
What is the duty to invest, and how is it balanced?
Trustees must balance generating income for current beneficiaries and preserving capital for residual beneficiaries.
Re O’Connor: Trustees must act honestly and avoid investments with insufficient security.
Bartlett v Barclays Bank Trustee Co Ltd: Trustees must act with the care of a prudent businessman. Failed investment, liable even though acted in good faith. Higher duty of care for professional trustee
Nestle v National Westminster Bank: “Prudent Businessman” standard again..
didn’t act and took a conservative approach, not liable. Kenny [1993] Conv 63, 67 “It is a sad state of affairs that a bank which apparently nobody would choose to manage their investments according
to the courts, would nevertheless not attract liability”
Stacey v Branch: Trustees must avoid investments that are high-risk or speculative, even if the returns seem high. Their duty is to preserve capital, but are not liable if acting in good faith.
Duty to Invest Comparison
Bartlett v Barclays Bank Trustee Co Ltd
Liable despite doing their best – did something and the investment failed.
Nestle v National Westminster Bank
Not liable despite not doing their best – didn’t act and took a conservative approach.
Trustees seem to be encouraged to act conservatively therefore
Stacey and Nestle
Where default due to lack of initiative rather than speculative
investment decisions, difficult for beneficiary to succeed in
establishing breach of trust
Can trustees of a charity invest ethically at the expense of financial return?
Harries v Church Commissioners Nicholls VC
A: ❌ Not usually — they must focus on the charity’s financial interests. Ethical investing is only allowed if it doesn’t hurt returns or if the investment conflicts with the charity’s purpose
How does the duty to distribute apply to missing beneficiaries?
Trustees must ensure proper distribution of trust property.
Re Benjamin (1902): Missing beneficiaries may be presumed dead after 7 years (Benjamin order).
Re Green’s Will Trusts (1985) : Courts may declare beneficiaries dead earlier than specified by the testator for practicality. didn’t believe he was dead and left her estate to him only to be given to others if he hadn’t been found by 2020. Practicality v Intention
Civil Law (Presumption of Death) Act 2019: S5 – 7 years if uncertain you may be presumed dead.
Also a presumption of death if gone missing in circumstances where
- Death is virtually certain – court can grant an order at any stage
- Death or highly probable – court can then grant an order after 1 year
What is the duty to keep accounts and provide information?
Trustees must maintain clear accounts and provide beneficiaries with access to information relating to their interest in the trust.
Chaine-Nickson v Bank of Ireland: what happens if there is a discretionary trust (nobody definitely entitled to anything) Discretionary beneficiaries entitled to copies of trust accounts and details of investments
Murphy v Murphy: Beneficiaries can request information about the nature and value of the trust property, the trust
income, and as to how the trustees have been investing and distributing it. But may be a scenario where the list of potential beneficiaries is too broad to give everybody information.
Schmidt v Rosewood Trust Ltd: Disclosure of documents relating to trusts where petitioner claimed a discretion
interest. Courts balance interests of beneficiaries, trustees, and third parties when deciding on disclosure.
To what extent are trustees obliged to give information about
why they do what they do?
Re Londonderry’s Settlement [1965]
Trustees exercising a discretionary power are not bound to disclose to the beneficiaries the reasons which motivate them.
This argument may not apply where a lack of good faith is alleged.
What did the court decide in Breakspear v Ackland [2008] about letters of wishes and trustee disclosure?
🧾 The High Court held that letters of wishes (from a settlor to trustees) are confidential but not absolutely private.
👩⚖️ Trustees have discretion to disclose them to beneficiaries, balancing transparency with the need to protect the trust’s proper administration.
🔐 There is no automatic right for beneficiaries to see them.
What is the duty not to profit from a trust?
Trustees cannot profit unless authorized by the trust instrument or court.
Cradock v Piper: Solicitor-trustees can act for the trust but cannot profit beyond standard costs (if external solicitor was hired)
Smyth v Smyth: Trustees must rebut presumptions of undue influence when purchasing trust property.
Duty not to profit from a trust: Tito v Waddell No 2
Self-Dealing Rule – If you are both buyer and seller as a trustee, that sale is voidable by any beneficiary however fair the transaction:
Exceptions
- trust instrument expressly allows it (the court is not very flexible in their interpretation here)
- the court allows it in appropriate circumstances.
- all the beneficiaries allow it (must be sui juris)
Fair-Dealing Rule – Where a trustee is looking to buy trust property
from a beneficiary rather than trust.
* If a trustee buys the beneficial interest, the transaction isn’t voidable
but it can be set aside unless trustee can show:
* They have not taken advantage of their position
* They made full disclosure to the beneficiary
* The transaction is in all the circumstances fair and honest
It is therefore a presumption of undue influence because of the nature
of the relationship
What is the duty not to delegate?
Trustees must exercise due care when delegating tasks. Only if necessity.
Trustee Act 2000 (England): Trustees may delegate except for asset distribution and appointing trustees.
LRC Report [6.20] and [6.25] made recommendations in similar terms
Delegation is allowed where an ordinary prudent person would delegate to an agent.
What powers do trustees have under equity?
Trustees Act 1893 confers limited powers
Sale: Express or implied powers to sell trust property.
Maintenance (LRC recommendation): Payments from trust income, especially for minors.
Advancement (LRC recommendation): Payments from trust capital, limited to half the beneficiary’s vested share (Re O’Neill)
Re O’Neill - payment made out of the trust capital for the maintenance and education of the
testator’s children but power should only be exercised where really necessary
What constitutes a breach of trust?
A breach occurs when trustees fail to perform duties or act unauthorizedly.
Greene v Coady: Courts avoid hindsight bias when assessing trustee decisions.
Fry v Fry: Trustees liable for losses caused by unauthorized investments.
Target Holdings v Redferns: Equitable compensation requires causation and foreseeability.
How is liability shared among trustees?
Liability is personal but may be joint and several.
Bahin v Hughes: Inactive trustees may be liable for losses caused by co-trustees.
Head v Gould: Retiring trustees may be liable if breaches were contemplated at retirement.
Re Pauling’s Settlement Trust: Beneficiary consent may indemnify trustees for breaches.
What are exemption clauses in trust instruments?
Exemption clauses limit trustee liability but cannot exclude core obligations.
Armitage v Nurse: Trustees may be exempt from liability unless acting dishonestly.
Greene v Coady: Exemption clauses cannot absolve trustees from acting honestly and in good faith.
Spread Trustee Co Ltd v Hutcheson: Courts criticize clauses that exclude liability for gross negligence
Variation of Trusts?
Variation of terms of a trust without court approval
Saunders v Vautier
Where all the beneficiaries are of full age and capacity and entitled to trust
property, they may terminate the trust and receive the trust property.
The beneficiary was 21 but trust said he should get the property at 25. He
successfully claimed the property should be wound up.
That is important to note that if you write a trust stating the person’s age to claim
the trust property, they can get around that once they reach 18
Circumstances where variation may be sanctioned by court
Where unborn or minor beneficiaries (they will be unable to or
lack the capacity to consent)
* To avoid destruction of, or ensure preservation of, trust property
(known as ‘emergency or salvage’ jurisdiction)
* To effect a compromise of disputes as between the claims of
various beneficiaries (legislation introduced in England to address
consequences of narrow interpretation of this jurisdiction)
What Makes a Trust Void?
A trust is void if it offends statute, common law, or public policy. When a trust is void, a resulting trust arises to return the property to the settlor or their estate. Examples of void trusts include:
Violations of the rule against perpetuities (now partially reformed by the Land and Conveyancing Law Reform Act 2009).
Illegal or immoral purposes, such as a trust designed to pay fines for poachers (Thrupp v Collett).
Trusts restricting marriage (Allen v Jackson) or interfering with parental duties (Re Boulter).
What Makes a Trust Voidable?
A trust is voidable if it remains valid until challenged and set aside by the court. Voidable trusts often arise due to:
Mistake, fraud, duress, or undue influence—similar to contract law.
Attempts to avoid creditors—if a trust is created to shield assets from creditors, courts may invalidate it.
Bankruptcy Act provisions—trusts made before bankruptcy may be unwound if the settlor was unable to pay debts at the time.
