Incidental profits (Breaches of fiduciary duty - FS Flashcards
(10 cards)
What is the rule on fiduciaries receiving profits due to their position?
Fiduciaries must not profit from their position, even if acting honestly. Any profit made as a result of their fiduciary role must be accounted for and paid to the trust or principal.
What is meant by “incidental profit” in the context of fiduciary duties?
Incidental profits are earnings made by a fiduciary that arise indirectly from their fiduciary role, such as commissions or personal payments from third parties due to decisions made in their fiduciary capacity.
Can a fiduciary keep a commission offered by a third party due to a decision made as trustee?
No. Any such commission is considered a secret profit and must be repaid to the trust, as it arises from the fiduciary’s position and is a breach of duty.
How does the rule on incidental profits relate to the conflict of interest principle?
It reinforces the fiduciary’s duty of loyalty and avoidance of conflicts; even indirect benefits from fiduciary decisions create a conflict and must be relinquished.
What must a trustee do if they receive a personal benefit from trust-related decisions?
The trustee must declare the benefit and pay it to the trust unless there is clear authorisation from the trust instrument or informed consent from all beneficiaries.
When can a trustee keep a director’s salary from a company linked to the trust?
A trustee may retain the salary only if the directorship was not obtained due to the trust’s majority shareholding or if they were appointed independently of their role as trustee.
What happens if a trustee becomes a company director because the trust holds a majority of shares?
Any salary earned as director in that case must be paid into the trust, as the appointment is considered a benefit arising from the trustee’s fiduciary role.
Does a trustee who was already a company director before becoming trustee have to forfeit their director’s salary?
o. If the fiduciary role was not the reason for the appointment, and the position predated the trusteeship, the salary can be retained.
What is the legal position on fiduciaries who make secret profits?
Secret profits are strictly prohibited. Courts treat them as breaches of fiduciary duty, regardless of intention or whether the fiduciary could have made the same profit independently.
Can the trust instrument allow a trustee to retain incidental profits?
Yes, but only if the trust instrument includes an express provision permitting such profits. Without this, any such gains must be surrendered to the trus
