Protection of trustees

Question 1

How do we protect trustees from the outset?

Answer 1

a) Ouster clause in a deed or will - entirely removing the duty the trustee would otherwise have (not applicable to all duties).

b) Exemption clause:
The duty will still exist but the trustees will be protected form PERSONAL liability if they breach it.

Question 2

What is trustee liability insurance?

Answer 2

Taking out insurance against personal liability for breach of trust.

Commonly known as ‘trustee indemnity insurance’.

Question 3

Protecting trustees during administration: Legal advise on the terms of the trust?

Answer 3

Legal advice:

1. Seeking court directions.
2. Applying to the High Court under s48 Administration of Justice Act 1985 (‘AJA 1985’) to rely on Counsel’s opinion.
3. Surrendering their discretion to the court.
4. Obtaining beneficiary consent

Question 4

Protection by seeking out court directions?

Answer 4

Trustees who act in accordance with the directions of the court will not be liable even if there is a subsequent claim from a beneficiary.

ps! costly

Question 5

Protection by applying with the s48 AJA application?

Answer 5

Cheaper option but without applying to the court.

this application allows:
Step 1: Seek a written legal opinion from a person satisfying s71 Courts and Legal
Services Act 1990

and

Step 2: Apply for High Court authorisation to rely on that legal opinion.

Question 6

Protection by surrendering discretion to the court?

Answer 6

usually when there is a dispute between the trustees about how they should exercise their powers.

only sought in specific problems. not encouraged.

Question 7

Protection by seeking beneficiary’s consent?

Answer 7

This will only be an option if all the beneficiaries are known, locatable and are over 18 (and of sound mind).

FULL PROTECTION is offered if:

*The beneficiaries are given full information to enable them to provide consent.

• If consent is only obtained from some beneficiaries, the trustees will have a partial defence to breach of trust against claims by those beneficiaries but not against the other beneficiaries.

Question 8

How do we protect trustees from unidentified or missing beneficiaries?

Answer 8

1. Seeking a Benjamin order
2. Publishing a notice under s 27 TA 1925
3. Retaining a fund to satisfy the claims of missing or unknown beneficiaries.
4. Paying money into court to satisfy the claims of missing beneficiaries.
5. Taking out insurance against wrongful distribution.
6. Seeking an indemnity from the beneficiaries to whom they do distribute.

Question 9

How do trustees seek a benjamin order for missing beneficiaries?

Answer 9

Where the trustees know of the existence of a beneficiary but are unable to locate them.

A Benjamin Order can be granted allowing the trustees to distribute the trust fund on
the basis that the missing beneficiary is presumed dead.

Relieves the trustee of any liability if they are not (but they can still make a claim).

Question 10

How do trustees seek a s 27 notice for unknown beneficiaries?

Answer 10

the trustees may publish a notice of their intention to distribute to known beneficiaries two months after the advertisement.

After the two month notice period, the trustees may distribute to known beneficiaries and will have no personal liability to the unknown beneficiaries

(i) the London Gazette,
(ii) a newspaper circulating in the area in which any land held on trust is situated, and
(iii) any other newspaper which is appropriate

Question 11

How do trustees protect themselves with retained funds?

Answer 11

the trustees retain a fund setting aside trust assets in order to be able to discharge liabilities if missing beneficiaries come forward after distribution.

PS! may cause on going administrative duties for trustees and could upset other beneficairies.

Question 12

How do trustees protect themselves with a payment into court?

Answer 12

Last resort action..

Gives the court legal control over the funds and effectively allows the trustees to retire.
More attractive option to the trustees than retaining a fund,
because it means that they do not have open-ended administrative duties.

Question 13

How do trustees take out missing beneficiary insurance?

Answer 13

The trustees may simply take out insurance and then distribute in accordance with the information they have available. If a beneficiary later comes forward, the trustees will be liable to them but can claim on the insurance policy.

Question 14

how do trustees obtain indemnity from beneficiaries to protect themselves?

Answer 14

This involves the beneficiaries promising to reimburse the trustees if the trustees are successfully sued by other beneficiaries later.

Question 15

How do we protect trustees after a breach?

Answer 15

1. Check the trust instrument for an exemption clause.
2. Consider if the following may provide a full or partial defence:

• Reliance on court directions.
• Instigation / consent / acquiescence.
• Statutory limitation rules / laches.
• Statutory relief under 61 TA 1925.

4. If there is likely to be a successful claim, check for relevant insurance or
   an indemnity from other beneficiaries.
5. Identify whether there are any potential claims against third parties
6. If a trustee is required to pay equitable compensation, consider Civil Liability
   Contribution Act 1978 claims against co-trustees or third parties.

Question 16

What are claims against third parties?

Answer 16

If the trustees have acted in reliance upon advice from a professional such as a lawyer or a financial adviser.

If that advice was negligent, the trustees should consider making a claim against the adviser in their capacity as trustee.