Topic 5 - Trustee Powers and Duties Flashcards
(125 cards)
1
Q
What is the core role of a trustee?
A
To hold property for the benefit of others.
This is fundamental to the existence of a trust.
2
Q
True or False: A person is required to accept the office of trustee if named in a will.
A
False.
A person can refuse the role, often referred to as ‘disclaiming’ the position.
3
Q
What happens if a trustee disclaims their position?
A
An alternative trustee will be appointed instead.
Equity ensures that a trust does not fail for lack of a trustee.
4
Q
What is the traditional remuneration status of trustees?
A
Traditionally unpaid.
Trustees can recover expenses but are not paid unless expressly granted.
5
Q
Who is held to a higher standard of care, professional trustees or lay trustees?
A
Professional trustees.
They are entitled to reasonable remuneration for their services.
6
Q
What is the consequence of failing to act as a trustee when there are multiple trustees?
A
Liability for breach of trust.
Trustees are jointly and severally liable for breaches.
7
Q
What is the ‘irreducible core’ of trustee duties?
A
A general duty to act honestly and in good faith for the benefit of the beneficiaries.
This is fundamental to the concept of a trust.
8
Q
What is the main role of trustees in testamentary and family trusts?
A
To comply with the terms of the trust and ensure proper payments.
Trustees must manage the trust fund appropriately.
9
Q
Fill in the blank: The legal title to land in a trust may only be held by a maximum of _______.
A
four persons.
10
Q
What are the two broad choices for appointing trustees in an inter vivos trust?
A
- A transfer on trust
- A self-declaration of trust
11
Q
What happens if a settlor transfers legal title to a trustee who then disclaims the trusteeship?
A
The intended trustee holds the property on a bare trust for the intended beneficiaries.
This occurs pending the appointment of new trustees.
12
Q
Who can appoint new trustees if the original named trustees are unwilling or unable to act?
A
- The trust instrument may contain an express power to appoint trustees.
- The disclaiming trustee under ss 36(1) and 36(8) TA 1925.
- Beneficiaries with Saunders v Vautier rights under s 19 TLATA.
- The court under s 41 TA 1925.
13
Q
What must personal representatives do with assets given absolutely to a minor?
A
Hold the assets on trust until the minor reaches 18.
They can also appoint trustees, usually the minor’s parent or guardian.
14
Q
What is the statutory power to appoint trustees under s 36 TA 1925 used for?
A
- To replace existing trustees
- To appoint additional trustees
15
Q
True or False: A trust instrument may contain powers to appoint new trustees.
A
True.
16
Q
What is a key requirement for a trust to exist?
A
It must have a trustee.
17
Q
What are the statutory provisions that allow for the appointment of replacement trustees?
A
- ss 36 TA 1925
- s 19 TLATA
- s 41 TA 1925
18
Q
What is the statutory power to appoint trustees under?
A
s 36 TA 1925
This section outlines the powers related to appointing, replacing, and adding trustees.
19
Q
What are the purposes for which the power to appoint trustees can be used?
A
- To replace existing trustees (s 36(1))
- To appoint additional trustees (s 36(6))
20
Q
Under what circumstances can existing trustees be replaced according to s 36(1) TA 1925?
A
- On the death of a trustee
- If a trustee is abroad for over a year
- If a trustee is a minor or lacks capacity
- If a trustee wishes to retire or is unfit to act
21
Q
How must the power to appoint trustees under s 36 TA 1925 be exercised?
A
In writing.
22
Q
What does s 36(2) TA 1925 state about deceased trustees?
A
They are treated the same as trustees who have died.
23
Q
What does s 36(3) TA 1925 indicate about corporate trustees?
A
Dissolved corporate trustees are deemed incapable of acting.
24
Q
What does s 36(8) TA 1925 clarify about the death of a trustee?
A
It includes situations where trustees of a testamentary trust predecease the testator.
25
According to s 36(6) TA 1925, who can appoint additional trustees?
* The person named in the will or trust deed
* Current trustees if no such person is available
26
What limitation is placed on the number of trustees under s 36(6) TA 1925?
The number of trustees cannot exceed four unless permitted by the trust instrument.
27
What are beneficiaries with Saunders v Vautier rights allowed to do?
They can change the trustees of the trust.
28
What is the significance of s 19 TLATA regarding trustee appointment?
It allows beneficiaries with Saunders v Vautier rights to direct the appointment of a new trustee.
29
Under what condition can beneficiaries exercise their rights according to s 19 TLATA?
In writing and cannot be exercised if the trust instrument has an express power to appoint trustees.
30
What does s 41(1) TA 1925 state about the appointment of trustees by the court?
The court can appoint trustees if there is no one authorized who is able and willing to act.
31
What principles does the court consider when appointing a trustee?
* Wishes of the settlor or testator
* Disputes between beneficiaries
* Impact on trust administration
32
What is the role of the Public Trustee according to the Public Trustee Act 1906?
To administer the trust when no other person is willing to take on the role.
33
What are the general rules regarding the removal of trustees?
* Trust instrument may contain rules for removal
* Statutory power extends to removing trustees
* Court has powers to remove trustees
34
What are the conditions for a trustee to retire voluntarily?
* Signs a deed declaring intention to retire
* At least two trustees remain
* Written consent from co-trustees
* Necessary actions to vest trust property in remaining trustees
35
What are the two broad categories of trustee powers and duties?
* Administrative powers and duties
* Dispositive (distributive) powers and duties
36
What is the primary duty of a trustee concerning trust property?
To comply with the terms of the trust.
37
What are administrative powers related to?
Management and protection of trust property.
38
What is the general power of investment according to s 3 TA 2000?
Trustees may make any kind of investment they could if absolutely entitled to the assets.
39
What must trustees consider when exercising the general power of investment?
* Standard investment criteria (s 4 TA 2000)
* Seek advice (s 5 TA 2000)
40
What are fiduciary duties in relation to trustees?
Duties that control how trustees perform their role, framed in the negative.
41
What constitutes a breach of trust?
Acting outside powers or failing to comply with duties.
42
What can lead to a breach of fiduciary duty?
Using powers for personal gain or placing oneself in a conflict of interest.
43
What can duty be restricted, excluded, or extended by?
The terms of the trust instrument
## Footnote
(Sch 1 TA 2000)
44
What are the standard investment criteria found in?
s 4 TA 2000
## Footnote
This section outlines the criteria trustees must consider for making investments.
45
What are the two key components of the standard investment criteria?
* Suitability (s4(3)(a))
* Diversification (s4(3)(b)
46
What does suitability in investment criteria require trustees to consider?
* General suitability
* Specific suitability
47
What must trustees balance when assessing suitability?
The duty to preserve trust assets against the need to produce appropriate growth.
48
What key issues must trustees consider when assessing suitability?
* The size of the trust fund
* The period the trust is intended to subsist
* The respective rights of different beneficiaries
49
What is the significance of the Cowan v Scargill case?
It set principles for trustees regarding the best financial interests of beneficiaries.
50
According to Cowan v Scargill, what must trustees prioritize when making investment decisions?
The best financial return for the trust fund.
51
What is the implication of the personal views of trustees in investment decisions?
They are not relevant to the assessment of suitability.
52
What is the principle of diversification in trust investments?
Taking an overall approach to the risk profile rather than considering each investment individually.
53
What factors affect a trustee's ability to diversify investments?
The size and nature of the trust fund.
54
What must trustees consider when investing in ethical investments?
Moral and ethical concerns may be considered if beneficiaries agree on them.
55
What does section 5 TA 2000 require trustees to obtain before exercising investment powers?
Proper advice.
56
What is the definition of 'proper advice' under section 5 TA 2000?
Advice provided by a qualified person with relevant experience.
57
When can trustees skip obtaining proper advice according to section 5 TA 2000?
If they reasonably conclude it is unnecessary.
58
What does the statutory duty of care under section 1 TA 2000 require?
Trustees to exercise reasonable care and skill in their duties.
59
What special considerations must be taken into account for professional trustees under the statutory duty of care?
Their special knowledge or experience.
60
What is the common law duty of care for trustees?
To exercise the standard of diligence expected of an ordinary prudent business person.
61
What statutory power do trustees have under section 8 TA 2000?
To acquire freehold or leasehold land in the UK.
62
What does section 11 TA 2000 allow trustees to do?
Delegate their powers of investment and acquisition of land.
63
What are the two primary reasons for a trustee to delegate functions?
* Incapacity to discharge duties
* Lack of expertise
64
What must trustees ensure regarding agents when delegating functions?
* Appropriate agent selection
* Compliance with statutory requirements
* Regular arrangement review
65
What are the three circumstances under which trustees distribute trust property?
* Obligation under the terms of the trust
* Direction by beneficiaries with Saunders v Vautier rights
* Exercise of a dispositive power
66
What must trustees distinguish between when considering their dispositive duties?
Trust capital and income generated by that capital.
67
What must trustees do when distributing capital according to the trust terms?
Distribute as soon as possible and not wait for beneficiaries to demand payment.
68
What is a key obligation for trustees when dealing with minor beneficiaries?
To accumulate income until they turn 18.
69
What happens to the income generated by trust property for adult beneficiaries?
It must be distributed as it arises.
70
What is the duty of trustees regarding income if not specified in the trust instrument?
To either distribute or accumulate the income.
71
What is the obligation of trustees regarding income for a minor beneficiary before they turn 18?
To accumulate the income.
72
What is the duty of trustees regarding income before the beneficiary reaches the age of 18?
Trustees are required to accumulate the income.
## Footnote
This applies to situations where the beneficiary has an interest that carries intermediate income.
73
What must trustees do with the income when the beneficiary is between the ages of 18 and 25?
Trustees must distribute the income to the beneficiary as it arises.
74
What is the obligation of trustees when the beneficiary turns 25?
Trustees must distribute the accumulated income alongside the capital.
75
What are the trustee's obligations when holding property on trust for A for life, remainder to B?
Trustees must distribute income to A during A's lifetime and transfer trust property to B after A's death.
76
What happens when A is 14 and B has just turned 18 in terms of trustees' obligations?
Trustees must hold A's £1,000 until A turns 18 and distribute B's £1,000 share as soon as possible.
77
What are the trustees' obligations when A is 14 and the trust is for A until age 21, with B as the alternative beneficiary?
Trustees must hold the capital on trust and accumulate income until A turns 21.
78
What must trustees do when A is 14, B has just turned 21, and C has just turned 18?
Trustees must hold A's capital, distribute B's share, and hold C's share while distributing C's income.
79
What is a discretionary trust?
A trust where trustees have the discretion to distribute trust property to selected beneficiaries.
80
What powers do trustees have under s 31 TA 1925?
Trustees have the power to pay income for the maintenance, education, or benefit of a minor beneficiary.
81
What does the power of maintenance apply to?
It applies to beneficiaries with vested and contingent interests carrying intermediate income.
82
What is the power of advancement under s 32 TA 1925?
It allows trustees to pay capital for the advancement of a beneficiary whose interest is contingent or has not yet vested.
83
What is the difference in trustee duties regarding income for a life interest trust?
Trustees must pay income to A and cannot use statutory power of maintenance for B.
84
What is the statutory power of advancement?
It allows trustees to use capital for the benefit of a beneficiary before they become absolutely entitled.
85
Whose consent is required to exercise the power of advancement?
The written consent of beneficiaries with a prior interest is required.
86
What is a key case regarding the duty of trustees to ensure capital is used correctly?
Re Pauling’s Settlement Trusts [1964] Ch 303.
87
Can trustees pay capital directly to a minor beneficiary?
No, it should be paid to the child’s parent, guardian, or directly to the provider of goods/services.
88
How much capital can trustees pay using the power of advancement?
Up to 100% of a beneficiary’s prospective entitlement.
89
What happens if a trust was created before 1 October 2014 regarding advancements?
Trustees can only advance up to a maximum of 50% of the beneficiary’s prospective share of the capital.
90
What constitutes the meaning of 'advancement' for trustees?
Any use of money that improves the material situation of the beneficiary.
91
What must trustees ensure after exercising the power of advancement?
They must ensure that the money is used for the intended purpose.
92
What should trustees do if a beneficiary misuses advanced funds?
They should not pay further money and may pay directly to a third party instead.
93
What is the role of trustees when a beneficiary requests capital for a specific purpose?
Trustees must be satisfied that the capital is for the beneficiary's benefit.
94
What is the purpose of the trustees' power of advancement?
To pay a beneficiary an amount from the trust fund before their interest vests
## Footnote
The trustees have discretion to use this power but are not obligated to do so, and must ensure the payment benefits the beneficiary.
95
In what situation can trustees exercise the power of advancement for a minor beneficiary?
When the minor has a contingent interest in capital and no prior interest exists for another beneficiary
## Footnote
The trustees must act in the best interest of the minor beneficiary.
96
What is required before trustees can exercise the power of advancement in favor of a beneficiary with a prior interest?
Written consent from the beneficiary with the prior interest
## Footnote
This is to avoid prejudice to the prior interest.
97
What is the maximum amount trustees can advance to a beneficiary?
Up to 100% of the beneficiary's beneficial entitlement
## Footnote
Any payment made must be accounted for when the beneficiary's interest vests.
98
What must trustees do when advancing capital to a beneficiary?
Bring the payment into account when the beneficiary becomes absolutely entitled
## Footnote
Trustees can choose to treat the advancement as a proportionate share or its strict monetary value.
99
What is the statutory power of maintenance under s31(1) TA 1925?
Allows trustees to pay trust income for the maintenance, education, or benefit of minor beneficiaries
## Footnote
This power is applicable unless the trust instrument excludes it.
100
When can trustees use the statutory power of maintenance?
For minor beneficiaries with vested or contingent interests in capital, provided no other beneficiary has a prior interest
## Footnote
It is a default power unless excluded by the trust instrument.
101
What must trustees do with the income generated for minor beneficiaries under a life interest trust?
They cannot pay income to a minor beneficiary during the lifetime of the life tenant
## Footnote
Income must be accumulated until the minor reaches adulthood.
102
What types of expenses can the statutory power of maintenance cover?
* School fees or training
* Medical bills
* Food, clothing, and rent
* Leisure and holidays
## Footnote
This list is non-exhaustive and reflects the broad discretion of trustees.
103
What is the fiduciary nature of the trustee-beneficiary relationship?
It involves a duty of single-minded loyalty from the trustee to the beneficiary
## Footnote
This relationship arises in situations of power imbalance.
104
What are the two key fiduciary duties of a trustee?
* No-conflict
* No-profit
## Footnote
These duties ensure the trustee acts in the best interests of the beneficiary.
105
What is self-dealing in the context of fiduciary duty?
When a trustee buys from or sells to the trust, creating a conflict of interest
## Footnote
Such transactions are voidable and can be rescinded by the beneficiaries.
106
Can a trustee circumvent self-dealing rules by using a company they own?
No, the conflict of interest remains, and the transaction will be voidable
## Footnote
The substance of the transaction is considered over its form.
107
What happens when a trustee sells to a company in which they hold shares?
The situation requires careful examination of facts to determine the nature of the transaction
## Footnote
The outcome depends on the relationship and control the trustee has over the company.
108
What is the consequence if a trustee uses a wholly owned company to transact with the trust?
The transaction will be voidable.
109
In a transaction where a trustee buys from or sells to a company in which they hold shares, what factor determines if it is self-dealing?
Whether the trustee has a controlling shareholding in the company.
110
What does the ‘fair-dealing’ rule entail?
It involves the trustee transacting directly with the beneficiary to buy their beneficial interest under the trust.
111
Under what conditions can a transaction involving a trustee and a beneficiary be voidable?
Unless the trustee demonstrates full disclosure, honesty, fairness, and no advantage taken over the beneficiary.
112
What is the core obligation of a fiduciary?
Single-minded loyalty to a principal.
113
What is required for fiduciaries to proceed with a transaction involving a conflict?
Authorization by the instrument creating the fiduciary relationship or fully informed consent from the principals.
114
What are the consequences of a breach of fiduciary duty?
* The principal can sue for loss caused by the breach
* The transaction may be voidable
* Profits made by the fiduciary must be returned
115
What are the broad ways a fiduciary might breach the no-profit rule?
* Directly using the property of their principal for personal profit
* Indirectly profiting from their role
* Exploiting an opportunity from their fiduciary position
* Receiving bribes or secret commissions
116
Can a solicitor retain interest on client money held in an account?
No, it is a breach of the no-profit rule.
117
What must a trustee do with remuneration received from a directorship obtained due to their position?
Pay it into the trust fund.
118
What strict rule prevents fiduciaries from keeping profits from opportunities arising from their duties?
They must not profit from opportunities that arise due to their fiduciary role.
119
What was the outcome in Keech v Sandford regarding the trustee's lease?
The trustee was required to assign the lease to the beneficiary and account for the profits.
120
In Boardman v Phipps, who was found to have breached fiduciary duty?
Both Boardman and Tom Phipps.
121
What is the significance of FHR European Ventures LLP v Cedar Capital Partners LLC?
It clarifies that breach of the no-profit rule results in the fiduciary being stripped of profits.
122
What remedies are available for breach of the no-profit rule?
* An account of profits
* A constructive trust
123
In the example of A and B selling land, what claim would beneficiaries prefer if A received £1,000 as a bribe?
They would prefer to claim that the £1,000 was held on constructive trust.
124
True or False: A fiduciary can accept bribes or secret commissions.
False.
125
What is the main principle behind the no-profit rule?
A fiduciary must act with single-minded loyalty and must not profit from their position.
