Trustee powers and duties Flashcards
Source of trustee pwoers and duties?
Trust instrument
- If terms of trusts are contained in a written document – then that document is first port of call
Statute
- Trustee act 200 and 1925
Categorising powers and duties
Administrative powers – relate to management
- Comply with terms of trust
- Power of investment – produce income for trust – broader powers to buy and sell property
- Or raise money by charging existing trust property
- Dutues – prescribed skill and care
Dispostive powers – distribution
- Affect beneficial interest arising from the trust
- Tend to have power of maintenance for minor benficaries
Breach of trust
- Trustsees may only act within their powers – subject to proper exercise of their powers
Breach of fiduciary duty
- Breaking the no profit rule for example
Administrative powers and duties?
General power of investment
- S3
- A trustee may make any kind of investment that they coud make if they were absoluelty entitled to the assets of the trusts
- Must consider the standard investment ciretira set out ins 4
o Suitability – general and specific suitability – consider size fo trust, period of time and respective rights of different ebenfcaries – personal views of trustees in not important
o Divesifcation – overall risk profile of rtust fund rathe rthan each investement indivdiualy
o MUST ACT EVEN HANDEDLY FOR BENEFICARIES
- Take advice
o REQUIRED TO OBTAIN Proper advice by someone qualified in their ability to give it before investing
o EXCEPTION -Do not need to seek advice if its unnecessary to do so if cost outweighs benefit or if they have enough knwolegde
Aquisition of land and delegation?
Aquistion of land
- power to aquire freehold or elashold in uk – can be execsired for investement of for occupation be beneficiary
delegation
- broad powers of dlegation
- BUT CANNOT DELEGATE DISTRIBUTIVE OBLIGATIONS
- ARE permmited to delegate powers of investment and powers to aquire land - CANNOT DELEGATE DECISIONS TO BENEFCIARIES
- Trustees cano only delegate investment powers by an agreement in writing – ensuring compliance with a written policy statmenet
Trustees are required to comply with stattuory duty of care when selecing an agent
- Arrangement should be revied regularly and comply with requirements under statute
Dispositive powers?
Distinguish between trust capital and income.
Delay in distributing is a breach of trust
Duty to distribute capital
- Depends on terms of trust
So for example
If something is held on trust for a minor beneficiary until they reach age of 25 when their interests vests in poessions the obligations change over time
- Whilst under 18 – beneficiary must hold on to capital on trust
- Whilst beneicary is bweetn 18 and 25 must continue to hold it unless beneficiary execises saunder v vautier rights
- When reached age of 25 must transfer capital as soon as possible
Duty to distribute or accumulate income
- Well drafted trist insturmeent will contain rules setting out trustees powers and obligations in repsect of incoe
- If nothing expressly stated then
Adult beenficaries – must dustubte income as it arises
Minor beneficiaries – must accumulate until they turn 18
Dispositive powers?
Defualt powers – can be ammdned or excluded
Trustees have a power of maianteance – for a minor beneficiary – DOES NOT APPLY WHERE SOMEONE ELSE HAS A PRIROR INTEREST IN INCOME
Trustees have a power to pay capital for advancement of a benfciary whose interest is comtingernt or whose has not vested in possession yet – APPLIES TO ADULTS TOO – applies to both vested and contingent interests
So for a minor beneficiary with a vested interest – MAY use powers for amainteance of dirving lessons for both capital and income
Life interest trust – no trustee powers in repsect of income as the minor benefiary does not have any interest in the inome – BUT MAY use statutory power to buy a car with the first persons cosnetn
Power of advancement - dispsoitve powers?
- Benfciary may wish to receive trust capital before it vests in poesison
CAN BE USED FOR BOTH ADULT AND MINOR - Applied to both vested and contingent interests
- Can be modiefed or exlcded by trusts instruement
- Up to 100% advancement
- Can be sued even if they do not have saunder v vautier rights – but THEN trustees only have dispisutive discretion not a duty
- If made before 1st October 2014 can only do up to 50%
Advancment means – immediatel financial benefit for a beneficiary – improve material situation of beneficiary - If paid to minro should not to be them directly but theyre parent
Trustees have a duty to ensure capital is used for correct prupose
Rules relating to dispsotive pwoers?
Consent of benfciary with priror interest
- Written consent of benefcaires with a prior interest
Bringing payments into accounts
- If treated as porpritonate share – then tis a 100% and will not reciece anything later if it increases
- But if NOT treated as porprpitonate share trustees will take A’s payment into account before making their idtsiubritons
Statutry power of maintenance
- Used for power of minor benefvires – as long as no prior interest
- Default power – so needs to be excluded or amended
Execirse of the power
- Fiduciary power – mst act in god faith of benefcaires ]income must be used for priary beenfor of minor beenficary
- Primary use for beeficayr but does not matter if benefits someoene else too
Fiduciary relationship? No conflcit?
- Even if in best interests of beneficiary should avoid it
- Self-dealing – transaction will be vidable – beneficiaries can seek to rescind it
- Fair dealing – beneficiary is personally involved in transaction – but trustee is likely o be in a stronger bargaining power – transaction is voidabe
- Conflicting duties – if duty to one pricniapl ocnflcistw ith their duties to another rprinciapl
- In cases of potential conflict – fiduacires can proceed if transaction is authrosied by instrument creating fiduairy relationshuo – if unathorsied – fiduciary must obtain consent of their princiapls
e fully
informed consent of their principals. Without authorisation or consent, the fiduciaries will commit
a breach of fiduciary duty.
If there is a breach, the consequences depend on the nature of the breach:
* If the breach causes a loss to the principal, they can sue the fiduciary personally for breach of
fiduciary duty. The fiduciary would be liable to compensate the principal.
* As we have already seen, breach of the self-dealing rule and fair-dealing rules result in the
transaction being voidable. The beneficiaries may seek rescission.
* If the breach results in a profit to the principal, they may not require a remedy although they
may wish to end the fiduciary relationship. If it also results in a profit to the fiduciary, the
principal can recover the profit from the fiduciary.
No profit rule?
- Direct profit
- Indirect profit
- Not entiled to keep a profit that they make as a result of an opportunity that comes to them in coruse of perfoming their ficuairy dities
- Naturally bribes and secret commisisons ar eporhibited
Remedies for breach of no profit rule
- Beenfciary may electe
- An accout of profits - get paid an equivalent sum
- A constructive trust – principal may wish to argue that the rpot made t fiduairy is held on constructuve trust for princiap,
Liability of trustees?
Powers, duties and breach
- If trustees act outside their powers
- If they fail to comply with any duties
- If they breach no profit or no conflict rule
Cconsequcnes of breach
- Breach of trust – whether that breach has caused a loss to the trust fund –
- Breach of fiduciary duty – looking for loss
- Remedies – depend on nature and consequences of breach
- If there is no loss or profit sometimes there is no remedy but can bring the trust to an end
Who is liable for breach?
is liable for breach?
Trustee duties
- If a trustee has breached their fidcuairy dities – NOT LIKELY that their co-trustees will be liable.
Defences and protection of trustees
- Check if breach is authroised by trust instrument or by benefiicairies, or statute of limitiaion period 6 YEARS
Appoprtionment of liability
- When multiple indivoduals are liable in repsect of same loss – then they may sue all all defendnats together – a defendant may seek an indemnity or contribution from their co-trustees
BReach of trust?
Acting outside powers
- Making an unathorised investmenet
- Wrongful distribution
- Misappropirtion of trust property
Acting in breach of duties
- Falling bellow standard of behaviour expected as trustee.
- Failing to take into account standard investment criteria
- Failure to comply with duty of care
- Failure to ropery moniot investments
If there are co-trustees– necessra to identify who breached.
Liability cannot be for before you were a trustee – BUT if you become aware of it on appointment then should commence proceedings otherwise may become liable
Liability for breach after retirement – continue to be liable for any that was committed during their time –
Effect of breach?
Loss –
- Propiteory claims may be made if not possible then beneficiary may seek equitable comspensation
How is loss assessed
- Taking an account – loss is assessed at date of the trial – compensate the difference in expected trjst fund and what it actually is
Taking an account
- Misapplication of trust funds – courts would faislify the account. Trustees retrun the trust fund to position it would have eben but for the breach. Or pay an equitable comspensation in lieu of this.
- Other rbeaches – taking an account known as subchaging. Court will look at epxcetd value fo trust fund
Modern approach to causation
Offsetting lossess against gains
- Held to same standard eveyrtime they exercise their functions
- Can offset profit against loss
Defences?
Exemption clauses
Trust instruments will often contain exemption clauses that have the effect of limiting or excluding
trustee liability for particular sorts of breach. The duty still exists but the trustees will be protected
from personal liability if they breach it.
An exemption clause can exclude liability for any sort of breach other than a fraudulent breach
Trustees will not be liable for a breach of trust or fiduciary duty if they received the fully informed
consent of all the beneficiaries. If only some of the beneficiaries have consented, the trustees will
not be able to fully escape liability but will have a partial defence against those beneficiaries
ustees will also have a defence against beneficiaries who instigate or request the breach. Again,
this will only provide a partial defence if there are other beneficiaries who did not.
Finally, even if the beneficiaries did not consent to the breach before it was carried out, they may
subsequently affirm the action of the trustees. A trustee who has committed a breach may
therefore have a defence of acquiescence against beneficiaries who have indicated (by their
words or actions) after a breach that they consent to the action taken.
Delay - limitaion period . - Time limit is 6 years from the breach – ONLY applies to benefcaies with interest vested in possession – for other tis starts to run from possession
- Limitiaion period does not apply to fraudulent breaches or proptiary claims against trustee
- Can also rely on a defence of laches – is highly fact specific – if the beneficiaries took to long to bring a claim even if its in time period.
Statutory relief under s6
- Court gives relief to trustees who can prove they acted
- Honesty
- Reaosnablyeness
- Ought to be fairly excused
Apportionment of liability?
Trustees are jointly and servally liable
Civil liability contribution act
- A claim can be made where two or more are liable for the same damage – unequibale ocnitbutions will reflcet differing levels of culpability for the loss
Full indmeinity
- s is likely only in cases where: (a) A particular trustee is morally culpable for the breach, such as cases where the trustee has misappropriated trust property for their own benefit. (b) A trustee is also a beneficiary. (c) A trustee acts as solicitor to the trust and the breach is committed in reliance on their advice.
- AN INDEMINITY WILL BE GRANTED TO A TRUSTEE IF RELIANCE ON THE OTHER ONE WAS UNDERSTANDABLE.
