Trustees and fiduciary duties

Question 1

what are 6 ways in which a trustee can be appointed?

Answer 1

1. trustee deed

trust set up in a will -> will is the trust deed

2. trust instrument gives specific powers of appointment to trustee.
3. other trustees can add/ remove
4. retiring trustee can appoint a successor
5. beneficiaries (must be 18 and sui juris)

Question 2

can a trustee use powers of the trust to reduce number of trustees?

Answer 2

no -> if there are 2 and one is removed they must be replaced

Question 3

What are 5 ways in which trusteeship may be ended?

Answer 3

1. death of trustee

2.trustee does not want to be a trustee

3. retirement (with consent)
4. beneficiaries able to compel retirement where there is a SvV right by giving written instructions. Power not available if there is power of appointment in trust deed
5. court

Question 4

if there is only 1 trustee and they die who becomes the trustee

Answer 4

PR

Question 5

What are the 2 kind of duties that trustees have?

Answer 5

1. appointment duties
2. continuing duties

Question 6

What are the appointment duties of a trustee?

Answer 6

1. understand terms of the trust/ deed and who the beneficiaries are
2. find out what the trust property is and ensure it is in their name
3. take action if there has been a breach of trust

Question 7

What are the continuing duties of a trustee?

Answer 7

1. act unanimously
2. impartiality vis a vis beneficiaries
3. invest
4. keep accounts and records
5. distribute the trust funds to right people
6. keep trust assets separate from personal ones
7. be adequately informed before exercising powers
8. fiduciary duties: no conflit, no profit

Question 8

What is the common law standard of care for trustees?

Answer 8

Trustee must exercise the same standard of diligence and care as expected of a prudent business person would of their own business.

Higher standard if professional trustee.

Question 9

What is the statutory standard of care for trustees?

(Trustee Act 2000)

Answer 9

Trustee must exercise such care and skill as is reasonable in all the circumstances;

having regard to any special skill, knowledge or experience that they have or HOLD themselves out as having.

Reasonable trustee standard.

Higher standard if professional trustee.

Question 10

Can the statutory standard of care for trustees be excluded by a trust instrument?

Answer 10

Yes

Question 11

Under the duty to invest the trust - can a trustee invest in land overseas?

Answer 11

no

Question 12

Do trustees have a duty to regularly review and monitor investments?

Answer 12

yes

Question 13

There isa duty for trustees to make investments with regards to Standard Investment Criteria (SIC)

What are the 2 tests set out in the SIC that trustees must consider when making an investment?

Answer 13

1. is it a good investment having regard to all other investment?
2. diversification of portfolio

Question 14

What must the trustee do before investing?

Answer 14

obtain and consider proper advice

note: trustee does not need to follow this only consider it

Question 15

Does a trustee have the power to delegate investment?

Answer 15

yes -> to a suitable agent

Question 16

Do trustees need to consult beneficiaries prior to making investments?

Answer 16

no

Question 17

Can trustees invest in a way which prioritises certain beneficaries

Answer 17

no

Question 18

What is the trustee power of maintenance?

Answer 18

• statutory power
• allows trustee to use income under a trust fund for benefit of a minor (U18) beneficiary or adult beneficiary who has not taken trust capital due to a contingency
• discretionary power

Question 19

For what purposes can the power of maintenance be used for where there is an U18 beneficiary?

Answer 19

• education
• maintenance
• benefit to be paid to a parent or guardian

Question 20

Under power of maintenance - is there an amount that the trustee can/ cannot pay out

Answer 20

no limit

discretionary

Question 21

The power of maintenance is only available for what type of trust?

Answer 21

fixed trust

Question 22

What is the power of advancement?

Answer 22

• relates to capital rather than income
• can be excluded in a trust deed -> if not excluded it is implied in trust
• allows trustee to advance capital for beneficiary’s interest (U18 or adult with contingent interest) for their benefit before they are entitled ot i.
• able to use capital from trust to improve beneficiary’s situation

Question 23

If there is a life tenant, can a trustee use power of advancement?

Answer 23

only if life tenant consents in writing

Question 24

What are 2 types of breach of trust

Answer 24

1. positive misapplication

Paying out to wrong beneficiary/ investing in an unauthorised investment.

2. negligence of trust administration

failure to manage with due care and skill

Question 25

If there has been a positive misapplication of the trust -> what must a trustee do?

Answer 25

restore the trust fund to the value it would have been but for the breach. e.g. unauthorised purchase of shares for £200 -> shares sold for £100 -> trustee must personally make up the difference of £100

Question 26

Is liability of trustee a personal one?

Answer 26

yes -> trustee not liable for breach of their co-trustees unless acting together -> in this case they would be jointly and severally liable

Question 27

What are the4 defences available to trustees for breach of trust?

Answer 27

1. beneficiary was involved/ consented to the breach note: if only 1 consented where there are multiple, other beneficiaries may still be able to bring a claim. note: if one beneficiary asked/ instigated breach -> court can impound their interest 2. Court -> can relieve trustee if it believed trustee acted honestly and with integrity 3. exemption of liability clause in trust deed 4. lapse of time -> 6 year limitation period from the date the cause of action accrued

Question 28

What is the limitation date for a claim in breach of trust

Answer 28

6 years from the date the cause of action accrued note: does not apply to fraudulent breaches if trustee has misappropriated property for their own purpose -> no time limit

Question 29

what is the doctrine of "laches"

Answer 29

court has discretion to strike down a claim for breach of trust if there has been unreasonable delay

Question 30

What is a fiduciary duty?

Answer 30

- legal obligation - to act in the best interest of another note: trustees have trustee and fiduciary duties

Question 31

can a court impose a fiduciary duty?

Answer 31

yes if it is just to do so

Question 32

What are the 2 key fiduciary duties owed by trustees?

Answer 32

1. no profit 2. no conflict with principal

Question 33

What is meant by the trustee fiduciary duty of no profit?

Answer 33

- cannot take advantage of position - e.g. use of info acquired as a result of position to gain a profit - any advantage must be used for the principal's advantage - no commission -> e.g: introduces principal to a law firm; cannot profit - only able to claim out-of-pocket expenses - profit/ fees only permitted if allowed under the trust deed + all principals consent

Question 34

What are the 2 subrules to the trustee fiduciary duty of no conflict?

Answer 34

1. Self-dealing Fiduciary cannot sell trustee property to themselves as they are both the seller and the buyer. (otherwise transaction is voidable) 2. fair-dealing cannot purchase property from principals without proper procedure

Question 35

What is the remedy for breach of fiduciary duty where the trustee has profited

Answer 35

- profit must be handed over to principal. - profit returned via personal remedy or proprietary remedy 1. personal remedy -> all profits handed over straight away 2. proprietary remedy -> constructive trust over profits held for benefit of principal

Question 36

Where there has been a breach of fiduciary duty where the trustee has profited, there are 2 available remedies: 1. personal remedy 2. proprietary remedy what are the benefits of 2.

Answer 36

constructive trust means that profits can be traced if used to buy replacement asset -> able to make a proprietary claim on the replacement asset constructive trusts survive the insolvency of fiduciary