Trustees: Powers and Duties Flashcards
What is the discretionary power to apply income?
Only for minors (as adults are automatically entitled to income);
trustees can only apply the power to pay for the maintenance, education and benefit of a beneficiary.
Can the power to apply income arise if there is a life tenant in the trust property?
No, as the life tenant is the only person interested in the income for their lifetime.
A beneficiary would only be interested in capital during the life tenant’s lifetime.
Who should the money be paid to when applying the power of income?
A responsible adult should be given the money as a minor cannot give good receipt.
Could either be a parent, or the body who is going to maintain the child e.g. paying directly to the school they aim to attend.
Is there a duty for the trustee to exercise their power to apply income?
No. The power is wholly discretionary.
What are the statutory powers of advancement?
Trust capital can be advanced to beneficiaries for their advancement or benefit.
What are the 6 conditions that need to be satisfied for the advancement of capital?
(1) no contrary position in the declaration of trust;
(2) beneficiary has an interest (vested or contingent) in trust capital;
(3) payment must be for advancement or benefit, not for pleasure, leisure or hobbies;
(4) If created before Oct 2014, only half of an entitlement can be advanced (after, cannot exceed entitlement);
(5) payment is taken into account when the beneficiary becomes entitled to trust capital;
(6) if a beneficiary has a prior interest (e.g. life-tenant), trustee must receive written consent before the advancement
What is the main difference between a power and a duty in a trust?
Beneficiaries can compel a trustee to perform a duty, however, have comparatively no control over their powers.
What is the standard duty of care a trustee owes?
A trustee must take all precautions an ordinary prudent man of business would take in managing their own affairs.
Is the duty of care owed by a trustee an objective or subjective standard?
General rule is that it is an objective standard.
However, if a trustee is a solicitor, or a professional trustee, are held to a higher standard of an expert in their field.
What are the five initial duties when starting out as a trustee?
(1) Ensure they have been properly appointed;
(2) ascertain what the trust property consists of and to take control of it;
(3) review the trust document and become familiar with the trust;
(4) enquire into the past business of the trust;
(5) if there are chattels in the trust, ensure a proper inventory is drawn up
What does a trustees duty say if there is a conflict between two beneficiaries?
That they are to act impartially between them. A trustee must not benefit one beneficiary at the expense of another.
How can a trustee breach their duty to act personally?
(a) by leaving matters in the hands of a co-trustee without enquiry;
(b) allows trust funds to remain in the sole control of a co-trustee;
(c) fail to watch over and possibly correct the conduct of their co-trustees;
(d) fails to take action knowing a co-trustee was committing a breach of trust
What 6 duties are owed by trustees when exercising their powers?
Trustees must exercise their powers:
(a) in good faith;
(b) rationally;
(c) for the purpose for which it was created;
(d) with regard to relevant material;
(e) with regard to all relevant facts;
(f) with regard to any legitimate expectation a beneficiary might have
What documents are beneficiaries entitled to see?
(a) the trust documents or will that created the trust;
(b) the trust accounts; and
(c) a schedule of trust investments to show how the property is being invested
Are trustees obliged to give reasons for why they exercised their powers in a certain way?
No. However, they may need to give reasons if a beneficiary has a legitimate expectation and they’re acting in a dichotomous way to the expectation
What is the general power of investment?
A trustee can make any kind of investment as if they were absolutely entitled to the assets, save for assets in land.
What is the power of investment in land?
Trustees can purchase ONLY UK property:
(a) as an investment;
(b) for occupation by a beneficiary; or
(c) any other reason
What is the standard investment criteria?
(1) The investments must be suitable for the trust (the investment must be a suitable property, and must be a good choice);
(2) There is a need for diversification
When should trustees obtain proper investment advice?
When reviewing investments or thinking of selling/purchasing investments, they are under a duty to obtain proper advice.
Only if it is unnecessary or inappropriate (E.g. a trustee is a financial adviser) should they dispense with this requirement.
What is the duty when exercising the power of investment?
The trustee must exercise such skill and care as is reasonable in the circumstances.
What are the non-statutory powers of investment?
(a) Trustees are to act impartially between beneficiaries, investments should strike a fair balance between all beneficiaries;
(b) Trustees must secure the best return for beneficiaries
When should trustees take ethical considerations into account when choosing investments?
(i) If there is a similar investment less an ethical concern, the trustees can invest in that even if a bit worse;
(ii) if the trust is charitable, the trustees are not expected to invest in things dichotomous to the charity;
(iii) the settlor can set out in the declaration of trust that trustees shouldn’t invest in specific sectors
What process must a trustee follow if they are delegating investments?
(a) must prepare a written statement giving guidance as to how the agent should exercise their asset management functions;
(b) written agreement must include a term confirming the agent will comply with the policy statement;
(c) trustees must regularly review the agreement;
(d) trustees must select a suitably qualified person for the role
Is a trustee liable for any act or default on behalf of the investment agent?
No, not unless the trustee didn’t comply with duties (E.g. chose someone unqualified, or didn’t give a policy statement)
