Trusts 4 Flashcards
(19 cards)
Minimum and maximum number of trustees
Trusts over land should have at least 2 human trustees or a sole trust corporation.
This is to ensure any beneficial interests are overreached.
Trusts over land cannot have more than 4 trustees.
Trusts over personalty can have any number of trustees - ideally more than 1 so they can supervise each other.
Retirement of trustees
S39 Trustees Act 1925 allows a trustee to retire without a replacement as long as:
- there will be 2 trustees or a trust corporation left
- the trustee retires by deed
- the other trustees consent by deed.
S36 states that the retiring trustee must be replaced by the appointment of a new trustee. The person nominated in the trust to appoint (s36 power) appoints unless there is none, then the continuing trustees do (including leaving trustee if they wish).
Appointment must be in writing - best to do it by deed because then the trust property automatically vests in the new trustee.
A retiring trustee remains liable for their own breaches of trust but not liable for future breaches unless their retirement was to facilitate a breach.
S36 grounds for replacing a trustee
- if the trustee is dead
- remains outside the UK for more than 12 months
- desires to be discharged (retire)
- refuses to act (disclaims)
- is unfit to act
- is incapable of acting
- is a minor
The person nominated in the trust to effect replacement does so. If there is no one, then the continuing trustees including the retiring trustee if they are willing to join, or if all the trustees have died, the PRs of the last surviving trustee.
Other methods of removal / replacement of trustees
S41 allows the court to replace a trustee if it is expedient to do so and it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance. The court makes the appointment following the application of the trustees or beneficiaries.
The court will only replace a trustee if it is in the trust’s best interests to do so - mere dislike is insufficient.
S19 allows beneficiaries to serve a written direction on a trustee(s) to retire and appoint someone else written in the direction if they wish to.
S19 does not apply if the trust instrument does not allow it or if the trust instrument nominates someone to appoint new trustees. Also, only applies if the beneficiaries are all of age, capacity and absolutely entitled to the trust property.
Appointment of additional trustees
Trust instrument may contain an express power.
S36(6), person nominated in the trust instrument appoints. If none, then the current trustees. Can be no more than 4 trustees for land. S36 states the appointment must be in writing but best to make it a deed as under s40 the trust property automatically vests in the new trustee.
S41 grounds where court appoints a new trustee if expedient to do so and would be inexpedient, difficult or impractical to appoint without court’s assistance. Makes the appointment after application by the trustees or the beneficiaries.
S19 allows beneficiaries to serve a written direction on the trustees requiring the appointment of an additional trustee.
Death of a trustee
If 2 or more trustees, they will hold the legal title to the trust property as joint tenants passing on survivorship.
If only one trustee, should be advised to appoint another trustee using s36 power.
Appointment of an attorney
Can be done if trustee believes they will lack capacity in the future.
Delegation should be made by deed and can run for a period of 12 months. Written notice about the delegation must be given to all other trustees and any person with the power to appoint new trustees within 7 days of delegation.
Delegating trustee will be liable for the acts and defaults of the attorney.
Express powers in the declaration of trust
If expressly stated in the trust, the trustees can pay income or capital to the beneficiaries before they are strictly entitled to them.
Power to apply income for beneficiaries who are minors
S31 Trustees Act 1925 states that trustees have the power to use income to pay for the maintenance, education and benefit of a beneficiary under 18 as long as there is no contrary provision in the declaration of trust, and the trustees can only exercise this power in favour of minor beneficiaries who have some kind of interest in income, vested or contingent, but not where there are any prior interests in income.
Should not pay the income directly to the beneficiary as they cannot give god receipt (as under 18).
S31 is a matter of discretion, not an obligation.
Duty to pay income to certain beneficiaries
When the beneficiary reaches 18 but still only holds a contingent interest, then the trustees have an obligation to pay trust income to the beneficiary, pending the vesting of their beneficial interest.
Power to pay capital to or for beneficiaries
Under s32, trustees have the power to pay or apply trust capital early for a beneficiary’s advancement or benefit if conditions are satisfied.
If B is under 18, the trustees should apply that capital for the beneficiary by paying it directly to third party who will improve their material situation.
Conditions:
- no contrary provision in trust instrument
- B must have an interest in capital
- payment must be for the beneficiary’s advancement or benefit (any situation that will improve the B’s situation)
- for trusts created after 1 Oct 2014, the whole entitlement can be used. Only half can be used for trusts created before this
- payment taken into account when the B becomes entitled to the trust capital
- if there is a B with a prior interest, an advancement to another B has their written consent to the advancement.
Duty of care of trustees
Duty to take all the precautions which an ordinary prudent man of business would take in managing similar affairs of his own.
A higher objective standard applies for professionals - e.g. a solicitor acting as a trustee expected to exercise the care and skill that could reasonably be expected of a solicitor acting as an expert in their own particular field.
Duties when starting out as a trustee
A newly appointed trustee must:
- ensure they have been properly appointed
- ascertain what the trust property consists of and take all reasonable and proper measures to obtain control of the trust property - if the transfer of trust property to the new trustee is outstanding, the new trustee must press for that transfer to take place
- review the trust document and associated paperwork to familiarise themselves with the trust and how it works - other trustees must produce papers relating to the administration of the trust
- enquire into the past business of the trust to ensure there have been no breaches of trust and to take appropriate action to remedy any breaches, and
- where there are chattels held on trust, ensure that a proper inventory is drawn up.
Duty to act impartially between beneficiaries
Not required to give them both equal treatment or even hear both of their cases.
Duty is to just to act impartially and not put the interests of one above the other.
Duty to act personally and unanimously
Trustees must act personally - they must be personally active in the trust. They cannot sit back and let others make the decisions for them. A passive trustee may be liable to make good any loss that the beneficiaries suffer.
A trustee may take advice from experts, however cannot let the experts make decisions for them.
Trustees must generally take decisions unanimously unless the trust document provides otherwise.
Duty to exercise discretions properly
Beneficiaries cannot compel trustees to use discretion in a particular way however they can intervene if those discretions are being used improperly.
Decisions to exercise a power must be made:
- in good faith
- rationally
- for the purpose for which it was created
- with regard to all material and without regard to irrelevant ones
- with regard to all relevant facts
- with regard to any legitimate expectation that a B might have that the power be exercised in a particular way.
Reasons for the exercise of a power
Trustees generally do not have to give reasons for a decision.
However they may have to give a reason or advance warning when there is a particular beneficiary with a legitimate expectation.
What are beneficiaries entitled to see?
- the trust document or will that created the trust
- the trust accounts, and
- a schedule of trust investments or other documents that show how the trust property is invested.
Beneficiaries not entitled to demand documents that show the deliberation of trustees on discretionary powers. Trust diaries and minutes of trust meetings are unlikely to be handed over for this reason. Trustees not obliged to give reasons for discretionary power.
For similar reasons, Bs cannot demand sight of letters of wishes of settlors.
Procedure for disclosure of information
Bs can apply to the court for disclosure. The court will then consider the application under its inherent jurisdiction to supervise the administration of the trust.
In considering disclosure, the courts start with the presumption that documents should not be disclosed unless such disclosure is in the interest of the sound administration of the trust.
The courts may refuse disclosure where it may cause family members to fall out or if it were to reveal confidential information about the finances or state of health of individual beneficiaries.
