Trusts IV Operation of a Trust

Question 1

Who can appoint a trustee

Requirements for the power of appointment to arise

OLDDRUID

Answer 1

S.36 TA 1925
The person nominated in the trust instrument for appointing trustees, if not the remaining trustees/the PR of the last surviving trustee can, by writing

an appointment of a new trustee in substitution arises when a trustee is
Out of the UK for a year
Little (an infant)
Desiring to be Discharged
Refusing to act
Unfit to act
Incapable of acting
Dead

or an appointment of additional trustees (only if not more than 3 trustees)

Question 2

When a new trustee is appointed, does it affect the title of how the property held on trust?

Answer 2

s.40 TA 1925 The property will automatically vests in the trustee

Question 3

What is the court power to appoint trustee and when does this power arise?

3 Is

Answer 3

The court will only appoint trustee where it is inexpedient, (involved) difficult or impracticable for the appointment to be made without the court

Question 4

Duties of the trustee

4 Is

Answer 4

Investment
something expected to produce income and/or capital growth (Harries v Church of England Commissioners)

Impartially
Act impartially between the beneficiaries

conflict of Interest
Not to place self in position of conflict between personal interests and trust obligations

Best interest = interests of beneficiaries - best financial interests

Question 5

Exception of product being considered as an investment

Answer 5

unsecured loan for B not an investment (Khoo Tek Keong v Ch’ng Joo Tuan Neoh)

Question 6

Exceptions to acting in the interests of beneficiaries

Answer 6

since best interests for the beneficiaries equate to best financial interests, the court allow exceptions when

ethical investment yielded as good a return;
beneficiaries are adults and have strong relevant ethical views;

inappropriate for example for charitable trustees financial interests cannot be the best interests

Settlor has so provided in the trust instrument

Question 7

Powers given in terms of investment made by the trustees

Standard of care for trustees to exercise their power

Answer 7

Trustees can make any investment that they would make if they were absolutely entitled (s.3(1)). They can also purchase land in the UK for investment (s.8)

These powers are subject to statutory duty of care that ‘such care and skill as is reasonable in all circumstances,’ having regard to

any special knowledge or experience he holds himself as having;

the special knowledge or experience reasonably expect in the course of the business or profession; and

the size of the trust fund

Question 8

what is common law standard duty of care

Answer 8

how an ordinary prudent man of business would conduct his affairs (Speight v Gaunt)

Question 9

standard investment criteria (s.4 of TA 2000)

Answer 9

suitability - nature/type
diversification; and
obligation to review investments

Question 10

In what ways a trustee may be accused of breaching the statutory duty of care

Answer 10

gain made by the trust fund is less than gain made by reasonable man would be (Nestle v National Westminster Bank)

Trustees’s investment decision was one which no reasonable trustee with similar knowledge/skill would take (Wight v Oiswana)

Question 11

Rules on delegation

Answer 11

Trustees cannot delegate unless they have authority to do so (Pikington v IRC)

Question 12

Powers that cannot be delegated or contracted out

Answer 12

Trustees cannot delegate unless they have authority to do so (Pikington v IRC)

Trustees can delegate delegable functions to agents (s.11) but cannot delegate:

dispositive powers or discretion which involve the distribution of trust capital/income amongst beneficiaries

power to appoint new trustees

Question 13

Delegable functions

Answer 13

Asset management functions (s15)

appointment, vesting trust property in nominees (s16)

Question 14

Rules Functions delegated to agents

Answer 14

trustees can delegate functions to agents except powers of discretion involving the disposition of trust property and appointment of new trustees

agents performance must be reviewed (s.22)
agents can be paid reasonable renumeration (s.32)

Question 15

Agency liability

Answer 15

Trustee may be about to sue the agents in negligence or breach of contract and hold the damage on trust

Trustees are not vicariously liable for agents’ breaches unless the trustees breached their own duties in selection and review of agent.

Question 16

Define individual delegation and its remit and corresponding liability (s.25 TA 1925)

Answer 16

An individual delegation is where one trustee delegate his duties and powers to another person - in contrast with collective delegation

A trustee may execute a power of attorney to achieve so

within seven days of giving power of attorney, the trustee must give written notice to anyone who can appoint new trustees and all existing trustees

Trustees are vicariously liable for attorney’s acts (7)

Question 17

Limitation of coercing performance of the trustees

Answer 17

Performance is at the discretion of trustees, they cannot be forced to exercise their power (Re Brackbank)

But beneficiaries can compel trustees to carry out duties in the sense that trustees must consider if they should act.

Question 18

Explain power of advancement (s.32 TA 1925)

Answer 18

any use of money which will improve the beneficiary’s material situation (Pilkington v IRC)

Question 19

Explain power of maintenance (s.31 TA 1925)

Answer 19

Before 2014: if the beneficiary is under 18, the trustee can pay whole/part of trust income to his parents or towards beneficiary’s maintenance, education or benefit

after Oct 2014: trustees may now pay or apply the whole or any part of the trust as they see fit (as opposed to a reasonable amount)

Question 20

Restrictions for trustees to exercise their power to advance at their absolute discretion

Answer 20

pre-2014 it cannot exceed half of the beneficiary’s share even if the trust goes up in value

trust created after Oct 2014: trustees are now allowed to advance the full amount of the beneficiary’s share for trusts

the beneficiary, when becomes absolutely entitled if it had not been already the case, must bring any payments into account; and

the advancement does not prejudice beneficiaries with prior interest (unless of full age and give consent in writing)

Question 21

When application is made on behalf of young beneficiaries by their parents, what should the trustees do?

Answer 21

trustees should be cautious and if they doubt intentions, they should apply money directly to the cause (e.g. school fees) (Re Pauling’s Settlement Trust)

Question 22

Rule for power of maintenance

Answer 22

Applies only if there are no prior life interests - e.g. beneficiary is the life tenant (S31 (1)(i) TA 1925)

if the beneficiary is under 18, the beneficiary is entitled only to part/whole of the income to his parents or towards beneficiary maintenance, education or benefit.

post-Oct 2014 trust- the income payout needs not consider reasonableness in view of the beneficiary age or income available. Trustees can hand out money if they see fit.

Question 23

3 situations where court may intervene in trustee’s performance

Answer 23

Improper conduct (Tempest v Lord Camoys)

If the trustees act as told by settlor, but not a their discretion (Turner v Turner)

Court may intervene if trustees act capriciously (Re Manisty’s settlement)

Trustee’s deliberations/reasons for decisions have been disclosed, and the court find the reasons irrational. Court has the power to void the decision (Klug v Klug)

Question 24

Beneficiaries’ rights to see trust documents

Answer 24

Beneficiaries have the rights to see trust documents, subject to confidentiality (Schmidt v Rosewood Trust)

But even if confidential, court has power to order them to be disclosed.

Question 25

Beneficiaries’ rights to see trustees deliberations/reasons for decisions made

Answer 25

Beneficiaries in general have no rights to see the papers ( Re Londonderry’s settlement), unless,

The beneficiary had a legitimate expectation that discretion would be exercised in his favour and it wasn’t e.g. if income suddenly stops (Scott v National Trust)

Pension funds

Question 26

Rule Saunder v Vautier

5As

Answer 26

Beneficiaries can end the trust if all them
(able-bodied) sui juris;
all agree
(alive) all in existence
ascertained
absolutely entitled

Question 27

If not all the beneficiaries are sui juris, and the trustees see it compelling to run the trust in a different way, what can assist?

Meaning benefits for the purposes of the relevant statutes

Prohibited purposes

Answer 27

They can apply to the court by virtue of Variation of Trusts Act 1958. Section 1(1) enables the courts to consent for those who cannot consent themselves, provided the variation will benefit them.

The variation can be against the settlor’s wishes (Goulding v James)

A benefit could be -
a tax saving scheme; or
raising the contingency age to a more responsible age (Re T)

it cannot be a complete resettlement - changing the beneficiaries ( Re Ball’s settlement)

court cannot consent for some who is an ascertained beneficiary capable of consenting himself (Knocker v Youle)