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Breaches of trust (Examples of actions that could result in the trustee…
Breaches of trust
Examples of actions that could result in the trustee being held liable for a breach of trust include:
The trustee has acted outside of the powers granted to it within the terms of the trust, for example, by distributing trust assets to a person who is not a beneficiary.
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Failure by the trustee not to provide information to the beneficiaries (unless stated otherwise in the trust deed).
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Exculpation clauses
An exculpatory clause is part of an agreement which relieves one party from liability. It is a provision in a contract which is intended to protect one party from being sued for their wrongdoing or negligence.
An example could be a clause in a trust agreement: relieving the trustee from liability resulting from any act performed in good faith under the trust.
Trustees often request that trust instruments, including wills, contain clauses, called ‘exoneration’ or ‘exculpation’ clauses, exempting them from liability for actions causing loss to the trust or its beneficiaries.
The general rule is that exculpatory clauses are enforceable if they are reasonable. They are not valid if they are unconscionable or unreasonable. Additionally, they cannot excuse liability from harm which is caused intentionally or recklessly. Courts will also consider a number of factors in determine whether or not to enforce an exculpatory clause, including
Clauses should be conspicuous. This means they should be in bold, all capitals, or in a different colour.
Wording should be clear and understandable so that an ordinary person knows what they are agreeing to
Clauses should be specific and state specific theories of liability, such as ‘negligence.’ The court will consider whether the releasing party knew and appreciated any risk.
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ntent of the parties. An exculpatory clause will be enforced if intent to relieve a party from liability is clear and unequivocal.
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Tracing of assets
Following a scucessful action against a trustee to recover losses suffered as a result of a breach of trust, the the trustee does not have sufficient funds to pay the loss, the beneficiaries are able to bring a proprietary claim against the third party who has received the trust assets
May be necessary when the trustee has misappropriated trust funds or otherwise dealt with them without distinguishing them from their own assets or where the trustee has made a distribution of trust assets either by overpaying funds to a beneficiary or making a distribution to a non beneficiary
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A breach of trust is a breach of any duty imposed upon a trustee by the law or by the terms of the trust.
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They may have exceeded or abused their powers as set down in the trust deed or in the trust law and may not have carried out their duties according to trust law. A breach of trust does not crystallise into a breach of trust until the courts have ruled accordingly.
A beneficiary of any trust, even if it is a discretionary trust, is able to bring a personal claim against a trustee(s) for a possible breach of trust. All the trustees are presumed jointly and severally liable for all breaches.