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The role of a trustee . - Coggle Diagram
The role of a trustee .
What is a trustee?
• Definition: trustee can be a person or an entity appointed to manage trust assets for the benefit of the beneficiaries in accordance with the trust deed/instrument/declaration of trust (difference in latter is a unilateral declaration from the trustee i.e. settlor not a party to the declaration).
• Duties: trustee owes fiduciary duties to the beneficiaries under the trust, which may be breached e.g. by making unauthorised personal profits etc. Trust law in Ireland is largely governed by the trust deed creating the trust. Statute has also intervened in the Trustee Act 1893 as amended (1893 Act)
Duties of a trustee
Standard of care: there are no provisions in the 1893 Act which govern the duty of care; these are covered by equitable principles and case law. The duty of care is owed to present and future beneficiaries of the trust. Generally, the standard of care is what a reasonable and prudent businessman in the same circumstances would do but must not extend the scope of statue or trust deed in doing so. The investment is for the benefit of the trustees, but they are not obliged to consult with the trustee on the investment, ensuring impartiality. There is a higher standard of care for professional trustees (Bartlett v Barclays Bank) due to their greater knowledge and experience.
DUTY
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Act personally
Trustee is ultimately responsible for the trust i.e. they act personally and cannot outsource responsibility to other advisers or lawyers. This is called the ‘Rule Prohibiting the Delegation of Functions’: Re O’Flanagan and Ryan’s Contract (where a wife who was made a trustee could not delegate her responsibility).
Section 17 1893 Act: trustee can authorise the receipt of money by banker or solicitor but may not pass any liability to them.
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Not to profit
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There can be an indirect remuneration from a third party i.e. if a trust holds a substantial amount of share in a co, often the trustee becomes the director of that co to safeguard the assets, which allows them to use their voting rights. The question thus arises as to directors’ fees.
If their voting right is not decisive and it is an independent directorship, they may keep their shares.
Trustees can however claim legitimate expenses: Section 24 1893 Act, Cradock v Piper: solicitor-trustee allowed to charge for his professional services in relation to certain litigation in the absence of a charging clause in the deed.
They should not profit personally, other than a fee for their services.
Duty to invest
Re Harari Settlements: try and make an income for beneficiaries and make sure they have a remainder interest in the trust; the trustee must regard the investment as honestly desirable. Authorised Investment Act 1958 lists the suitable investments as was further amended in 1998 and 2002. A trustee may take a prudent risk but not a hazardous one: Bartlett v Barclays Bank. Here d trustees got involved in 2 unauthorised investments, with one making a loss and one making a profit. Ct saw the 2 transactions as part of ‘‘the same course of wrongful conduct’’ and allowed the trustees to offset the profit and losses. For this approach, there must be a close connection between the breaches of trust. A trustee should not incur liability by reason of making an error of judgement only: Nestle v National Westminster Bank. Trustees’ duty to ensure that the trust property is invested in the manner which will prove most advantageous to all the beneficiaries. In the absence of an express investment clause, or subject to its terms, a trustee may invest the trust property in accordance with the Section 1 (Authorised Investments) 1893 Act. Section 3 (Discretion of Trustees) 1893 Act provides that this statutory power of investment is to be exercised according to the discretion of the trustees. Knott v Cottee: trust funds were to be applied in trading in British stocks and bonds. The trustees traded in foreign investments. The trustees were held personally liable for the losses which resulted. Section 5 1893 Act allows for an enlargement of trustee powers to invest in certain instruments unless expressly prohibited by the trust deed.
Duty not to compete
Moore v Glynn: set up rival business and this disqualified him from his future obligations as a trustee for family business.
Properly exercise discretion
Stacey v Branch: in exercising discretion, a trustee must act honestly and must use as much diligence as a prudent man of business would exercise in dealing with his own private affairs; in selecting an investment he must take as much care as a prudent man would take in making an investment for the benefit of persons for whom he felt morally bound to provide. Discretion means taking such care as a reasonably cautious man would take having regard not to those who are entitled to the income but of those who will take it in the future. This is what a diligent businessman would do when managing his own affairs. This means that, in exercising such discretion, the trustee must (i) take all relevant considerations into account and (ii) ignore all irrelevant considerations (rule in Hastings-Bass). Sieff v Fox: ct will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account. Abacus Trust Co: all that is required is that the unconsidered relevant consideration would or might have affected the trustee’s decision.
Duty to safeguard assets
Trustees are obliged to recover all monies owing to the trust, even where it is not in the overall interest in the trust to do so. Re Brogden: need to take every step to secure payment irrespective of their personal feelings.
Duty to distribute trust assets Section 49 Succession Act 1965: obligation on personal representative to administer the estate of the deceased. The ‘Benjamin Order’: where it is uncertain whether the beneficiary is alive.
Trustee powers
• Source of power: powers are conferred by the trust deed, or when not expressly stated, the powers apply as set out in the 1893 Act or by ct after an application of an order. If a conflict exists between the powers in the 1893 Act and those found in the trust instrument, the trust instrument will take precedence.
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• Power of sale: Section 50 Succession Act 1965: permits the sale of the property of a deceased person for the purpose of paying his debts and for effecting a distribution between the beneficiaries. Howe v Dartmouth: if a trust contains a residuary clause which settles property other than realty on persons in succession and where the assets are of a wasting nature or if they constitute unauthorised securities, trustees must sell prop and convert them into a permanent and secure form capable of bearing interest. Section 13 1893 Act (power of trustee for sale to sell by auction). Section 14 1893 Act (power to sell subject to depreciatory conditions) and this also applies to real property. Section 20 1893 Act (power of trustee to give receipts) which allows purchaser to avoid liability if a trustee is acting in breach of trust at the time of issue or at a later stage.
• Power of delegate: Section 17 1893 Act (power to authorise receipt of money by banker or solicitor). In the absence of such permission, there is a prohibition. A trustee may appoint a solicitor to receive purchase money derived from the sale trust prop. A trustee may appoint a banker or solicitor to receive and give a discharge for any money payable by virtue of an insurance policy, banker/solicitor being in possession of, and authorised to produce the insurance policy with a receipt signed by the trustee.
• Power to Compromise Actions Section 21 1893 Act (power for executors and trustees to compound) confers on trustees the power to compound liabilities as they consider expedient.
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• Power of trustees of renewable leaseholds to renew and raise money for the propose: Section 19 1893 Act.
Appointment, removal and retirement of trustees
• Power of appointing new trustees: Section 10 1893 Act: any person may be appointed as a trustee, or if in the trust deed.
• Retirement of trustee: Section 11 1893 Act: should preferably express intention by deed. However, once a trustee has accepted the office and has failed to disclaim it within a reasonable time, he can only retire in specified circumstances. May also be a provision in the deed. If they are relying on Section 11 1893 Act: there needs to be at least 2 trustees left to administer the trust. Then the trustee may by deed declare that he wishes to retire; and if his co-trustees consent by deed, he may do so.
• Power of the court to appoint new trustees: Section 25 1893 Act. Section 12 1893 Act: vesting of trust property in new or continuing trustees. Re Wheeler: power to appoint a new trustee where an existing trustee was incapable of acting. Held not to be exercisable where existing trustee bankrupt, was not incapable of performing his duties.
• Removal of a trustee: Arnott v Arnott: jurisdiction will generally be exercised where a trustee acts dishonestly or incompetently or wilfully obstructs the objects of the trust. Spencer v Kinsella: showgrounds in Gorey were vested in trustees to be used as sports or pleasure grounds. Users sought trustee removed as lands had fallen into disrepair. Ct allowed this. 2008 LRC report suggested that trustee be removed if unfit or incapable. There may be provision for removal of a trustee in the trust deed or they may be removed by beneficiaries.
Liability of trustees
• If a trustee is found in breach of trust if they fail to perform their duties as set out in the trust deed or by statue or if they act in an unauthorised manner.
• Liability may be carved out in a trust deed i.e. in an exemption clause which purports to ensure the trustee from liability for conduct which may amount to a breach of trust. There is however conflict with the autonomy of the settlor and the entitlement of trustees to be affected by liability with the entitlement of beneficiaries to redress.
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