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Trustees - Coggle Diagram

- - - - NOT ideal from an administrative perspective and may have tax consequences
      - Statutory power in s 19 Trusts of Land and Appointment of Trustees Act 1996 which gives beneficiaries with Saunders v Vautier rights the power to direct the trustees to appoint a new trustee
      - Exercise their Saunders v Vautier rights to collapse the trust and then declare a new trust with new trustees
      - Must be exercised in WRITING and cannot be exercised where the trust instrument contains an express power to appoint trustees
    - - If a trustee is abroad for over a year
      - If an appointed trustee is a minor or otherwise lacks capacity to act
      - On the death of a trustee
      - If a trustee wishes to retire, refuses to act or is unfit to act
      - Exercised by:
        
        By the persons nominated in the trust instrument to appoint trustees
        
        OR by the surviving or continuing trustees
        
        All trustees died, by the personal representatives of the last to die (s18(2) TA 1925)
    - - Do NOT appoint a trustee where there's a dispute between the beneficiaries as to whether that person would be appropriate
      - Consider whether the appointment will promote or impede the trust administration
        
        Take into account the views of the existing trustees, but must consider whether those views are reasonable
      - Consider wishes of settlor or testator (if such wishes are expressed or evidenced in the trust instrument)
    - - Settlor might reserve power, giving them a degree of continued control over the trust
  - - - Executors hold the legal title to the trust property in their capacity as trustees instead of as executors
    - - Once paid any liabilities of the testator, distribute the property in accordance with the will
      - Ensuring legal title is vested in the intended trustees of any trusts
    - - If executors are able and willing to act, take legal title to the testator’s entire estate
  - - - Trustee is bankrupt
      - Trustee lacks capacity
      - Trustee is a company which is in liquidation/ dissolved
      - Inappropriate for the trustee to remain in office (e.g. where they act dishonestly)
  - - - Self-declaration of trust: settlor will become trustee if all the key requirements for declaration of an enforceable trust are met
      - Transfer on trust:
        
        Trust is constituted once the settlor transfers legal title to the trustee
        
        Trusteeship is a voluntary office, so settlor should only transfer legal title to the intended trustee once they have confirmed they're willing to act
  - - - Comply with the statutory requirements or remain in office
      - Obtain a formal discharge of liability from the beneficiaries
      - By DEED where there are at least 2 people or one trust corporation to act as trustees and the co-trustees and any person with a power to appoint trustees consents: s 39(1) TA 1925
    - - Must be made in WRITING and requires the agreement of all beneficiaries
      - Only if, after the retirement of the trustee, there will remain at least 2 trustees or one trust corporation
      - Under s 19 TLATA beneficiaries with Saunders v Vautier rights have power to compel a trustee to retire from the trust
  - - - Exception for trusts of land- legal title may only be held by a max of 4 persons and minimum of 2 trustees, in order to give good receipt
- - - - Consider the standard investment criteria set out in s 4 TA 2000
        
        Trustees must regularly review investments with reference to the standard investment criteria and decide whether they ought to be varied
        
        Suitability (s4(3)(a)): Trustees must consider the suitability of the proposed investments
        
        Highly fact-specific
        
        Trustees must balance the duty to preserve the trust assets against the need to produce appropriate growth on the investment
        
        Specific suitability: Is the particular investment suitable?
        
        Consider
        
        Respective rights of different beneficiaries
        
        Period of time for which the trust is intended to subsist
        
        Size of the trust fund
        
        Large, commercial trust fund intended to subsist for many years will have a greater degree of freedom to invest in assets which are intended to produce long-term growth
        
        Family trust includes both life and remainder interests, trustees need to ensure any investments produce income for the life tenant as well as capital growth for the remainderman
        
        Trustees must act even-handedly between beneficiaries
        
        General suitability: Is the investment of a suitable kind?
        
        Trustees must consider the criteria when deciding whether to make an investment (s4(1)) in the first place
        
        Diversification (s4(3)(b)): Trustees must also consider the need for diversification of trust investments
        
        Allows trustees to invest in a mixture of high and low risk investments, rather than investing exclusively in low risk (and therefore probably low yield) investments
        
        Trustees should also invest across a range of different types of assets, so that the trust fund is not overly exposed to the risks of losses in a particular sector
        
        Involves taking an overall approach to the risk profile of the trust fund rather than considering each investment on an individual basis
        
        The extent to which trustees can diversify the investments will depend on the size and nature of the trust fund
        
        Large funds able to spread investments across a wider range of assets
        
        Smaller trust funds may consider investing in investment funds, which pool the assets of multiple investors
      - Take advice in accordance with s 5 TA 2000
        
        ‘Proper advice’ is defined in s 5(4) as being provided by a person ‘who is reasonably believed by the trustee to be qualified to give it’ by their ‘ability in and practical experience of financial and other matters relating to the proposed investment’
        
        Exception in s. 5(3)
        
        The cost of the advice outweighs the benefit of obtaining it
        
        Trustee has sufficient knowledge and expertise to make the decision without advice
        
        Trustees need not seek advice if they reasonably conclude that in all the circumstances it is unnecessary to do so
        
        The advice must relate to how the power should be exercised, with reference to the standard investment criteria
      - Trustees must act in accordance with the general duty of care set out in s 1 TA 2000
    - - Although trustees not bound to follow advice, they cannot ignore it simply because they personally disagree with it
        
        They can only do so if they consider that a reasonably prudent trustee would act in the same way
      - The personal views of trustees are not relevant to this assessment
        
        Trustees must exercise their powers fairly and honestly, and not for any ulterior purpose
      - When considering suitability, the trustee obligation is to act in the best interests of beneficiaries means their best financial interests
        
        The trustees must balance the interests of all beneficiaries (current and future)
    - - Trustees can take into account the ethical views of beneficiaries, where the beneficiaries are all of sound mind and agree on the decision
      - Charitable trusts
        
        There is also more scope to take non-financial considerations into account in the case of charitable trusts
        
        Trustees consider whether making ethically questionable investments is likely to undermine the work of the charity
        
        Trustees required to balance risk to the charity of financial loss from not making the investment against the detriment and disadvantages to the charity of making the investment
      - Does NOT stop trustees preferring ethical investments if they have a straightforward choice between 2 investments of economical equivalence
      - Moral and ethical considerations will not generally be relevant to trustee decisions
  - - - Trustees must consider the standard investment criteria and take advice in accordance with s. 4 and s. 5 TA 2000
  - - - Include a term ensuring compliance with a written ‘policy statement’ to be prepared by the trustees
      - ‘Policy statement’ give guidance as to how the agent should exercise their functions ensuring they are in line with the best interests of the beneficiaries
      - Agreement evidenced in writing (s 15TA 2000)
      - Agent is bound by any restrictions in the same way the trustee would be (s 13(1) TA 2000)
    - - Trustee incapable of discharging their duties for a limited period
      - Trustee lacks expertise to discharge the particular responsibility and prefers an expert do this
    - - Entering into agreements with those agents
      - Ensure:
        
        Agreement complies with their requirements under statute
        
        Arrangement is reviewed regularly
        
        Appropriate agent is selected
      - Selecting agents
- - - - Retaining a fund
        
        Option in cases where the trustees remain unsure as whether they have identified ALL potential beneficiaries
        
        Distribute to known beneficiaries but hold some money back in case other beneficiaries come forward in future
        
        Setting aside trust assets in order to be able to discharge liabilities if the missing beneficiaries come forward after distribution
        
        Risky strategy in cases of unknown beneficiaries
        
        Difficult for trustees to quantify the respective interests of the known and unknown beneficiaries
        
        Could result in a claim against the trustees for having paid out the wrong amount to the known beneficiaries
      - Seeking directions from the court
        
        Benjamin order
        
        Order directing trustees free to distribute property to other beneficiaries
        
        Prevents trustees being susceptible to a claim from the missing beneficiary if still alive
        
        In cases where a known beneficiary cannot be found and is presumed dead
        
        Trustees act in accordance with the directions of the court will NOT be liable even if there is a subsequent claim
      - UNKNOWN beneficiaries: advertisements
        
        Put advertisement in a national newspaper, giving notice of intention to distribute to known beneficiaries 2 months after the advertisement
        
        Trustees obligation to divide trust property equally between a conceptually certain class of individualsbut are unsure who all those people are
        
        Puts unknown beneficiaries on notice that they must identify themselves to the trustees
        
        After the 2 month notice period, trustees may distribute to known beneficiaries with no personal liability to the unknown beneficiaries
        
        Only absolve trustees of liability to beneficiaries whose claims the trustees remain unaware of at the end of this period
      - Taking out insurance against wrongful distribution
        
        If a beneficiary later emerges, trustees will be liable but can claim on the insurance policy
        
        Risk-averse trustees may well choose insurance alongside another mitigation measure such as advertisements or seeking directions from the court
        
        Take out insurance and distribute in accordance with the information they have available
      - Beneficiaries coming forwards later
        
        Beneficiary will NOT have a right to recover personally from the trustees
        
        Property has been distributed
        
        Only option is a proprietary or receipt-based claim against the recipient of the property
        
        Trustees will be protected against any PERSONAL claims from a beneficiary who comes forward SUBSEQUENTLY
        
        Property has not been fully distributed
        
        Still possible for beneficiary to claim any undistributed property from the trustee
      - Pay money into court
        
        Gives court legal control over the funds and allows trustees to effectively retire: s. 26(1) TA 1925
        
        In circumstances where trustees can establish genuine doubt as to the location of beneficiaries, or are unable to give receipts
  - - - Required to distribute income, must do so within a reasonable period after its receipt
- - - - May be excluded or varied by a trust instrument (s 69(2) TA 1925)
    - - Income between creation of the contingent interest and satisfaction of the contingency
  - - - Pay the income to the child's parent or guardian
      - Apply the income directly for the child’s ‘maintenance, education or benefit’
    - - Income must be used for the primary benefit of the minor beneficiary
        
        BUT it does not matter that it may indirectly benefit parent/ guardian
      - Improper exercise of the power to unquestioningly pay it to the minor’s parent or guardian
      - Fiduciary power
        
        Trustees must consciously consider the exercise of the power
        
        If they choose to exercise it, must act in good faith in the interests of the beneficiary
    - - NOT exercised all accumulated income will become part of the trust capital
      - Beneficiary will NOT be able to access it until their interest in the capital vests
  - - - May have a right to receive capital upon the occurrence of a particular event e.g. specific age but in the meantime, may receive the income as it arises
      - Trustees may have a power or obligation to accumulate the income (i.e. add it to the capital)
        
        If income is accumulated, beneficiary will not receive anything until capital is distributed
    - - Different beneficiaries entitled to the income and capital
  - - - Applies to both vested and contingent interests
      - Can be modified or excluded by the trust instrument (s 69(2) TA 1925)
      - Used by both adult and minor beneficiaries
    - - Consent by beneficiaries who are of full age and sound mind
      - the WRITTEN consent of beneficiaries with a PRIOR interest
    - - ‘Any use of the money which will improve the material situation of the beneficiary’- Pilkington v Inland Revenue Commissioners
      - Improvement of the beneficiary’s moral well-being by giving the money for charitable purposes
        
        Only to the extent that beneficiary would have otherwise used their own resources for such purposes
      - Provide for an immediate financial benefit for a beneficiary e.g. inheritance tax liability
    - - Found to be used on something else trustees should NOT pay any further money to the beneficiary
      - May instead pay money directly to a third party for the advancement of the beneficiary
      - Ensure money being used for the purposes it was provided
    - - Trustees have a choice between treating the share advanced as:
        
        Proportionate share of the overall trust value
        
        Strict monetary value
      - Amount beneficiary will receive when interest vests will be reduced proportionately to reflect the proportion of capital received early
- - - - Clear conflict as a buyer will always be seeking the lowest price and a seller will always be seeking the highest price
      - Trustee prevented from selling to themselves and for the same reason is prevented from buying trust property
      - Involves a trustee PURCHASING assets from the trust or SELLING assets to the trust
      - Subject to anything in the TRUST INSTRUMENT authorising such a transaction
      - Transaction VOIDABLE- beneficiaries can seek to rescind it
      - If trustee buys from or sells to a company where trustee holds shares but does NOT have control, the transaction is UNLIKELY to be treated as self-dealing BUT still BREACH no conflict
    - - Transaction VOIDABLE- beneficiaries can seek to rescind it
      - UNLESS trustee can demonstrate:
        
        They made full disclosure to the beneficiary
        
        Acted honestly and fairly
        
        Did not take advantage of their beneficiary
      - Involves trustee directly transacting with the beneficiary to buy beneficial interest under the trust
    - - It is not possible to act entirely in the interests of both principals where their interests conflict
    - - Breach causes loss to principal
        
        Sue the fiduciary personally for breach of fiduciary duty
        
        Fiduciary liable to compensate principal
      - Transaction VOIDABLE- beneficiaries can seek to rescind it
      - Consequences depend on the NATURE of the breach
      - Breach results in profit to principal
        
        May not require a remedy
        
        May wish to end the fiduciary relationship
      - Breach results in profit to fiduciary
        
        Principal can recover the profit from the fiduciary
  - - - Subject to anything in the trust instrument allows trustee to retain the remuneration
      - Trustee could seek the fully informed consent of all the beneficiaries
      - A trust holds shares in a company and, in order to better monitor company, trustee appointed as a director
        
        Trustee takes on the director role in their capacity as trustee, receive remuneration in this capacity too
        
        Must pay it into the trust fund instead of accepting it personally
        
        Directorship may come with an entitlement to remuneration
        
        Does NOT apply if trustee independently appointed director
      - Avoid making an unauthorised personal profit which arises from the performance of their role
    - - It comes back to the core obligation of the fiduciary to put their principal first
      - Only way to ensure trustee does everything in their power for beneficiary is to absolutely prohibit them acting in their own interest
      - Fiduciary is NOT entitled to keep a profit made as a result of an opportunity that comes to them in the course of performing their fiduciary duties
    - - Principal's money held in an interest-bearing account
      - Breach of the no-profit rule for the principal to retain the interest
      - It is income which made directly out of principal’s property and therefore belongs to the principal
    - - Contrary to public policy for a fiduciary to be susceptible to bribes- consequence is profit stripped from fiduciary
        
        Also likely to constitute an offence under the Bribery Act 2010
      - Fiduciary receives a secret commission in the course of carrying out their role
      - Fiduciary accepts money from a third party in return for performing their fiduciary role in a particular way
    - - Beneficiary may elect between:
        
        Account of profits
        
        PERSONAL claim
        
        Requires trustee to pay principal an amount equivalent to the profit made
        
        Constructive trust
        
        PROPRIETARY claim
        
        Principal argue profit made by the fiduciary held on constructive trust for principal
        
        Why?
        
        Provides protection against the insolvency of the fiduciary
        
        Principal identify an asset over which they have rights which rank above other creditors
        
        Principal can trace into any subsequent profits made by the fiduciary
      - Fiduciary stripped of their profits
  - - - A fiduciary must not put themselves in a position where their personal interests conflict with their duties to their principal
    - - A fiduciary must not obtain an unauthorised benefit as a result of their position as a fiduciary either for themselves or for a third party
  - - - Arise in a range of situations, often where there is an imbalance in power within the relationship
    - - Trustee has legal title to the trust property, and all the powers of legal owner, meaning the beneficiary is reliant on the trustee to act on their behalf
    - - Company director-company
      - Agent-principal
      - Solicitor-client
- - - - Shares
        
        Small number
        
        Trustees are limited in what they can do
        
        Reviewing publicly available information and anything provided to them as shareholders
        
        Majority shareholding
        
        Use shareholding appoint a trustee as director giving greater oversight and ability to affect decisions of the company
        
        Gives trustees power over company, which they are expected to make use of to safeguard the investment
        
        Enable trustees to determine whether to sell the shares if not
        
        Monitor investment to ensure produces appropriate amount of income and capital growth
  - - - Trustee retired to facilitate the breach
      - Trustee parts with trust property in retiring without due regard,so loss is suffered when the property is transferred to the new trustees
  - - - Only applies to claims by beneficiaries with interests vested in possession
      - Beneficiaries with future interests, limitation period starts when interest vests in possession
      - Limitation period for claim for breach of trust is 6 years from the breach
      - Does NOT apply to fraudulent breaches or proprietary claims against the trustee
      - Trustee ALSO beneficiary receives unfairly large distribution, only the excess can be recovered after the 6 year period
        
        UNLESS: trustee acted dishonestly or unreasonably in making the distribution, may be possible to make a claim for the full amount
    - - Prevent trustee personally bearing the cost of a breach
      - Ensures trustee does NOT have to personally compensate creditors of the trust for acts undertaken in their capacity as trustee
      - Common in professional trustees
      - Possible to have the insurance premiums paid out of the trust fund as an expense of the trust
      - Does NOT apply to fraudulent breaches of trust
    - - NOT used lightly as it may deny beneficiaries a remedy
      - Can be used to excuse individual trustees while others remain liable
      - Court discretion to excuse a trustee in circumstances where the trustee ‘acted honestly and reasonably, and ought fairly to be excused for the breach of trust’
    - - Acquiescence
        
        Relevant beneficiary is barred from making a claim
        
        Involves the beneficiary being passive (knowing that there has been a breach but failing to take action against the trustee)
      - Provides PARTIAL defence against individual beneficiaries, even if other beneficiaries still have a valid claim
      - Trustees will also be excused if they can show:
        
        Obtained the fully informed consent of the adult beneficiaries
        
        Adult beneficiaries acquiesced (s. 36(2) Limitation Act 1980)
      - Consent
        
        In some cases, it may even entail instigation by beneficiary
        
        Relevant beneficiary is barred from making a claim
        
        Requires a positive act of authorisation
        
        Written consent or instigation of beneficiary:
        
        s. 62 TA 1925 court discretion to ‘impound’ beneficiary’s interest under the trust in order to satisfy the claims of other beneficiaries
        
        May affect the interest of the beneficiary
        
        Compensation will be paid out of beneficiary share of the fund
        
        Only when it is considered ‘just’ to do so
    - - Possible to exempt trustees from liability other than where the breach is FRAUDULENT
      - Lliability of trustees to be excluded or limited
  - - - Beneficiaries seek compensation to reflect the loss of the asset
    - - Beneficiaries may seek compensation
    - - In cases where:
        
        Trustee is insolvent and/ or
        
        The substitute property has increased in value
      - Beneficiaries may seek to recover the property itself (or its traceable proceeds)
    - - May be NO substantive remedy
      - Possible, in serious cases, beneficiaries wish to have trustee removed from office
  - - - Cases involving a beneficiary of the trust
      - Significant disparity in the knowledge and experience of the trustees, resulting in one trustee taking full resposibility for particular action
      - Indemnifying trustee has benefitted from the breach
- - - - Do NOT result from an express intention to impose an obligation upon the trustee (and may arise even if they have expressed a contrary intention)
      - Arise to correct a wrong or unfairness and do not impose the same sorts of obligations on trustees
      - Proprietary component is key
    - - E.g. trusts of land arise in any case where land is jointly held
      - Proprietary component is key
      - Arise as a result of the operation of statute and impose extremely limited obligations on the trustee
  - - - Extensive rules relating to the administration of the trust
      - Often professional trustees paid to perform their role and with their greater expertise will be held to a much higher standard of care than lay trustees
      - May involve minimal input from the trustee or may involve complex investment of the trust fund, such as with pension trusts and other investment funds
    - - The extent trustees are involved in the active, day to day, management of the charity will depend on the size of the charity
      - Small charities will usually be managed by the trustees themselves
      - Charity trustees have extensive obligations, many of which are specifically prescribed by statute
      - Larger charities will have employees, so the role of trustees is more strategic than operational
        
        Responsible for establishing and overseeing the structures put in place to ensure the charity operates in accordance with the terms of the trust and complies with charity law
      - Often lay trustees but will be selected based on their particular skills and experience
    - - Sometimes these trusts will only last a short period of time, as once the trustee has distributed the entire trust fund, the trust comes to an end
      - A trust with minor beneficiaries, need to last for a longer period so trustees will have more active management obligations
        
        Need to safeguard and invest the trust fund
        
        Generally lay trustees- they act voluntarily and are not paid
      - Trustee’s main role will be to comply with the terms of the trust, ensuring that the right payments are made to the right people at the right time
      - Trusts set up in a will or for other family purposes
    - - Trustees simply hold the legal title to the trust property on behalf of adult beneficiaries who have fully vested interests
      - The beneficiaries have Saunders v Vautier rights and can collapse the trust whenever they wish
      - A trust in which the trustee has very limited obligations
      - All the trustee needs to do is distribute the trust property in accordance with the trust terms or the instructions of the beneficiaries
- - - - Relate to the management of the trust property while it is held on trust
    - - Relate to the distribution of trust property in accordance with its terms
  - - - E.g., trustee uses powers of investment to benefit both the trust fund and themselves
      - May be liable for breach of fiduciary duty even if they have done everything right in terms of their trustee duties and seemingly caused no harm to the trust fund
    - - Failing to act in accordance with their duty of care when making an investment
      - Distributing property to someone who is not a beneficiary
      - Making an unauthorised investment
  - - - Trust instrument may contain express provisions setting out the powers and duties of the trustees
      - Check whether it expressly excludes or modifies any default statutory rules
    - - Trustee Act 1925
      - Trustee Act 2000
  - - - What trustees must NOT do
      - NOT just applicable to trustees
      - Control how trustees go about performing their role and are framed in the negative