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TRUSTEES, TRUSTEES: LIABILITY, TRUSTEES: POWERS AND DUTIES - Coggle Diagram

- - - - If trustee refuses role / cannot act
        Trustee will hold the property on a bare trust for the beneficiaries pending the appointment of new trustees.
        New appointment can be done:
        
        via express power in trust instrument
        
        IF NOT = trustee who refuses can appoint their replacement
        
        IF NOT = beneficiaries with Saunders v Vautier rights can appoint
        
        IF NOT = court can appoint
- - - - A duty not to create conflict between their personal interests and their duties to the beneficiaries
        
        Potential conflict?
        Fiduciaries can ONLY proceed if the transaction is authorised by trust instrument
        
        IF NOT = fiduciary must obtain the fully informed consent of their principals.
        
        NO authorisation or consent = breach of fiduciary duty
        
        Consequences of breach:
        
        If the breach = loss to the principal, they can sue fiduciary who is liable to compensate the principal.
        
        If the breach = profit to the principal, they may not require a remedy but can end the fiduciary relationship.
        
        If the breach = profit to the fiduciary, the principal can recover the profit.
        
        Self-dealing
        Self-dealing involves a trustee purchases / sells assets to the trust.
        
        There is a clear conflict = a trustee who holds the legal title is prevented from buying / selling for themselves the trust property
        
        If the trustee enters into an unauthorised self-dealing transaction = transaction will be voidable + beneficiaries may seek rescission
        
        Fair-dealing
        
        Trustee directly transacts with the beneficiary to buy their beneficial interest under the trust
        
        Unless the trustee can demonstrate that they made full disclosure to the beneficiary, acted honestly and fairly = transaction will be voidable + beneficiaries may seek rescission
    - - A duty not to make an unauthorised profit from their role as a trustee, for example:
        1. Directly using the property of their principal to make a personal profit
        2. Indirectly profiting from their role as a fiduciary
        
        IF trustee takes on director role in their capacity as trustee, any remuneration must be pay into the trust fund
        
        3. Exploiting an opportunity which has come to them as a result of their fiduciary position.
        
        Fiduciary is not entitled to keep a profit from an opportunity that arises in the course of their fiduciary duties, whether or not their principal would have exploited it
        
        4. Receiving a bribe / secret commission to influence the way in which they perform their role as trustee.
        
        Breach of the no-profit rule = fiduciary is stripped of profits + beneficiary can choose one of the following remedies :
        - An account of profits: a personal claim requiring the trustee to pay the principal an amount equivalent to the profit they have made
        
        A constructive trust: A principal can argue that the fiduciary's profit is held on constructive trust for the principal. This remedy:
        
        Protects against the insolvency of the fiduciary as the principal identifies an asset over which they have rights which rank above other creditors + allows the principal to trace into any subsequent profits made by the fiduciary
- - - - Delay
        
        The limitation period = six years from the breach for beneficiaries with interests vested in possession.
        
        For beneficiaries with future interests, = starts to run when their interest vests in possession.
        
        NOT applyicable to fraudulent breaches or proprietary claims against the trustee
        
        If a trustee is also a beneficiary, and receives an unfairly large distribution from the trust, only the excess can be recovered after the normal six year period
      - Consent and acquiescence
        
        Trustees will be excused from liability for breach if they obtained fully informed consent of the adult beneficiaries OR that those beneficiaries acquiesced (know that there has been a breach but fail to take action against the trustee) = partial defence against individual beneficiaries
        
        Written consent of the beneficiary = the court can order for compensation to be paid out of their share of the fund to satisfy claims of the other beneficiaries
        
        IF NO consent, beneficiaries may subsequently affirm trustees' action
- - - - A. Standard investment criteria
        
        Suitability: fact specific = size of fund / period of time for which the trust is intended to subsist / rights of all beneficiaries / financial interest of beneficiaries / moral considerations (rarely)
        
        Diversification: of trust investments by taking an overall approach to the risk profile of the trust fund.
        
        The extent of diversification depends on size and nature of the particular trust
      - B. Advice
        Trustees are required to obtain and consider proper advice before investing and when reviewing investments (cannot ignore if they personally disagree)
        
        Provided by a qualified person by their ability in and practical experience
        
        Exception = no need to seek advice if reasonably unnecessary to do so
      - C. General duty of care
        Trustees must exercise such care and skill as is reasonable in the circumstances
        
        Standard of care is higher for professional trustees / ones with particular skills as they are paid
        
        Common law duty of care (applies before 2000) = trustees must exercise the standard of care expected of an ordinary prudent business person
- - - - Adult beneficiaries
        
        Subject to any contrary terms in the trust instrument > the trustees must distribute income to adult beneficiaries as it arises
        
        This includes beneficiaries with contingent interests which carry the intermediate income
      - Minor beneficiaries
        
        Subject to any contrary terms in the trust instrument > the trustees must accumulate the income that arises before they turn 18
        
        Accumulated income is added to the capital and distributed with that capital
  - - - Rules
        
        ‘Maintenance, education or benefit’ =
        
        school fees / medical bills/ food, clothing, rent / holidays
        
        BUT if trust was created before 1 October 2014 power is limited =
        trustees can ONLY apply reasonable income considering all the circumstances
      - Procedure
        
        The trustees should NOT pay the income to a minor = minor cannot give good receipt SO should only pay it to child’s parent / guardian / provider of the goods or services
        
        The income may indirectly benefit parent or guardian
        
        Trustees must act in good faith in the interests of the beneficiary
        
        The power can be used for current and accumulated income
    - - Rules
        
        Advancement = providing immediate financial benefit for a beneficiary / improving beneficiary’s moral well-being by giving the money for charitable purposes if beneficiary would have done same
        Trustees may pay up to 100% of a beneficiary’s prospective entitlement to the capital (no obligation to if beneficiary requests)
        
        Amount the beneficiary receives when their interest vests will be REDUCED by the proportion of capital they received early
        
        BUT if trust was created before 1 October 2014 power is limited = up to 50%
      - Procedure
        
        If beneficiary is adult = trustees can pay capital them OR purchase asset on beneficiary’s behalf.
        If beneficiary is minor = trustees should paid capital to to child’s parent / guardian / provider of the goods or services
        Trustees are obliged to check the money has been applied for requested purpose
        Written consent of beneficiary (full age + sound mind) with prior interest NEEDED if power prejudices other beneficiaries