Trustee Duties and Powers

Types and numbers of trustees

• Anyone with legal capacity can be a trustee

• Private trusts technically don’t have a limit, but may impose one for simplicity

• Max for land is four, minimum for charities is three

Original appointment of trustees

• Normally done by settlor/testator

• Not obligatory to accept appointment and retirement must be done through proper channels

• “Equity never wants for a trustee”, court decides how to proceed

s36(1) of the Trustee Act 1925

Continuing trustee(s) can bring about a needed replacement

s36(6) of Trustee Act 1925

Current trustees can appoint more so long as there are no more than three at the time

s39 of Trustee Act 1925

Replacement not needed if there are 2 trustees/trust corp. Remaining, it is done consensually and by deed

s40 of Trustee Act 1925

Done to give vesting power and fulfil formal requirements

s41(1) of Trustee Act 1925

Court can intervene if new appointment needed, but only if strictly necessary (Mohammed v Khan (2005))

Standard of care

“Such care as would a prudent person of business in the conduct of their own affairs.” (Speight v Gaunt (1883)), higher standard under TA 2000 for professional trustees

Duties on taking up office

Must ensure that they are properly appointed (Yudt), become familiar with the ferns of the trust and inquire into the past business of the trust

How should the trust property be vested?

Trust property should be vested in the names of all the trustees jointly

How is information about the management of the trust to be kept?

Trustees must keep information about the management of the trust

Should trustees be partial to any one beneficiary?

Must act impartially between beneficiaries

Can trustees be passive in the running of the trust?

• Can delegate between trustees (TA 2000)

• Bakin v Hughes (1886), passive trustees are liable for the defaults of active trustees

• Trustees must watch over each other (Styles v Guy (1849))

Considerations when planning an investment strategy for the trust fund

• Size of investment fund available

• Type of yield required

• Time scale of investment commitment

• Required rate of return

• Degree of risk

• Diversification

s3 of the Trustee Act 2000

Trustees can make any investment they want, so long as it produces income/capital growth (Harries v Church of England Commissioners (1992) and Cook v Medway Housing Authority (1997))

s3(4) of the Trustee Act 2000

Can use trust money to secure a loan on a house, MUST be secured (Khoo Tek Keong v Ch’ng Joo Tuan Neoh (1934))

s8 of the Trustee Act 2000

Can be investment for free/leasehold land for beneficiary

s4 of the Trustee Act 2000

Compliance with standard investment criteria (suitability and diversification)

s5 of the Trustee Act 2000

Trustees must seek qualified advice about the exercising of their powers when appropriate

s1 of the Trustee Act 2000

Same standard of care at the reasonable businessperson, Nestle v National Westminster Bank (1993), trust left idle, criticised but not a breach of trust and this was reasonable at the time

Wight v Olswang (No. 2) (2000)

No liability for investment decision unless it is unreasonable

Cowan v Scargill (1985)

Trustees must act in the benefit of all beneficiaries, regardless of conviction over investments

Four circumstances where ethics can be considered

• If dilemmas can be minimised

• If it contravenes beneficiary views

• If it directly against the aims of the charity (Harries, Butler-Sloss v The Charity Commission for England and Wales (2022))

• Testator/settlor sets out clear boundaries about investments

Pilkington v IRC (1964)

Delegation can be done if it is authorised, half the beneficiary’s entitlement could be transferred to a new trust for tax purposes, but there was a perpetuity issue as it vested when she (2) turned 30

Collective delegation pre TA 2000

Experts could only give advice but not take action, particularly problematic when looking at investment management as well as the management of shares in the CREST system (primarily used by stockbrokers)

s11 of Trustee Act 2000

Trustees can appoint agents

s12(1) and s12(3) of Trustee Act 2000

Agent can be another trustee (s12(1)) but not a beneficiary (s12(3))

s11(2) of the Trustee Act 2000

Anything other than discretionary power can be delegated, but cannot appoint new trustee alone

s32 of the Trustee Act 2000

Agent paid by trust fund

s13 of the Trustee Act 2000

Agent must comply with conditions for task they have been given

s14 of the Trustee Act 2000

Can be paid without issue for administrative work, more safeguards under s15 for asset management

s15 of the Trustee Act 2000

• Trustees must have written agreement with agent (s15(1))

• Needs written policy statement with fiduciary duties, interest in trust and specific about the investment

ss21-22 of the Trustee Act 2000

Agents are constantly under review, trustees can sue negligent agents, but trustees have no vicarious liability

s25 of the Trustee Act 2000

Can be done through a POA, any power can be delegated, done for a 12 month period, there is vicarious liability for the trustee

Two main powers of trustees

Advancement and maintenance, both needed before the property gets to the beneficiaries, settlor can prevent this if they wish, but this is rare

s31 of the Trustee Act 1925

• s31(1), trustees can use trust income for under 18 beneficiary’s maintenance, education or maintenance, paid directly to provider, subject to prior interests

• Any income not used must be accumulated (s31(2))

• Trustees cannot be compelled to use this power

• s31(1)(ii), beneficiary is entitled to trust income at 18, accumulated income and trust capital can be received when the contingency is met

• If the beneficiary dies before achieving the contingency, whatever is left of the trust will go back into the settlor’s estate

• Statutory power is usually sufficient

s32 of the Trustee Act 1925

• Trustees can use trust fund for the benefit of any named beneficiaries,  only applies to those who are entitled to the trust capital

• Does not apply in discretionary trusts or for life tenants

Re Clore Settlement Trusts (1966)

Advancement includes making requested charitable donations

Re Pauling’s Settlement Trust (1964)

Child’s trust money cannot be used to pay off debts of the parents

Limitations on the application of s32

• Trustees could only advance ½ of trust up to 01/10/2014

• Any payment must be brought into account

• Any advancement must not prejudice a beneficiary with a prior interest

Re Brockbank (1948)

Trustees can be compelled by court order to fulfil a duty, but not exercise a power

The exercise of duties and powers

• Trustees have duties to invest funds in authorised investments, but the choice of investment is at their discretion

• In discretionary trusts, trustees have a duty to select objects, but who they choose is at their discretion

• Trustees can be compelled to perform administrative and day to day duties

Tempest v Lord Camoys (1852)

Court will intervene in improper exercise of power

• In favour of a non object

• Capriciousness (Re Manisty’s)

• If the usage of the power was not properly considered (Turner v Turner (1983))

• Wholly unreasonable (Dundee General Hospitals Board of Management v Walker (1952))

• Outside the purpose of the power and not in the interest of the beneficiaries (Grand View Private Trust v Wen-Young Wang (2002))

Re Beloved Wilkes Charity (1851)

Trustees are not obliged to provide reasons for power usage

Klug v Klug (1918)

If they do, the reasoning can be scrutinised

What are beneficiaries entitled to see?

Beneficiaries are entitled to see “trust documents” (Schmidt v Rosewood (2003)), but this does not include trustee deliberations (Re Londonderry’s Settlement (1965)) and potentially notes from the settlor (Breakspear v Ackland (2008))

S19 of the Trusts of Land and Appointment of Trustees Act 1996

Written directions can be given and applies to trusts of personalty as well as land

Saunders v Vautier (1841)

If beneficiaries are still dissatisfied, they can end the trust provided they satisfy the requirements of this case law