Trust Law - Administration of Trusts Notes
Administration of Trusts
Introduction
Trustees must carry out complex duties with honesty and integrity.
Key Cases:
Bank of Ireland v Corgy Flax Spinning Co [1900]: Importance of choosing an honourable, intelligent trustee.
Greene v Cody [2014]: Fundamental obligation of utmost honesty and integrity.
Appointment, Removal, Retirement
Trustees must act in the interests of the trust - the overriding principle
Governing law: Trustee Act 1893 & recommendations from Law Reform Commission (LRC 35-2005), updating the act - containing a draft trustee bill
Appointment of Trustees
Trust instrument outlines the appointment of initial and replacement trustees.
Settlor cannot appoint themselves or others post-appointment.
Joint tenancy among trustees; if one dies, surviving trustees continue.
Sole trustee dies, trust property is then vested in the personal representative until new trustees are appointed.
Section 10, Trustee Act 1893 grants replacement powers for unfit, unwilling, or unavailable trustees.
Courts hold power to appoint under Section 25, 1893 Act - power whenever the court feels it is expedient to do so.
and it would be impractical to do it without the court’s assistance.
Broader provision than S.10.
LRC - non-judicial statutory power being granted - reason = expensive.
Retirement of Trustees
Requirement for express provision in trust instrument or statutory compliance.
Section 11, Trustee Act 1893: Co-trustee consent required for retirement or beneficiaries' consent (all of full legal capacity).
Court assistance available through Section 25.
Removal of Trustees
Trust instrument provisions for removal are required.
Beneficiary power to remove, if all are of full legal capacity and hold beneficial interest.
Courts exercise inherent jurisdiction for dishonesty or incompetence or willfully obstructs the objects of a trust - high court application, as demonstrated in cases like Arnott v Arnott (1924)
Moore v McGlynn [1894] 1 IR 74
Def. was trustee of brother’s business, shop and post office in a small village - beneficiaries were the widow and children of the deceased man.
The trustee set up a rival business, obtained the position of postmaster for himself - set it up in a shop on the other end of village.
Court found there was no deceit or intended impact - Court found that it was inappropriate for the trustee to continue in his position, as his personal interests and duty to the trust might conflict.
The removal of a trustee has to be done in the welfare of the beneficiaries, especially when a conflict of interest arises that could compromise the integrity of the trust.
Spencer v Kinsella [1996] 2 ILRM 401
Vested in trustees to be used as sportsground or recreational purposes. The users of the land sought to have the trustees removed due to their failure to manage the lands according to the stipulated purposes, indicating a clear breach of fiduciary duty.
The court agreed with the applicants here, it was essential to the welfare of the beneficiaries that the trustees be removed.
You must display that in order for justifying a removal of a trustee, it is in the best inetrests of the beneficiary.
Powers and Duties of Trustees
The obligations that are placed on you as a trustee - they are not discretionary in nature.
Equity demands strict performance of trustees’ duties with discretionary powers.
Fiduciary responsibilities require powers to be exercised in beneficiaries' interests.
Duty to Properly Exercise Discretion
Re Hastings-Bass [1975]: Sets framework for trustee discretion - Buckley LJ establishes a test, avoiding interference unless actions are beyond conferred authority or mis consideration of factors.
Abacus Trust Co. (Isle of Man) V Barr [2003] - required trustees to exercise power of appointment and to create a discretionary trust of 40%.
Power of appointment = you appoint beneficiaries to receive benefits from the trust in accordance with the defined terms, reflecting the trust's intentions.
Trustees made an innocent mistake, they created a discretionary trust with 60% of the fund.
These proceedings were to determine the validity of the sums paid out under the 60% fund.
The court said here that the Hastings Bass case, didn’t require the mistake to be fundamental, rather it required that there was some unconsidered relevant matter, which would or might have affected the trustee’s decision and that the trustee’s were under a duty to consider this.
Slightly more flexible approach taken by the court, broader scope for the court to intervene in terms of setting aside decisions.
The Irish courts haven’t discussed this in great detail but have mentioned it in the High Court in the below. Taken a stricter approach. Not definite however, it is quite a high standard to reach.
Greene v Cody [2014] IEHC 38
The decisions of trustee’s would only be impugned where they had acted in a manner that no reasonable body of trustees would have done.
Duty Not to Profit from Trust
Trustees prohibited from profiting personally from trust activities:
Remuneration, expenses, and unauthorized purchases are scrutinized.
You are acting as a volunteer in your scope as trustee, you can only claim payment where it is specifically provided for. (as in, in the trust instrument)
You can claim your legitimate expenses - this does not have to be provided for in the trust - e.g. payment for professional advisors or any expenses that a trustee lays out.
Inherent power in the court to order remuneration.
Key cases: Boardman v Phipps (1967)
Beneficiary and solicitor acting as an advisor, bought property & made profit.
Trustees here were entitled to remuneration for work they had carried out.
Craddock v. Piper [1985]
Solicitor trustees can only charge costs to the trust where they act on behalf of themselves and co-trustees - and the expenses would have been the same regardless of their involvement.
By large, express trusts will have provisions for this outlined.
Purchase of Trust Property
Self-dealing rule, you cannot purchase property from yourself and co-trustees. the effect of doing this is that the purchase will be voidable.
Kane v Radley-Kane (1999).
Widow was sole administratrix of her deceased husband’s estate, appropriated 50,000 of shares. The court’s applied the self dealing rule here. the appropriation if shares here breached the self dealing rule and it was the equivalent of the purchase of trust property by a trustee. Harsh decision made by court.
Holder v Holder [1968]
An executor in a will tried to renounce his position, he did not do it correctly, thus it was invalid but he did not have any further dealing with the administration of the estate.
He subsequently bought property that he had been a tenant of.
Courts said that the transaction here had been voidable. he hasn’t been acted in the best interests of the beneficiaries and they were not looking to him to protect their interests.
The special knowledge he had of the property came from him being a tenant not an executor.
The court said that they would take a less stringent approach to the purchase of a beneficial interest by a trustee.
Smyth v. Smyth [1978]
The onus is on the trustee to show he gives full value and gives all relevant information to the trustees.
Duty Not to Compete
Trustees must avoid competing with the trust's business interests.
Relevant cases include Re Thompson (1930), Moore v McGlynn.
Re Thompson (1930)
Executor of a will, the testator had been involved in a yachting business, this business was to be managed by trustees and the executor was not permitted to set up a competing business.
Duty to Invest
1. Scope of Power of Investment
Trust instruments dictate investment powers; sometimes specified as per general law.
Re Harari Settlement Trusts [1940]- here there was a clause in the trust instrument to invest in any investments the trustees thought desirable. This was a valid scope subject to the obligation that they remain within the confines of the trust instrument and any powers under statute.
Legislation includes Trustees Act 1983; Section 1 of the Trustee (Authorised Investment) Act 1958 details.
2. Standard of Care
Standard set in Bartlett v Barclays Bank Trust Co. Ltd (1980): Trustees must act with the same care as an ordinary prudent man of business, understanding acceptable levels of risk, who would extend the same level of care to his own affairs.
You can’t avoid all risk as per this standard, the courts discuss a prudent level of risk.
Professional trustees will be held to a higher standard.
Evaluations of care per Nestle v National Westminster Bank Plc (1993) and UK's Trustee Act 2000.
A fund of 270,000 pounds would be worth well over a million if properly invested. The cpour’s disagreed with the beneficiary here. The court did find fault with the actions of the trustees here.
The trustees had failed to appreciate the scope of their power to invest and failed to conduct regular reviews.
These failures had resulted in wrong investment decisions.
The court said that failure to maintain the value was not in itself a breach of trust.
3. Ethical Investments
Principles from Cowan v Scargill (1985) and others apply to ethical considerations in investments.
Duty to Safeguard Trust Assets
Significant responsibility for trustees under cases like Re Brogden (1888).
Duty Not to Delegate Duties
Trustees generally required to perform fiduciary duties directly but can delegate under necessity and are held for 'wilful default'.
Courts allow delegation to professionals based on ordinary prudence principles established in Re Chapman (1896).
Powers of Trustees
1. Power of Sale
Section 13: Trustees may sell trust property subject to trust instrument conditions.
Sales cannot be impeached without showing inadequate consideration.
2. Power of Maintenance
Section 43, Conveyancing Act 1881: Income of the trust can be used for the maintenance/education of minors.
Courts can award additional payments for minors under Guardianship of Infants Act 1964.
3. Insuring Trust Property
Section 18, Trustee Act 1893: Trustees may insure trust property; similar provisions exist in the UK through Trustee Act 2000.
4. Compounding Liabilities
Provisions under Trustee Act 1893 & 2000 allow trustees to compound liabilities responsibly.