Administration of Trusts

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Administration of Trusts:

Harries v Church Commissioners: It is the trustees duty to further the purposes of

the trust of which they have accepted the office of trustee. To enable them the better to discharge that duty, trustees have powers

vested in them which must be exercised to further the purposes of the trust.

The

Duty of Investment:

Duty to invest the trust property must

be even- handed between the beneficiaries: a trustee may be inclined to favour

an income beneficiary as opposed to a capital beneficiary as a capital

investment can often reduce throughout the lease. There is a duty of

even-handedness imposed upon the beneficiaries to balance their interests

between these when exercising their discretion to a trust investment.

The higher the risk an investment

presents, the greater the percentage return on capital. The law tends to favour

low risk over high return, the beneficiaries hold a duty to preserve the fund

from risk, yet secure a reasonable return on any capital.

Trustee

Investments Act 1961:

Legal list approach- trustees can only

make an investment that was specified within the act, otherwise they will be in

breach of trust

The

Trustee Act 2000 (Investing):

If there is no investment clause stated

by the settlor, the beneficiaries must abide by The Trustee Act 2000

Prudent investor approach- trustees are

not limited from making any kind of investment. The trustee has a broad power

of investment as long as the power is used prudently

S (1)Whenever

the duty under this subsection applies to a trustee, he must exercise such care

and skill as is reasonable in the circumstances, having regard in particular—

(a)to any special

knowledge or experience that he has or holds himself out as having, and

(b)if he acts as

trustee in the course of a business or profession, to any special knowledge or

experience that it is reasonable to expect of a person acting in the course of

that kind of business or profession.

S

3(1) a trustee may make any kind of investment that he could make if he were

absolutely entitled to the assets of the trust.

I.e. if the funds were his own

S

4(3) The standard

investment criteria, in relation to a trust, are—

(a)the

suitability to the trust of investments of the same kind as any particular

investment proposed to be made or retained and of that particular investment as

an investment of that kind, and

(b)the

need for diversification of investments of the trust, in so far as is

appropriate to the circumstances of the trust.

Diversification is based upon the Modern

Portfolio Theory: risks of investments are balanced against risks of others.

The ‘modern prudent investor’ is judged by their overall portfolio of

investments as opposed to his individual investments (Nestlé

v National Westminster Bank plc)

S

5:

requires the trustee to take advice from someone the trustee reasonably

believes is able to provide advice on the investment due to any experience in

such matters

The

Standard of Prudence/ Care:

Speight v Gaunt: Trustee

hired broker to carry out purchase securities which he did not, he kept the

money for himself. The trustee was not liable for the fraud as he had acted in

accordance with standard business practice; he had not failed to take care. “A

trustee is not bound…to conduct in other than the ordinary and usual way in

which similar business is conducted by mankind”

Re Whitley:

“A trustee is bound to conduct the business of the trust in such a way as an

ordinary prudent man would conduct a business of his own.”

Re Lucking’s Wills Trusts: a

majority of shares in a family business was held on trust, one trustee realised

the manger was withdrawing money from the trust but failed to recover the money

and prevent further withdrawals other than securing his word on not to

continue. He failed to take reasonable steps to remedy the problem as a

reasonably prudent man would.

Bartlett v Barclays Bank: Bartlett

was a trust company whom allowed a disastrous property development to be

carried out on a trust they held. The Trustees held themselves to be

professionals and so were to be held at a higher standard of care of skill and

expertise (now within S1 Trustee Act 2000)

Nestlé v National Westminster

Bank plc: The trustee to a testamentary trust did not

understand the investment clause as they failed to seek legal advice, and so

believed the investment opportunities were narrower than they actually were and

so did not properly invest. There was no breach of trust, despite a falling in

the capitol of the fund, as the investments which were perused did not

themselves cause a loss and were compliant to standard business practice.

Social/

Ethical Investing:

Trustees must invest to preserve and

enhance the value of the trust property.

Cowan v Scargill:

Trustees of National Coal Board pension fund wished to approve an investment

plan in overseas securities, oil and gas industries. The trustees refused to

consent- this was a breach of trust as they were going against the purpose of

the trust and therefore the interest of the beneficiaries. The trustees must

aim to exercise their powers in the best interests of the present and future

beneficiaries. This can extend to ethical decisions as long as they inform the

[adult] beneficiaries and get their consent.

Harries v Church

Commissioners: Bishop of Oxford sought a declaration

that Church Commissioners handling funds would do so in consideration of their

Christian faith, even if it involved a risk of financial detriment. As with any

trust, charitable trustees must also seek the maximum return in investments,

however, they hold a right not to invest in activities that are contradictory

to the purposes of the trust/ charity or which may alienate those who give to

the charity.

Martin v City of Edinburgh

District Council: local authority’s policy to disinvest

in companies with south African interests were a breach of trust as the

decision had been made without considering the best financial interests of the

beneficiaries.

The

delegation of trustee functions:

Trustee Act 200 S 11 (1) the

trustees of a trust may authorise any person to exercise any or all of their

delegable functions as their agent.

(2)In the case of a trust, other than a charitable trust, the trustees’

delegable functions exclude—

(a) any function relating to whether or in what way any assets of the

trust should be distributed,

(b) any power to decide whether any fees or other payment due to be made

out of the trust funds should be made out of income or capital,

(c) any power to appoint a person to be a trustee of the trust, or

(d) any power conferred by any other enactment or the trust instrument

which permits the trustees to delegate any of their functions or to appoint a

person to act as a nominee or custodian.

-

S 12 (2): May delegate tasks to one of themselves

as long as the trustee is not also a beneficiary

-

S15: Trustees must provide a policy statement to

how an agent can exercise their powers when dealing with asset managements.

-

S22: trustees must periodically review any

delegation arrangements

-

Sch 1 Para 3: Duty of care to a trustee when

carrying these periodic reviews.

The

power of maintenance:

Allows trustee to spend income (but not

capitol) for the befit of infant beneficiaries under

Trustee

Act 1925, S 31 (1) Where any property is held by trustees in

trust for any person for any interest whatsoever, whether vested or contingent,

then, subject to any prior interests or charges affecting that property—

(i) during the infancy of any such person,

if his interest so long continues, the trustees may, at their sole discretion,

pay to his parent or guardian, if any, or otherwise apply for or towards his

maintenance, education, or benefit, the whole or such part, if any, of the

income of that property as may, in -all the circumstances, be reasonable,

(2 )During the infancy of any such person,

the trustees shall accumulate all the residue of that income…and shall hold

those accumulations as follows :— for future interests upon turning 18.

The

power of advancement:

The power to expand capitol of the trust

fund to benefit a beneficiary with a future interest in it, Trustee Act 1925 S32.

Re Clore’ Settlement Trusts: Court

allowed advancement to a rich beneficiary as he wanted to make a charitable

donation which he felt morally obliged to make.

Re Pauling’s Settlement

Trusts: Large

sums of money were advanced that the trustees were aware were being spent by

the beneficiaries’ father. This was a breach of trust as the trustees had

advanced the money with no responsibility in inquiring as to how the money was

going to be used.

Pilkington v IRC: Advancement

= any use of the money which will improve the material situation of the

beneficiary (a special power of appointment)

Appointment, retirement and removal of

trustees:

Trustee Act 1925, S 34 (1): Where there are more than four trustees of a settlement

of land, no new trustees shall be capable of being appointed until the number

is reduced to less than four, and thereafter the number shall not be increased

beyond four.

(2)In the case of

settlements and dispositions on trust for sale of land made or coming into

operation after the commencement of this Act—

(a)the number of

trustees thereof shall not in any case exceed four, and where more than four

persons are named as such trustees, the four first named (who are able and

willing to act) shall alone be the trustees, and the other persons named shall

not be trustees unless appointed on the occurrence of a vacancy;

(b)the number of

the trustees shall not be increased beyond four.

- S36: a person is nominated to appoint a new trustee in case a

trustee: dies, retires from the

trust, moves out of the UK, refuses to act, is unfit to act (bankrupt), is

incapable of acting (disabled), has an infant or has been removed by an

instrument in the trust.

- S19 Trusts of Land and Appointment of Trustees Act 1996:

gives beneficiaries the power to remove and appoint trustees

Custodian,

nominee, managing and judicial trustees:

Custodian trustee: hold the title to the

trust property but management of the trust is left to managing trustees. The

custodian trustee complies with the orders of the managing trustees.

Nominee trustee: holds only some of the asses

of the trust property for specific purposes but management of the trust is left

to managing trustees.

Judicial trustee: a trustee appointed by

the court where court supervision is required due to the unreliability of the

administration of the trust.

Beneficiaries’

rights to information:

Armitage v Nurse: the

claimant was a beneficiary under a trust which held agricultural land among the

trust property. The trustees were also directors of a company which farmed the

trust land. The value of the land had fallen substantially in value due to the

negligence of the trustees in their management of it. Held, a clause excluding

a trustee’s personal liability in all situations, including loss caused by the

trustee’s own gross negligence is valid

except in cases of the trustee’s own dishonesty. Consequently, the trustees

were not held liable for breach of trust even if they had caused loss to the

beneficiaries through their own grossly negligent actions, no fraud had been

committed. If the beneficiaries have no rights

enforceable against the trustees, there are no trusts.

Wight

v Olswang: although professional trustees are entitled to have professionally drawn exemption clauses, the court

should not be astute to construe an exemption clause beyond its natural

meaning. To exclude liability for breaches of trust or negligence by a trustee

there should be clear and unambiguous words in the Settlement

Beneficiaries of vested interests have

the right to be informed of their interests

Schmit v Rosewood Trust: beneficiary’s

right to information depends upon the need for privacy of personal or

confidential information and so is to the court’s discretion as to whether

trust accounts and trust documents can be disclosed to the beneficiaries.

Mc Donald v Ellis: Where

the beneficiary has a vested interest, the court should have no discretion as

to whether all trust information should be available

Breakspear v Ackland: letters

of wishes are confidential and so trustees have no obligation to disclose them

to beneficiaries.

Hastings-Bass: When trustees act under a discretion, in

circumstances in which they are free to decide whether or not to exercise the

discretion, and the effect of the exercise of the discretion is different from

that which they intended, a court will interfere with their action if it is

clear that they would not have acted as they did, had they taken into account

considerations which they ought to and not taken into account irrelevant

considerations.

Pitt v Holt: Mistake- Mr. Pitt, was

injured in a road traffic accident, his wife was appointed as his receiver by

the Court of Protection. With the benefit of professional advice, Mrs. Pitt

decided to transfer both into a discretionary trust. In 2003 it was realised

that the trust attracted tax: Mr Pitt died and his personal representatives

contended that the settlement was void, or alternatively voidable, and should

be set aside. Reliance was placed on the Rule in Hastings-Bass and

alternatively on the Court’s equitable jurisdiction to set aside voluntary

dispositions on the grounds of mistake. Hastings-Bass

Futter v Futter: In Futter v Futter assets were

transferred from two trusts to beneficiaries. The trusts were offshore and had

stockpiled capital gains. Inaccurate professional advice was obtained in

relation to whether the trust’s gains could be set against the losses of the

beneficiaries. The trustees sought declarations that the transfers were void,

or that they were voidable, and should be set aside. Reliance was placed on the

Rule in Hastings-Bass.

Saunders v Vautier: a

testator left shares to be held in trust. The nephew was entitled to the

capital and income when he turned 25. Until then he was only entitled to

income. When he turned 21, he asked the trustees to give him the trust

property. The trustees turned to the courts. Where there is an absolute vested

gift made payable at a future event, with a direction to accumulate the income

in the meantime and pay it with the principal, the court will not enforce the

trust for accumulation in which no person has any interest but the legatee.

Where beneficiaries are sui juris (adult and of full capacity), their interest

is vested absolutely (all beneficiaries are ascertained and their interests

account for all the trust property), and they are all of one mind, they are

entitled to immediate distribution of the trust property and thus to terminate

the trust prematurely.

Discretions:

Tempest v Lord Camoys: Trustees

had powers to buy and sell land on behalf of a trust. One wanted to buy land,

the other did not. Held, where given discretion the trustee are not obliged to

exercise the discretion they have been granted and so the courts could not

compel him to buy the land.

Luke v South Kensington Hotel

Co: Mortgage

dispute between trustees- one dissented from the group. Held, a majority of

trustees cannot rule against the minority. In case there is absolute deadlock,

the intervention of the court may be the only way to break it.

Turner v Turner: A settlor set up

an inter vivos trust for the benefit

of his family (including himself). The trustees signed documents offered by the

settlor without even understanding or contemplating the terms of the deed.

There is a duty to exercise discretion where considering the terms of the trust

is concerned.

Klug

v Klug: the trustee (the beneficiary’s mother) refused to

approve the exercise of the power of advancement motivated by displeasure of

her daughter marrying without her consent. The mother had failed to exercise

her discretion as her reasoning was irrelevant to her role as trustee.

Notes