The initial duties of the trustees are to ascertain the extent and nature of the trust property and to understand the terms of the trust document. The trustees must take charge and control of the trust assets. This involves collecting in the assets.
Title to the assets should be transferred into their name. Transfers of assets between trustees are not generally a taxable event.
Before making a decision, trustees must understand the subject matter of the decision and the considerations which are relevant to that decision. If appropriate, they should seek legal advice in relation to the scope and ambit of the trust powers.
The trustees are under a duty to ascertain the identity of the beneficiaries. He must ascertain and distribute the trust assets in accordance with the terms of the trust if they so require. If there is a discretion to postpone distribution, this must be exercised in good faith.
Where a beneficiary has not received what he is entitled to receive under the trust, he may take action against the trustee for breach of trust. The trustee may have the right to recover assets from any person to whom they have been transferred, paid or overpaid in error.
If there are doubts regarding the rights and obligations of the trustees and beneficiaries, it may be appropriate for the trustees to apply to the court for directions.There is a special High Court procedure, which may be initiated by special summons. If this is done, then the trustees will be protected against liability, provided that the directions are implemented.
If the whereabouts of beneficiaries is unknown, or if the beneficiary(ies) is unknown and unascertained, the court may authorise distribution within a specified time, as if the beneficiary has died or did not exist, under a so-called “Benjamin” order (named after an early 20th-century case Re: Benjamin).
The court will usually require publicity by way of advertisement. If the beneficiary cannot be traced or ascertained after this, it may authorise distribution, notwithstanding the absence of proof that the beneficiary has (for example) died.
Trustees , as an alternative to seeking a Benjamin order, may take out insurance against the risk that an apparently missing or dead beneficiary, is not, in fact, dead or may return to assert his claim. The cost of insurance may be less than the cost of application to the court and the subsequent steps required under the order.
Accounts and Information
Trustees are obliged to keep accounts of the trust assets. The obligation arises under general principles of trust law. The trust instrument is likely to provide specifically, for the keeping of accounts. It may make detailed provision as to what accounts are required and whether they are required to be audited.
Beneficiaries have rights to see accounts and be provided with information in relation to the trust assets. They will usually have the right to be provided with copies of the accounts, but may be required to pay for the cost of copying.
A beneficiary is usually be entitled to inspect documents and full books of accounts relating to the trust assets. In the absence of an express right for beneficiaries to trust information, the courts exercise powers to require that information and accounts be furnished, on the basis of their inherent power to supervise trusts.
Where a beneficiary has a right to capital or income or other vested interest, the trustee must on request, at reasonable times, give full and accurate information as to the amount and state of the trust property. He must permit the beneficiary or his advisors to inspect accounts and financial records.
There are limits on a beneficiary’s right to information and accounts. It appears that the right is limited to trust assets, in respect of which the beneficiary concerned has an interest. Where there are issues of personal or commercial confidentiality, the courts may balance competing rights of beneficiaries and the interest of the trustees. Disclosure may be limited to safeguard those rights.
The extent of a discretionary beneficiary’s rights to information and accounts in relation to the trust is less clear. The courts have supported the proposition that a potential beneficiary under a discretionary trust is entitled to copies of trust accounts and details of the investment. This is justified on the basis that in the absence of this obligation, the trustees may have no obligation to anyone.
The extent of discretionary beneficiary’s rights, if any, depends on the nature of the interest and the number of potential beneficiaries. The courts will not make orders in favour of discretionary trustees, which are disproportionate in the circumstances. The discretionary beneficiaries are not entitled to badger trustees with claims to exercise powers in their favour.
It appears that trustees in exercising discretionary powers are not obliged to disclose the reasons which motivate the exercise of their powers. This principle has been criticised and it is argued that some outline justification of the decision should be given, at least in some circumstances. In the absence of giving decisions, it may be difficult to prove or disprove bad faith and improper use of powers.
Good Faith / Fiduciary Duties
Trustees must act in good faith at all times. Where discretion is conferred, the trustees must exercise their discretion in good faith.
The wording and terms of the discretion are paramount in determining the trustees’ obligations. The courts will not generally intervene, where the discretion is exercised properly and in good faith. The more absolute the discretion, the less likely that the court will interfere.
It is a basic principle that trustees are fiduciaries. Fiduciary duties are applied more strictly in the case of trustees, than in relation to other fiduciaries, such as directors, partners and agents.
The trustee must not make a profit from the trust. He must not put himself in a situation, where his interest and duties may conflict. He may not retain financial benefits which he has gained from the exercise of his fiduciary powers.
A trustee is not entitled to charge for work carried out in his capacity as trustee. This is the case, even if the trustee spends considerable time and energy in performing his duties. Where the trust instrument itself provides for remuneration, this may be paid.
In practice, it will be necessary to pay professional trustees and trustees who provide professional services in the administration of the trust. The clause allowing for trustee remuneration must be clear and unambiguous. Such clauses are interpreted against the interests of the trustee concerned.
The courts have inherent jurisdiction to allow trustees to be remunerated for services, even if no provision for remuneration is made in the instrument. The court may make an order for trustee remuneration, on only if it considers that there are exceptional circumstances, such for example, as where the trustee’s efforts have led to considerable benefit. Remuneration may be ordered for past services but will be ordered rarely for future services.
Trustee remuneration is allowed where all beneficiaries have legal capacity and so consent. In this context, all beneficiaries will include future and prospective beneficiaries. Where a trustee solicitor acts for himself and for his co-trustees in litigation and the costs do not exceed the cost which he would have incurred, had he acted for his co-trustees only, he is entitled to be paid such costs.
A trustee is entitled to be reimbursed for expenses properly incurred in the course of administration of the trust. The trustee must act in good faith. The principle is reflected in the Trustees Act, 1893.
Dealing in Trust Assets
The trustee may not purchase trust property. This principle is designed to prevent self-dealing.
A sale by a trustee to himself will be set aside automatically, subject to very limited exceptions,. The principle reflects the presumption that undue influence has been exercised.
It does not matter whether the trustee has acted honestly, openly and in good faith and has paid a fair price. It is not necessary that the trustee has made a profit. The may be nonetheless voidable.
The strictness of the above principle has been illustrated in numerous cases. It cannot be avoided by selling the property to a person or company associated with or controlled by the trustee. The courts will examine the substance of the transaction. The principle remains applicable where the trustee has recently retired, although not where the retirement has taken place some considerable time before.
A trustee may purchase trust assets where the instrument expressly so allows. The clause will be interpreted against the interests of the trustee. The courts may allow a trustee to purchase trust assets in exceptional circumstances. Beneficiaries may consent to a trustee purchase, provided they all consent and they are of full age.
The principle applies on less strict terms when the trustee purchases assets from a beneficiary. A presumption of undue influence will arise, but it may be rebutted.
The onus is on the trustee to rebut the presumption. He must show that he has given full value and has not taken unfair advantage of the beneficiary. The sale must be shown to be the free and fair exercise of the beneficiary’s free will.
Delegation and Advice
It is a general principle is that a trustee may not delegate his powers. The rationale is that where the settlor has placed trust in a trustee who has accepted office, the beneficiary should be entitled to the benefit of that particular trustee’s qualities and abilities.
The trustee is not entitled to shift his duties onto others. If he or she employs agents or advisors, he or she remains nonetheless subject to his general responsibilities as trustee.
The trustee will often require expert assistance and advice. In some cases, he may be obliged to obtain expert advice in relation to key decisions. In many cases, failure to take advice or assistance could be negligent. It will commonly be necessary to delegate investment functions to professional advisers, as for example in the case of pension trusts.
The trust instrument will commonly allow for delegation. In many cases, it will simply be impracticable to perform the trust without retaining advisors and in some instances delegating the performance of functions. Where an ordinary prudent person would employ an agent or advisor, it is appropriate for the trustees to do so.
The trustees must exercise due care in making an appointment and delegating the performance of their duties to an agent. They will not be generally liable for the misconduct of agents, where they have not been negligent in making the appointment.
They must act in good faith, and as a prudent person would act in the circumstances. The trustees must exercise a reasonable degree of supervision of the agent. Failure to do so may breach their duties.
The Trustees Act specifically allows that a solicitor may be entrusted with receipt of purchase monies derived from the sale of trust property. A banker or solicitor may receive the proceeds of the sale of a property. The solicitor’s authority is dependent upon him having possession of the deeds so that he can deliver them in return for the purchase money.
The trustee will be liable if he allows the monies to remain with the trust solicitor or agent or broker longer than reasonably necessary.
The Law Reform Commission in its paper, Trust Law – General Principle, has recommended the introduction of legislation in relation to trustees and trustee’s powers.
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