Administration of Trusts

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 2000Prudent 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 ownS 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 interestsSchmit 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.

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