ATE Exam Preparation - Administration of Trusts and Estates

8/9/2019 ATE Exam Preparation - Administration of Trusts and Estates

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Topics

Duty not to Profit from the trustWhether or not a trustee can legitimately purchase trustproperty?

The fact that Luke wants to purchase the 200 shares in Judas Ltd is significant sinceit would constitute a breach of trust of the duty not to profit from the trust in thiscontext self dealing.

Self Dealing where a trustee purchases the trust property from himself, thepurchase may be set aside by the beneficiaries, however fair the transaction mayhave been and however beneficial it may have been to the trust estate. RoywestTrust Corporation (Bahamas) Ltd

It is clear from the authorities that there is an absolute prohibition of self dealing.

If Luke really wants to purchase the property he is free to resign from the trust andto then apply to the court. An application can be made to the court for its sanction,however it must be agreed upon by the beneficiaries. Re Cox

Where there is no conflict of interest as illustrated by the Holder v Holder casewhere the executor renounced his executorship, which was not deemed validhowever the circumstances were special in this case he did not play any real partin the administration of the estate and had renounced his executorship long beforethe sale, since the beneficiaries knew of this they could not have looked to him toprotect their interests and hence there was accordingly no conflict of dutyandinterest. He did not exercise any special knowledge as a result of his position as afiduciary.

Whether the trustee is accountable to the trust for theamount of fees or whether he may keep them for himself

The trustee will be held liable if he exercises his voting rights as a trustee to selecthimself as a director of the company in which the trust maintains controllinginterests. Since they Re Macadam

Re Gee a trustee is only liable where

a) He has powers qua trustee which

b) He uses

c) To procure his appointment as director


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4. Remuneration Authorized by the Court

5. Rule in Cradock v Piper

6. Agreement with Beneficiaries


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All of the trustees, namely Adrian, Brian and Clive are under the following duties: The duty to Invest

What is the standard of care required for Investments?

The standard of care required by the three trustees is to take such care as anordinary prudent man would take if he were under a duty to make the investmentsfor the benefit of other persons for whom he felt morally bound to provide. Thisprinciple was established in the case of Re Whiteley Duty was to act in the bestinterests of the beneficiaries, both present and future. A power of investment oughtto be exercised in such a way as to yield the best financial returns by way of incomeand capital appreciation. This principle was established in Cowan v Scargill

The trustees should aim for diversification, they should avoid hazardousinvestments, should select interest bearing securities and should hold the balanceevenly between tenant for life and the remainderman.

The trustees would be under a duty to sell the property that is deemed to beHazardous or Unauthorized Investments.

The trustees are also under a Duty to hold the balance evenly between the lifetenant and the remainderman. He must act impartially and not favour one at theexpense of the other. This applies to the selection of investments

There is no duty to convert and apportion due to the fact that the leading authorityon this duty, namely Howe v Lord Dartmouth requires the following elements:

Where residuary personalty is settled by will in favour of persons who are toenjoy it in succession, the trustees are under a duty to convert (that is to sell)such part of it as is of a wasting or reversionary nature or consists of unauthorized securities and to invest the proceeds in authorized securities,unless there is a contrary provision in the will.

Where there is a duty to convert property under the rule in Howe v LordDartmouth , there is a duty to apportion the income of the property pendingsale , unless the will shows an intention that the life tenant is to enjoy theincome until sale.

The rule of apportionment therefore is that the life tenant is to receive anincome which represents the current yield on authorized investments whichhas been fixed since 1924 at 4% value of the property . The Trustees shouldtherefore request directions from the court as to what is the appropriateapportionment to pay the life tenant.

Whether or not the trustees will be able to set off the costs of the transaction


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The beneficiaries are entitled to claim any profit arising from a breach of trust asaccruing to the trust fund. General rule is that when a trustee makes unauthorizedinvestments and some make a profit and some make a lost that the trustees cannotset off the profits against the losses. They will be liable for the losses and thebeneficiaries may claim the profits.

However if the profits and losses result from the same transaction or the samepolicy decision then in accordance with the case of Bartlett v Barclays Bank Trusts Co Ltd. they will be able to set off the losses with the profits .

Whether or not they were acting in good faith and acted reasonably and should berelieved from liability?

Whether or not Clives retiring was such that it would help to facilitate the breachand whether or not he foresaw the breach occurring. The principle authority on thisissue is the case of Head v Gould.

Whether or not the retiring trustee will be held liable forthe breaches committed after retirement?

The general rule is the fact that trustees will only be held liable for the breaches of trust that they actually committed (or were committed) during their tenure.Whether or not the retiring trustee will be held liable for the breaches committedafter he retired from the trust. Hence Clive would have had to have contemplatedthat a breach of trust would occur and he retired with the intention of facilitating it.

He saw or ought reasonably to have foreseen that the breach would in fact takeplace. He is failing in his duty to prevent a breach of trust occurring.

Restitution of the property will be what the beneficiaries will be entitled to asopposed to an action in damages.

Tracing Trust Property Requires

1. An initial Fiduciary Relationship

2. Property in traceable form and

3. No Equitable Result

Contribution and indemnity


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Where two or more trustees are liable for a breach of trust as in the currentscenario, their liability is joint and several and any or all of them may be sued bythe beneficiaries.

The equitable rule is that all trustees liable for loss must bear that loss equally and

if one has been called upon to pay more than his share he can claim a contributionfrom the others.

A trustee may be ordered by the court to indemnify the others in the instance:Where x was fraudulent or entirely to blame for the breach or where he obtained allthe benefit from the breach Bahin v Hughes

Acquiescing

A beneficiary will be precluded from bringing an action if he participated in,affirmed, acquiesced in or released the trustees from a breach of trust, provided hewas sui juris and had full knowledge of all the material facts.

Limitations of Action

Actions against trustees for breach of trust become statute barred after expirationof the period specified in the particular statute limitation

Relief from Liability

S 61 TA 1925 Matter of Discretion of the Court

If it appears to the court that a trustee is or may be personally liable for anybreach of trust, but has acted honestly and reasonably and ought fairly to beexcused for the breach of trust and for omitting to obtain the directions of the courtin the matter in which he committed such breach, then the court may relieve himeither wholly or partly from personal liability for the same.

1. Trustee must have Acted Honestly (Means in good faith)

2. Must have acted reasonably and (according to the standard of the prudentman of business managing his own affairs, Speight v Gaunt Standard)

3. Ought fairly to be excused for the breach

Wilful Default will disentitle a trustee from receiving relief. The trustee mustnot stand by passively and allow the trust property to go to waste


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Powers of Trustees

Power of Sale

Power of Maintenance

Power of Advancement

Duties

To Give Account and Disclose Information

Duty to Invest

Duty not to Profit from the Trust

Breach of Trust

Bahin v Hughes

Head v Gould

Probability of Essays

1. Variation of Trusts

2. Give Account and Information

a. Re Londonderrys Settlement [1964] All ER 855

b. Schmidt v Rosewood Trust Ltd. [2003] 2 WLR 1442

Probability of Problems

1. Duty to Invest

a. Speight v Gaunt

b. Cowan v Scargill

2. Duty Not to Profit from the Trust

a. Bray v Ford

b. Keech v Sandford


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c. Holder v holder Rule against Self Dealing

d. Re Macadam Directors Fees

e. Persad v Persad

f. Boardman v Phipps

Whether or not there is a duty of trustees to give information to beneficiaries?

General Rule

Exceptions

Legal Authority

What is the nature of the documents

The first is that, as the defendant beneficiary admits, trustees exercising adiscretionary power are not bound to disclose to their beneficiaries the reasonsactuating them in coming to a decision.

This is a long standing principle and rests largely I think on the view that nobody could be called upon to accept a trusteeship involving the exercise of a discretionunless, in the absence of bad faith, he were not liable to have his motives or hisreasons called in question either by the beneficiaries or by the Court.

To this there is added a rider, namely, that if trustees do give reasons, theirsoundness can be considered by the Court.

All these documents, it is argued, came into existence for the purposes of the trustand are in the possession of the trustees as such and are, therefore, trustdocuments, the property of the beneficiaries, and as such open to them to inspect.

"(a) Minutes of the trustees' meetings; (b) Original appointments made by thetrustees; (c) Correspondence between the trustees and appointors andbeneficiaries; (d) Trust accounts; (e) Correspondence between my father and my

firm on the one hand and the other trustees and appointors on the other".

Documents

ATE Exam Preparation - Administration of Trusts and Estates