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INTRODUCTION

Trust corporations and professional trustees that take on the role of trustees as part of carrying on a business invariably wish to ensure they can:

» charge and recover their fees and expenses; and » minimise their exposure to claims made against

them for breach of trust.

Trustees’ fees and expenses are frequently a source of disputes with beneficiaries, the settlor or successor trustees.Trustees’ commercial interests in administering the trust efficiently and profitably can, on occasion, conflict with their duty to administer the trust in the best interests of the beneficiaries. In order to manage this conflict it is suggested that trustees should:

» ensure that the trust instrument authorises the payment of the trustees’ fees and expenses from the trust fund or that the settlor or some other person (with sufficient resources) has agreed to pay and, if necessary, provide security for such fees and expenses;

» ensure the level and type of fees charged are not precluded by the terms of the trust instrument and are clearly set out in the trustees’ fee schedule;

» ensure their fee schedule has been disclosed to the settlor, protector, enforcer, primary beneficiaries, unit holders or such persons to whom the trustees have a duty to account1;

» provide sufficient notice (to the persons to whom the trustees have a duty to account) for any changes to the fee schedule; and

» clearly set out the level of fees and expenses charged to the persons to whom the trustees are required to account to.

In most common law jurisdictions, these requirements are reflected in the general law,2 applicable trust and regulatory statutes and codes of practice.

Trustees’ terms of engagement often contain provisions which may purport to set out the services the trustees have agreed to provide, indemnify the trustees, release trustees from liability and limit the amount of the damages that the trustees may be required to pay if they become personally liable for any loss. This Guide considers the extent whether trustees’ terms of engagement can achieve such objectives. This Guide also considers issues for trustees to consider when negotiating terms of exoneration and indemnification with their (unrelated) delegates.

FOR LOVE NOR MONEY?...A GUIDE TO TRUSTEE FEES, EXPENSES AND SERVICE AGREEMENTS

PART 1- THE GENERAL LAW, THE TRUST INSTRUMENT & STATUTEPART 2 – TRUSTEES’ TERMS OF ENGAGEMENT & FEE SCHEDULESPART 3 – RECORDING TIME & INVOICING PART 4 – ISSUES ARISING ON RETIREMENT, REMOVAL OF TRUSTEE OR TRUST TERMINATION

[1] The trustees’ duty to account rarely requires trustees of a discretionary trust to negotiate fees with and, at its own initiative, disclose invoices and accounts to, all beneficiaries. In addition to the above suggested disclosure requirements, trustees are required to disclose invoices and accounts to beneficiaries upon request. Consider also the impact of king pin provisions on trustee accountability i.e. where powers have been reserved or granted by the settlor. This is discussed later in the Guide.

[2] The common law and equity.

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The purpose of this Guide is to assist trustees in common law jurisdictions to manage the conflict between charging fees and expenses and minimising their personal liability on the one hand, and fulfilling trustee duties, on the other. The Guide is not specific to any particular jurisdiction but includes, by way of examples, reference to various statutes, regulatory requirements and cases from several common law jurisdictions.

PART 1- THE GENERAL LAW, THE TRUST INSTRUMENT & STATUTE

When may a trustee charge fees and recover expenses?

The general law position is that trustees:

» may not profit (including by way of fees or commissions) from their position unless they are authorised to do so.3; and

» are entitled to recover expenses they have properly incurred in connection with their administration of the trust.4

The trustees may be authorised to charge fees by:

» the trust instrument (by a charging clause); » the sole beneficiary (if the trust is a bare trust such

as a nominee arrangement) or all the beneficiaries who are together absolutely entitled to the trust property5;

» statutes which expressly provide that particular types of trustees may be entitled to charge fees; or

» the court.6

The Trust Instrument

Often trust instruments limit the ability of trustees to charge fees to the following persons:

» trust corporations (which, in a certain number of jurisdictions, refer to trust companies licensed in that jurisdiction and may not extend to trust companies licensed in other jurisdictions or private trust companies7); or

» lawyers, accountants and certain other professionals.

In practice, trust instruments rarely include provisions authorising non-professional individuals to charge trustee fees.

Statute

Despite the absence of an effective charging clause in a trust instrument, certain jurisdictions’ trust legislation, (such as England and Wales, Bermuda, Isle of Man and Jersey for example) include provisions authorising certain types of trustees to charge reasonable fees

[3] Bray v Ford [1896] A.C. 44.

[4] See Carver v Duncan [1985] A.C. 1082.

[5] In an application of the principle in Saunders v Vautier (1841) 10 L.J. 354. Note that certain jurisdictions’ statutes have expressly restricted the application of Saunders v Vautier in relation to amendment of the trust instrument. See, for example, section 10 of the International Trusts Act 1984 in Cook Islands and sections 86 and 87 of the Trustee Act Chapter 176 in Bahamas.

[6] For example, section 32 of Bermuda’s Trustee Act 1975 provides the court discretion to authorise any person to charge remuneration for the services as trustee. Article 51(2)(a)(ii) Trusts (Jersey) Law 1984 (TJL) provides that the court may in its discretion make an order concerning the remuneration of a trustee. section 44 of the Barbados Trustee Act 1985 Cap. 250 and section 50 of the Trustee Act Chapter 176 in Bahamas respectively provide inter alia the Court the power to authorise remuneration of any trustee where the circumstances appear to justify it. Section 43 of the British Virgin Islands Trustee Act Chapter 303 provides that where the court appoints a corporation to be a trustee it may authorise the corporation to charge such remuneration as the court considers fit.

[7] See, for example, section 1 of Bermuda’s Trustee Act 1975 which defines of trust corporation as a trustee holding an unlimited trust license issued under the Trusts (Regulation of Trust Business) Act 2001, but does not include private trust companies or trustees incorporated in any jurisdiction or trust corporations licensed in jurisdictions other than Bermuda. A similar approach is taken in a number of the jurisdictions

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provided the trust instrument does not express a contrary intention.However, those statutory provisions are often limited to:

» trust corporations8 and professional trustees9; or » public trustees10.

It is important to consider the relevant definition of “trust corporations” or “professional trustees”, for the purposes of such provisions to ensure that a trustee may take advantage of the particular statutory provision to charge and deduct its fees from the trust fund.

A number of offshore jurisdictions do not even permit trust corporations to charge fees without permission from the court unless the trust instrument authorises such charges.

Perhaps surprisingly, few if any statutes in common law jurisdictions (such as Barbados, Bahamas and Cayman Islands) authorise lawyers, accountants or other professionals to charge and deduct their fees where the trust instrument is silent regarding the trustees’ remuneration.

It is suggested that, under the general law, a court, under its inherent equitable jurisdiction over the administration of trusts, also has a discretionary power to authorise remuneration of any trustee

(including a de-facto trustee).11 However, an express statutory provision giving the court the power to authorise trustees’ remuneration provides trustees which fall within such a provision a clearer basis for their application to court for approval of their fees.

On occasion, a trust corporation may act as trustee of trusts governed by the laws of a jurisdiction in which the trust corporation is neither incorporated nor carries on business. If there is no charging clause in the trust instrument, the trust corporation may wish to seek advice as to whether the governing law of the trust authorises the trust corporation to charge fees in those circumstances. It may be (as discussed) that the applicable statute only authorises trust companies licensed in the jurisdiction of the governing law of the trust to charge remuneration. Consideration may need to be given as to whether the trust instrument may be amended to authorise trust companies to charge fees irrespective of their place of incorporation or trustee license registration.

Can de-facto trustees charge and recover fees and expenses?

Trustees that have not been properly appointed (for example, in accordance with the formalities set out in the trust instrument) are known as “trustees de son tort” or “de-facto trustees”.

[8] See section 22A of Bermuda’s Trustee Act 1975 which provides that a trust corporation may charge reasonable remuneration for its services as trustee subject to a contrary intention in the terms of the trust or any order of the court. Notably, the statutory power does not appear to extend to professionals such as lawyers, accountants and so on. See also section 29(1) Trustee Act 2000 England and Wales which provides that a trust corporation (which is not trustee of a charitable trust) may charge reasonable remuneration for its services. Section 29(2) Trustee Act 2000 provides that a trustee acting in a professional capacity may charge reasonable remuneration provided such trustee is not the sole trustee and all the other trustees agree in writing.

[9] Article 26(1A) TJL provides that where the terms of a trust are silent regarding a trustee’s remuneration, a professional trustee shall be entitled to reasonable remuneration for services that the professional trustee provides after the paragraph came into force during 2012. Article 1 of TJL defines professional trustee as a trustee registered under Article 9 of the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission to carry on trust company business as defined therein.

[10] See section 35(4) of the Trusts (Guernsey) Law 2007 (TGL) which permits public trustees to pay its fees from trust property provided it has been appointed to act as trustee under the Public Trustee (Bailiwick of Guernsey) Law 2002. However, TGL does not presently appear to include provisions authorizing trust corporations or professional trustees to charge and deduct remuneration from the trust fund in the absence of (in accordance with section 35(1) of TGL) authorization from the trust instrument, all of the beneficiaries in writing or an order of the Guernsey Royal Court.

[11] See In the matter of the Representation of BB, A & C- In the matter of the D Retirement Benefit Trust [2011] JRC 672.

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Statutes and trust instruments often do not specifically authorise de-facto trustees to charge or deduct fees from the trust fund. The general law position is that de-facto trustees are not authorised to recover from the trust fund fees charged for administering the trust unless such fees are approved by the formally appointed trustees, all beneficiaries together entitled to the trust property, or the court.12

The general law position is that de-facto trustees are entitled to have their reasonable expenses reimbursed from the trust fund provided they have acted in good faith13 and would have been entitled to be reimbursed for such expenses had they been formally appointed.14

Formally appointed trustees are required to exercise reasonable care when determining whether to approve de-facto trustees’ fees, expenses and actions. It is suggested, in these circumstances, the formally appointed trustees should determine whether the:

» work performed by the de-facto trustees was within the powers of formally appointed trustees under the trust instrument;

» work performed by the de-facto trustees was in the interests of the beneficiaries or the proper administration of the trust; and

» amount of the fees charged and expenses incurred by the de facto trustees were reasonable in the circumstances.

Can trustees charging fees give rise to licensing issues for PTCs?

While definitions may change slightly from jurisdiction to jurisdiction, in broad terms, a private trust company (PTC) is a company:

» established for the specific purpose of acting as trustee of a particular trust or group of trusts which are established in connection with the same person, family or entity; and

» which does not market its services to the public.

A number of jurisdictions require trustees who carry on trust business within the particular jurisdiction to be licensed. Many such jurisdictions also grant PTCs exemptions from the licensing requirements. It is important trustees ensure that they qualify for a PTC licensing exemption if they wish to take advantage of it. In a number of jurisdictions, the trustee may not satisfy, or be less likely to satisfy, the PTC exemption if it (directly or indirectly) charges remuneration for acting as trustee. A detailed exploration of licensing requirements of trustees, exemptions and the impact of trustees charging remuneration upon the availability of such exemptions, is beyond the scope of this Guide. However, it is important to bear in mind the jurisdiction’s trustee licensing requirements when determining how any remuneration of the PTC, its directors or administrators is structured in order to ensure that the PTC is not required to be licensed.

Can payment of remuneration of PTCs or PTCs’ directors have implications for FATCA reporting?

The United States (U.S) Foreign Account Tax Compliance Act15 (FATCA) has been implemented in most jurisdictions by intergovernmental agreements (IGAs) such jurisdictions have respectively entered into with the U.S government. The IGAs have generally been followed by enabling legislation to facilitate foreign (i.e. non U.S) financial institutions in the jurisdiction to comply, clarify certain aspects of local FATCA reporting and introduce penalties locally for a failure to report.

[12] Ibid.

[13] Travis v Illingworth [1868] W.N 206.

[14] See Soar v Ashwell [1893] 2 Q.B. 390 and Phipps v Boardman [1965] Ch. 992.

[15] Chapter 4, Subtitle A (sections 1471 through 1474) United States Internal Revenue Code of 1986.

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Whether or not a trustee is required to register and report to its government (under a Model 1 IGA) or report directly to the U.S Internal Revenue Service (under a Model 2 IGA) primarily depends on whether the trustee is a:

» foreign financial institution (FFI), which is required to register and report unless otherwise exempted; or

» non-financial foreign entity (NFFE), which is generally not required to register and is not required to report unless it has decided to register as a direct reporting NFFE.16

A company that carries on business as a trustee would generally fall within the applicable IGA definition of an FFI. However, classification of PTCs may not be as straightforward, particularly as a PTC may not carry on business as a trustee and may not be part of a wider group of FFIs. The fact of trustees charging for their services is often regarded as an indicator of carrying on a trust business. In addition, the classification of a PTC for the purposes of FATCA (and consequently the classification of the trusts of which it is trustee) may depend in part on whether the PTC is deemed to be “managed by” (as opposed to simply “administered by”) an FFI and also satisfies a “financial assets test” (otherwise known as a gross income test) respectively within the meaning of FATCA, the applicable IGA and enabling legislation.17

It has been suggested that remuneration of directors of the PTC may also impact on whether the PTC is managed by an FFI.18 This may be an issue if the PTC has

corporate directors which themselves charge fees or are made available by an FFI as part of the FFI’s service arrangement. However, subject to the applicable IGA and enabling legislation, individuals generally do not fall within the definition of an “entity” or an “FFI”.19 As a consequence entities may not be managed by FFIs simply by reason of the fact that they are managed by individuals. Further, it is suggested, the remuneration of PTC directors who are individuals may not impact upon a PTC’s classification provided those individuals are not made available pursuant to an agreement with an FFI. The PTC may also need to carefully consider whether it is managed by a PTC for the purposes of FATCA in circumstances where one or more of its individual directors, but not all, are provided by an FFI pursuant to a service agreement in return for fees.

From a strategic point of view, a PTC which is not an FFI (if permitted under the applicable enabling legislation) may nevertheless wish to register so that the trusts (of which the PTC is the trustee) may qualify as “trustee documented trusts”. This would enable the PTC to report on behalf of the trusts without having to arrange a separate sponsor agreement with an FFI. If a trust is not a trustee documented trust, it may be required (as a “non financial foreign enity”) to report a greater amount of information to discretionary fund manager FFIs and other FFIs or withholding agents which may manage the trust’s assets. A more detailed analysis of FATCA, entity classification and reporting is beyond the scope of this Guide. However, the remuneration of PTC directors (directly or indirectly) and PTCs should be borne in mind for the purpose of categorising PTCs and the trusts of which they are trustees.

[16] But is still generally required to certify to withholding agents that is has no U.S accountholders that are U.S persons or to provide the name, tax identification number on its substantial U.S owners to the withholding agent.

[17] See paragraph 2.28 of the The Implementation of the International Tax Compliance (United States of America) Regulations 2014, HM Revenue and Customs, 28 August 2014.

[18] Peter A. Cotorceanu, FATCA and Offshore Trusts: A second bight of the elephant, 23 October 2015, http://www.taxanalysts.com/www/features.nsf/Features/DA7E5C0B6EF087B385257C0D0046A8F8?OpenDocument, web-site visited on 30 May 2015.

[19] See paragraph 2.28 of the The Implementation of the International Tax Compliance (United States of America) Regulations 2014, Op, Cit.

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Who is responsible for paying the trustees’ fees and expenses?

The trust instrument may specify that the trustees’ fees and expenses are payable from the trust fund. However, on occasions, trusts (often commercial trusts) provide that the trustees’ fees and expenses shall be paid (for example) by the company who arranged for the trust to be established and not out of the trust fund. The inclusion of such a provision in the trust instrument would generally override any statutory entitlement of the trustee to charge and recover fees and expenses, or general law entitlement to recover expenses, from the trust fund.20 In such circumstances the trustee may be precluded from recovering its fees and expenses from the trust fund subject to the court being prepared to authorise it to do so.

What is meant by the expression “properly charged or incurred”?

Assuming that, pursuant to the terms of the particular trust, the trustees are authorised to deduct their fees and expenses from the trust fund, trustees are generally only entitled to recover fees and expenses properly charged or incurred in the administration of the trust.21It is submitted that a fee or expense was properly charged or incurred by a trustee in the administration of a trust if the work performed or expense incurred and the amount of such fee or expense was:

» authorised (expressly or implicitly) by the terms of the trust;

» reasonably required to facilitate the administration of the trust in the interests of the beneficiaries or to further the trust’s purposes; and

» reasonable in amount given the nature and extent of the work performed.22

Trustees are generally under a duty to act honestly and in good faith and exercise reasonable care in managing their conflicts of interests when determining whether their fees and expenses were properly charged or incurred.

It is not uncommon for trustees to perform work or incur expenses which may be construed as being primarily for the purpose of defending or furthering the trustees’ own personal interests. Examples include the time trustees may spend and the expenses they may incur defending the level of their fees or responding to breach of trust claims or obtaining advice to remedy issues arising from their breach of trust. Trustees are not generally entitled to charge such fees or to be reimbursed for such expenses from the trust fund.

However, other instances are less clear. For example, the outgoing trustees’ negotiation of the terms of the trustees’ indemnification on retirement may be construed as being primarily to protect the outgoing trustees’ personal interests. It is submitted that it is in the interests of the efficient administration of the trust that the outgoing trustees’ exoneration and indemnification be clarified by an instrument of retirement and indemnity to the extent the trust instrument or the law do not already clarify the position of the outgoing trustees in this regard. Professional trustees or trust corporations may be less likely to accept trusteeship if they were not entitled to charge reasonable fees in connection with negotiating the terms of their retirement. Negotiating the terms of trustees’ indemnification on retirement (or removal) is an inevitable part of trust administration when transferring trusteeship. Accordingly, it is suggested the outgoing and incoming trustees’ reasonable fees and expenses are properly charged or incurred in these circumstances to the extent they do not relate to the

[20] See Lewin 17th edition at 21-03.

[21] Re Grimthorpe [1958] Ch. 615.

[22] Note section 29(3) Trustee Act 2000 England and Wales provides that “reasonable remuneration” means, in relation to the provision of services by a trustee, such remuneration as is reasonable in the circumstances for the provision of those services to or on behalf of that trust by that trustee and for the purposes of subsection (1) includes, in relation to the provision of services by a trustee who is an authorised institution under the Banking Act 1987 and provides the services in that capacity, the institution’s reasonable charges for the provision of such services.

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applicable trustees’ breach of trust. As an aside, one may contend that the costs of, and problems associated with, negotiating terms of trustees’ retirement is a reason why utilising PTCs may be attractive. The composition of the board of the PTC can be changed without changing the trustee and directors of PTCs are rarely exposed to genuine personal claims for which they require indemnification23.

It is further suggested that, subject to the terms of the trust or subsequent to an agreement to the contrary, former trustees should be permitted to charge and recover reasonable fees and expenses in connection with:

» negotiating a chain indemnity with a successor trustee; or

» responding to requests or disclosure orders for information or documents related to the trust,

which may be charged or incurred, even many years after the former trustees have ceased as trustees of the particular trust.

An outgoing trustee may be wise to clarify the position by ensuring the instrument of retirement or removal expressly provides that it may charge fees in such circumstances.

Trustees may consider making an application to the court (to exercise its supervisory jurisdiction over the administration of trusts) to inter alia request orders or declarations that the trustees’ proposed course of conduct:

» is authorised by the terms of the trust24; » be approved by the court as a proper exercise of the

trustees’ discretion (for example, in circumstances where the trustees’ proposed exercise of their discretion would constitute a momentous decision in the circumstances of the trust)25; or

» relates to a proposed decision by trustees to commence or defend proceedings in their capacity as trustees of the trust26,

and for the trustees’ fees and expenses in connection with the course of conduct to be paid from the trust fund. When making the application, the trustees are generally required to disclose all relevant facts and documents to the court.27

To what extent should trustees’ fees and expenses be deducted from trust income or capital?

The interests of beneficiaries with a fixed entitlement to trust income may at times conflict with those beneficiaries who have an interest in the trust capital. For example, if expenses are paid out of (i.e. charged to and deducted from) trust income rather than its capital, the beneficiaries entitled to the income may receive a lower distribution than if the expense had been paid out of trust capital. This issue typically arises in trusts which contain a life interest28. There is rarely such a conflict in discretionary trusts or trusts which provide the trustee or other power-holder with a discretionary power of appointment. However, on occasion, beneficiaries of discretionary trusts may prefer that an expense be paid from trust income rather than trust capital if doing so reduces the incidence of taxation on the trust fund or the beneficiaries who anticipate

[23] See HR v JAPT [1997] pens. L.R. 99 but note Bayley v SG Associates [2014] EWHC 782 (CH)

[24] See Public Trustee v Cooper [2001] WTLR 901.

[25] Ibid.

[26] Re Beddoe [1893] 1 Ch 547.

[27] In the matter of [AAA] Children’s Trust. Guernsey Royal Court. 8 January 2014.

[28] Life interests may also be referred to as interests in possession.

[29] [1985] 1 AC 1082.

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receiving distributions.In Carver v Duncan29 the United Kingdom (UK) Court of Appeal considered two issues consisting of the:

» trust law question of the incidence of trust expenditure as between income and capital; and

» UK tax law question of the deductibility of expenses for the purpose of calculating income chargeable to what are now the special trust rates under UK tax law.

This Guide only considers the trust law question. Advice should be considered in the particular jurisdiction in which tax may be payable. It may be, for example, that expenses considered chargeable or deductible against income for the purposes of trust law must be only deducted against capital for the purposes of taxation in the applicable jurisdiction.30Carver v Duncan provides that the general rule in trust law31 is that, subject to the terms of the trust:

» income must bear all ordinary outgoings of a recurrent nature, such as rates and taxes, and interest on charges and encumbrances; and

» capital must bear all costs, charges and expenses incurred for the benefit of the whole estate.

The Court of Appeal of England and Wales in HMRC v Trustees of the Peter Clay Discretionary Trust32 (Clay) provided clarification on the application of the principles in Carver v Duncan and the meaning of the phrase “for the benefit of the whole estate”. Clay’s case considered that there are three classes of expenses, being those incurred for the benefit of:

» beneficiaries entitled to the trust capital;

» beneficiaries entitled to the trust income; or » the whole estate, i.e. both capital and income

beneficiaries.

The Court of Appeal in Clay confirmed that, for trust law purposes:

» expenses incurred for the benefit of both the income and capital beneficiaries must be charged against capital;33

» it is not possible to make an apportionment of expenses between income and capital by, for example, applying a general principle of fairness;

» it is only those expenses incurred exclusively for the benefit of the income beneficiaries that may be charged against income;

» where trustee or professional fees are charged on a time-spent basis, and the proportion of fees relating to income matters can be identified, such fees may be deductible against income; and

» where fees are fixed, an apportionment can be made between income and capital. This should be based on reasonable evidence as to the amount of time spent on matters entirely relating to income. Similarly, when dealing with other expenses, such as bank charges, it is necessary to identify the extent to which these relate exclusively to dealing with income.

The Court of Appeal in Clay further indicated that trustees should consider:

» the basis on which they might justify a deduction of expenses from income;

» the particular circumstances of the trust in question and make an apportionment according to the nature

[30] See The Hon Sir Anthony Mason AC KBE GBM, Discretionary trusts and their infirmities in Trust and Trustees, Vol. 20, No. 10, December 2014, p1051.

[31] At least in England and Wales. It is likely to be applied in other Commonwealth jurisdictions, dependencies and territories subject to any overriding legislation which may apply.

[32] 2008 EWCA Civ 1441.

[33] See also In re Bennett (1896) 1 Ch 778 which affirms the trust principle that expenditure incurred for the benefit of the whole estate is a capital expense.

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of the fee and the proportion of work relating entirely to income matters; and

» keeping a record of the time spent on income matters charging substantial fixed fees in order to obtain evidence to justify the deduction.

The records outlined above may also prove useful for the purposes of taxation of the trustees or the beneficiaries. The fact that an expense is recurrent does not necessarily mean it is of an income nature. For example, annual premiums paid by the trustees in Carver v Duncan were a recurrent charge but not an ordinary outgoing and were therefore chargeable to the trust capital.

Carver v Duncan also determined that annual fees paid to a firm of investment advisers to monitor and provide advice regarding changes in investments comprised in the trust fund also were capital expenses. Such fees are incurred for the benefit of the estate as a whole because the advice of the investment advisers will affect the future value of the capital of the trust fund and the future level of income arising from that capital.33 This confirms that, even if income is affected, the item remains chargeable to capital because it is for the benefit of both income and capital beneficiaries. Other examples where expenses have been determined to be deductible from capital include fees charged and costs incurred such as:

» obtaining legal advice34; » appointing new trustees35;

» obtaining the directions of court and administrative court proceedings36; and

» unrecovered costs of proceedings against third parties where the court authorises such expenses to be paid from the trust fund.37

In summary, the following rules apply under the general trust law (but not necessarily the applicable tax law) where the trust instrument is silent on whether expenses should be deducted from trust income or capital:

» There is nothing in the nature of a trust expense (e.g. investment management, accountancy, etc.) that, of itself, determines whether it must be allocated against capital or income - the matter is determined by considering the nature of the beneficiaries’ interests for whose benefit that expense is incurred.

» If an expense is incurred for capital beneficiaries or for the benefit of capital and income beneficiaries, it must be allocated to capital.

» If an expense is incurred, or part of an expense can be identified as being incurred, exclusively for income beneficiaries, it should be allocated against income.

To what extent are exoneration and indemnification provisions in the trust instrument enforceable?

The general law position is that the trustee shall be indemnified for its liabilities properly incurred in connection with its administration of the trust.38

[33] HMRC v Trustees of the Peter Clay Discretionary Trust, Op. Cit, p26.

[34] Poole v Pass (1839) 1 Beav. 600 unless perhaps it can be shown that the advice related exclusively to issues relating to beneficiaries entitled to income. See generally, Gothard C, Fawcett L.J and Jennings S, Deductibility of trust expenses, STEP Journal, April 2009, http://www.step.org/deductibility-trust-expenses.

[35] See Lewin, 17th edition at 25-22.

[36] Ibid.

[37] Ibid.

[38] Re Grimthorpe [1958] Ch. 615.

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A trustee may not be released39 or indemnified out of the trust fund for its breach of trust unless the:

» trust instrument contains effective provisions which release or indemnify the trustee in respect of the breach and the governing law does not prohibit the trustees from being released or indemnified for such breach; or

» applicable trust legislation provides the court the power to relieve a trustee from liability if the court considers that the trustee acted honestly and in good faith and ought fairly in the circumstances be released from liability or indemnified out of the trust fund.40

Courts may take into account the nature of the trustee and the terms of the trust instrument when determining the standard of skill and care expected of a trustee when performing its duties. Consequently greater skill and care is expected of a professional trustee or a trust corporation than lay trustees.41It is suggested that the likelihood of provisions for release and indemnity being enforceable by a trustee are improved if, prior to formation of the trust the trustees:

» bring the provisions for release and indemnification of the trustee specifically to the settlor’s attention and have them agreed by the settlor (perhaps by having the settlor sign in the margins beside such provisions)42;

» have the settlor sign a written acknowledgement that he, she or it has had the opportunity to obtain independent legal advice in relation to the trust instrument, including its provisions for release and indemnification of the trustee; and

» in the case of a non-English speaking settlor, have the above acknowledgement and the indemnification and exoneration provisions translated into the settlor’s first language and have the settlor sign the translation.

Practices of this nature are recommended by the Society of Trust and Estate Practitioners43 and will assist the trustee to avoid arguments later that the settlor did not, when forming the trust, specifically approve, or was not sufficiently made aware, of the nature and effect of the provisions for release and indemnification of the trustee.

The general law position is that trust instruments may provide that the trustee shall be released from liability and indemnified out of the trust fund provided it has acted honestly and in good faith.44 Based on this approach, it may be possible, subject to statutory restrictions in the applicable jurisdiction, for a trust instrument to relieve a trustee from liability, or even indemnify a trustee out of the trust fund, for loss arising as a result of its own gross negligence i.e. a serious or flagrant degree of negligence which is serious, unusual and a marked departure from the normal standards of professional trustees.45

[39] i.e. exempted, exonerated or excluded from liability.

[40] See section 61 Trustee Act 1925 England and Wales, section 52 Bermuda’s Trustee Act 1975, Article 45 Trusts (Jersey) Law 1984 and section 55 Trusts (Guernsey) Law 2007.

[41] Bartlett v Barclays Bank Trust Co. Ltd (No.2) [1980] Ch. 515.

[42] See Bogg v Raper [1998/99) I.T.E.L.R. 267.

[43] Guidance Notes: STEP Practice Rule to Trustee Exemption Clauses, http://www.google.co.uk/?gws_rd=ssl#q=should+a+trustee+bring+indemnity+and+exoneration+clauses+to+the+attention+of+the+settlor, site visited on 29 March 2015. See also The Law Commission. Consultation Paper No 171. Trustee Exemption Clauses. A Consultation Paper. 2 December 2002, http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCEQFjAA&url=http%3A%2F%2Flawcommission.justice.gov.uk%2Fdocs%2Fcp171_Trustee_Exemption_Clauses_Consultation.pdf&ei=uvAXVZKjJaSSsQS7x4GwBg&usg=AFQjCNE3OunIb2inFfEKy_Nwjv4jqZ8Mbg, site visited on 29 March 2015.

[44] Armitage v Nurse [1998] Ch. 241

[45] Midland Bank Trustees (Jersey) Ltd. v Federated Pension Services Ltd [1996] P.L.R 179.

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Certain jurisdictions, such as Jersey and Guernsey, legislation provides that nothing in the terms of the trust instrument may release a trustee from liability, or grant a trustee an indemnity out of the trust fund, for breach of trust arising from the trustee’s own fraud, wilful misconduct or gross negligence.46

Jersey and Guernsey have sought to limit trustees’ liability to third parties to the trust property in circumstances where the other party was aware that the trustees were contracting in their trustee, as opposed to personal, capacity.47 Despite such provisions, it is suggested it is generally prudent for trustees to:

» incorporate a limited liability company to transact business, in circumstances where material liabilities are contemplated in relation to a transaction or series of transactions; or

» expressly limit their liability in contracts with third parties as far as possible by including appropriate limited recourse provisions.

A more detailed exploration of these issues is beyond the scope of this Guide.48

Provisions in trust instruments and statutory provisions which release a trustee from liability are strictly construed (particularly when the trustee is a professional trustee or a trust corporation) so that any act or omission not clearly falling within the

terms of such clauses are treated as not relieving or indemnifying the trustee.49 In circumstances where there are inconsistencies between various provisions in the trust instrument for release or indemnity, the courts are likely to resolve the inconsistency in favour of the indemnification or release provision which provides the lesser protection to the trustees.50 It therefore may be preferable, in order to facilitate ease of interpretation, to include all release and indemnity provisions in one or two sections of the trust instrument and specify which provisions are to have priority, rather than to have various (and potentially inconsistent) release and indemnity provisions scattered throughout the trust instrument.

PART 2 – TERMS OF ENGAGEMENT & FEE SCHEDULES

To what extent are provisions for release, limitation of liability and indemnity in service agreements enforceable?

The trustees’ terms of engagement and fee schedules may purport to set out the terms and conditions upon which the trustees agree to provide their services. However, aside from the legal difficulty the trustee may have in seeking to, in effect, enforce a contract with itself51 (albeit in different capacities) a trustee cannot,

[46] See Article 30(10) Trusts (Jersey) Law 1984 and Section 39(7)(a)(b) Trusts (Guernsey) Law 2007.

[47] See Article 32, Trusts (Jersey) Law 1984 and section 42 Trusts (Guernsey) Law 2007 and the Guernsey case of Investec Trust (Guernsey) Limited et al v Glenalla Properties et al (Judgment 28/2014). Note the provisions do not affect any liability a trustee may have for breach of trust.

[48] For more detailed discussion on offshore trustee liability, see V Schrum, Trustee Liability Issues- Offshore, Discussion Paper, 11th Annual International Estate Planning Institute, 12-13 March 2015, http://www.applebyglobal.com/publication-pdf-versions/articles/articles-2015/discussion-paper----trustee-liability-issues---offshore-(v-schrum)-march-2015.pdf

[49] See for example, the approach of the BVI High Court in Appleby Corporate Services (BVI) Ltd. (as trustee of the Clef Trust) v Citco Trustees (BVI) Limited (2014) 17 ITELR 413.

[50] See Bogg v Raper Op. Cit.

[51] Under the common law of contract two party rule, a contract purportedly entered by a person with itself is void even if it is a party to the contract in different capacities eg. in its personal capacity as service provider and in its capacity as trustee on behalf of the trust: FN Ingram v Inland Revenue Commissioner [1997] 4 All ER 395 and Clay v Clay (2002) CLR 410. See also Edelman J, Undertanding the “Self Dealing” Rule in Equity, paper presented to the Society of Trust and Estate Practitioners, 15 May 2013 where the author argues that equity may enforce contracts where the contracting “parties” are the trustee acting in 2 or more capacities. There are statutory exemptions to this rule in certain jurisdictions (most notably, in a trust context, Article 31(2) TJL) but these do not appear to extend to the trustee entering into a service contract with itself in a non-trustee capacity.

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by its terms and conditions, limit the duties which it owes as trustee pursuant to the terms of the particular trust instrument or overriding statutory duties.52

Consequently, it may follow that a trustee cannot place a limit on the level of damages53 which it may be required to pay to compensate the trust fund for its breach of trust unless such limit is properly authorised by the terms of the trust.

However, if the settlor, primary beneficiary or other person is a party to terms of engagement with the trustee, that person may be able to provide the trustee with a contractual release or indemnity in respect of any personal claims which may be made by that person against the trustee and its affiliates.

What other issues should trustees consider in relation to administration or other delegation agreements?

A trustee may delegate certain of its powers to one or more administrators, custodians, investment managers or other delegates subject to the:

» applicable trust legislation authorising it to do so; and

» trust instrument not expressing a contrary intention.54

The trustees may need to negotiate, among other things, the fees, expenses, scope of services, exoneration or indemnification with their delegates.

It is important for the delegation agreement to clearly set out the scope of the services to be provided by the delegate so that the parties are clear regarding the functions that the delegate has agreed to perform and those that remain the responsibility of the trustee.

Subject to the applicable legislation and trust instrument, the trustee may remain liable for any loss caused by the delegate55, particularly if the:

» appointment of the delegate was made without exercising reasonable care (because, for example, the trustee ought to have taken reasonable steps to ensure the delegate had the skills, experience or resources to properly perform the functions delegated); or

» trustee fails to reasonably monitor the delegate to ensure it is performing its duties in accordance with the delegation agreement and the terms of the trust.

Trustees may be wise to ensure, insofar as possible, that the level of exoneration, indemnification and any financial limits on the delegate’s liability in the delegation agreement are appropriate in the circumstances of the particular delegation arrangement. Circumstances may arise where a delegate’s breach of the delegation agreement may cause loss to the trust fund. The beneficiaries or a successor trustee may make a claim against the trustee for it to compensate the trust fund for the loss. Subject to the existence and enforceability of any provisions in the trust instrument that may release the trustee from liability, the trustee may, perhaps as a result of its failure to monitor the delegate, be personally liable for the loss to the trust

[52] It may be difficult to successfully argue that the settlor and original trustee intended that provisions in the trustee’s terms of engagement form part of the terms of the trust unless perhaps the trust was established as part of a wider contractual arrangement and it is clear the settlor intended the terms of the trust to include the trustee’s terms and conditions.

[53] For example, to the amount of fees paid to the trustee within the calendar year in which the loss occurred or some other limit.

[54] For example, section 15A of Bermuda’s Trustee Act 1975 permits a trustee to delegate and sub-delegate certain powers, article 24 of the Trusts (Jersey) Law 1984 permits delegation and sub-delegation of any administrative or dispositive powers by trustees and sections 33 and 34 of the Trusts (Guernsey) Law 2007 permits delegation of certain powers by trustees. See also section 25 Trustee Act 1925 England and Wales, section 31 Trustee Act Cap 176 in Bahamas, sections 27 and 29 Trustee Act Cap 250 Barbados, section 24 and 26 Trustee Act in BVI, section 24 Trustee Act 1961 in Isle of Man, section 29 Trusts Law 2011 Revision in Cayman Islands, section 53 Trustee Act in New South Wales, Australia.

[55] Ibid.

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fund notwithstanding the loss was primarily caused by the delegate. In those circumstances, the trustee would presumably wish to at least seek to recover from the delegate the amount that the trustee is required to compensate the trust fund. However, the trustee may be restricted in its ability to recover from the delegate if, in the delegation agreement, the trustee has agreed more generous provisions for release, indemnity or limitation on the amount of damages which may be payable by the delegate than are provided to the trustee in the trust instrument. In these circumstances in particular, it may be that trustees should, in advance of entering into the delegation agreement, consider securing an indemnity from the settlor, grantor or founder of the trust in order to assist the trustees to manage these risks.

It is prudent for trustees to consider whether the delegates they engage have the financial means to meet any claims in the event of the delegates’ breach of the applicable delegation agreement. Not all jurisdictions require administrators, custodians, investment managers or other service providers to maintain minimum levels of capital or insurance. For example, a settlor may wish to engage an investment manager who carries on business in a jurisdiction different to that of the trustee. It may be that such an investment manager has otherwise earned the trust of the settlor or one or more primary beneficiaries. It may be that the investment manager previously worked at a large investment business and subsequently established or became part of a small independent practice in a jurisdiction which does not require investment advisers to have appropriate professional indemnity insurance.56 In circumstances where the trustee has decided

nevertheless to proceed with such an engagement, it is particularly important for the trustee to:

» ensure that the delegate has sufficient insurance or capital in relation to the level of risk associated with the business being delegated;

» have appropriate and tested systems in place to monitor the performance of the delegate and, insofar as possible, detect fraud and to ensure such systems are properly implemented and reviewed at reasonable intervals;

» consider whether it is appropriate to amend the trust instrument to provide the settlor the power to appoint investment managers and have the settlor make the appointment;

» ensure that it is, if required, able to take action to promptly terminate the services of the delegate and minimise loss to the trust fund as a result of the delegate’s conduct;

» ensure that the trust instrument has appropriate and effective provisions to release and indemnify the trustee insofar as possible;

» consider obtaining an appropriate and effective indemnity from the settlor57;

» otherwise ensure that it is appropriate for the trustee to exercise its discretion to appoint the delegate or to be directed by the settlor or other person to make or continue the engagement of the delegate; or

» consider appointing a PTC to act as a trustee in place of an independent trustee service provider with the intention that the PCT appoint the investment manager.58

This Guide focuses on the issue of fees, expenses, exoneration and indemnification in service agreements. Other issues such as management of conflicts of

[56] As was the case in Appleby Corporate Services (BVI) Limited (as trustee of the Clef Trust) v Citco Trustees (BVI) Limited (2014) 17 ITELR where the trustee engaged South American investment managers and custodians who apparently had little or no insurance to cover the losses caused to the trust fund over a number of years by speculative trading by the investment manager contrary to the strategy set by the trust’s investment policy.

[57] A wide release and indemnity, which also include specific contemplation of the circumstances which may lead to a claim against the trustee, obtained by the trustee from the indemnifier at the time of the appointment of the investment manager may be preferable to a general indemnity obtained from the settlor when the trust was established many years before.

[58] Albeit a retiring trustee may be liable if it retires knowing that its successor intends to take a particular course of action which constitutes a breach of trust.

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interests and appropriate steps to manage the trustees’ obligations to keep information regarding the trust, its settlors, beneficiaries and power-holders confidential are beyond the scope of this Guide.

Should trustees set out their fee levels in the trust instrument?

It is suggested that it is preferable, particularly from the perspective of trustees, not to expressly fix the level of trustees’ remuneration in the trust instrument. Trusts often last for many years and it may be a relatively expensive exercise to complete the formalities to properly amend the trust instrument each time the trustees’ fees are renegotiated. The fixing of trustee remuneration in the trust instrument may have greater merit for special purpose trusts established for a particular commercial transaction. However, trustees may nevertheless be wise to negotiate the inclusion of some flexibility into the charging provision in the trust instrument to provide a mechanism to efficiently vary trustees’ remuneration levels in circumstances where, for example, the scope of work or the duration of the trust increases beyond that which was originally contemplated.

If a trust instrument specifies the trustees’ level of fees, the trustees may not charge and deduct a greater amount from the trust fund without first amending the trust instrument to do so or obtaining the court’s approval.59 Trustees should exercise great care to ensure the amendment to enable the increase to their remuneration would not be an improper exercise of their power. It is suggested that a trustee intending to exercise a power of amendment in this way, should provide reasonable prior notice of its intention to exercise such power to the primary beneficiaries, protector or other persons to whom the trustee is reasonably accountable, setting out the rationale for the amendment and the level of the proposed increase. The new proposed level of remuneration

should be competitive with what other comparable trust businesses are charging for similar work. The trustees may also consider obtaining court approval for the proposed increase in remuneration if there is doubt over the amendment being a proper exercise of the trustees’ power.

What is the fee structure?

Many trustees publish fee schedules which they seek to apply generally throughout their businesses. However, many trusts are bespoke structures and settlors and primary beneficiaries and other persons may negotiate fee arrangements which deviate from the standard fee schedule. Trustees should ensure that they perform due diligence to ensure, insofar as possible that they have a realistic understanding of the level of risk and nature and frequency of transactions in order to provide an appropriate fee estimate or quote.

It is important for trustees to be aware that, when setting a fixed fee or ad valorem fee, the fee level or agreement provides for unforeseen consequences which may result in considerably greater amount of work than anticipated. For example, a trustee may enter a contract, whether to purchase or lease property or to engage a service provider, and a dispute may arise in relation to that contract. A trustee may consequently find itself involved in litigation, whether as a claimant or defendant. Beneficiaries of a trust may become embroiled in a dispute which leads to litigation involving the trustee to, for example, make certain documents available to the beneficiaries or regulatory authorities. Requests for information may be made by government authorities under tax information exchange agreements. Accordingly, it is generally important to clearly define the scope of work covered by the trustee’s fees, providing the ability for the trustee to raise charges for fees outside the scope of the day to day activities anticipated.

[59] See In the Duke of Norfolk’s Settlement Trust, Perth (Earl) and Anor. v Fitzalan-Howard and others [1981] 3 All ER 220 for the general law position regarding the court’s inherent jurisdiction to authorise a higher level of remuneration than the level fixed by the trust instrument, for work completed by the trustee prior to the court application seeking the increase and an increase in the charges fee levels generally after such application.

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Some trust businesses may attend to billing as part of a global periodic billing exercise and it is important for trust administrators to ensure that the fees billed are consistent with those that have been specifically agreed or notified to the relevant contact person for each particular trust. Failure to provide proper notification of fee increases may result in the trustees being required to reimburse the trust fund for increased fees charged which were not properly disclosed.

How should the fee structure be updated?

Trustees should update their fees in accordance with the trust instrument, the trustees’ terms of engagement and fee schedule.

It is suggested that, absent special circumstances, the trustees may not be required to disclose terms of engagement, fee schedules and invoices to the primary beneficiaries, protector or enforcer in circumstances where, for example:

» under the terms of the trust, the settlor or other person is personally responsible for payment of the trustees’ fees and expenses; and

» the trustee does not deduct such fees and expenses from the trust fund.

In circumstances where the trustees’ fees are payable from the trust fund, the level of trustees’ fees and the nature of the fee arrangement is relevant to the protectors and enforcers given the nature of their powers. For example, a protector or enforcer’s powers often include the power to remove or appoint trustees and it may wish to exercise its powers if it considers the trustees’ fees excessive.Trustees should provide a reasonable amount of notice to the persons to whom they are reasonably required to account prior to making change to their fee levels or structure. What is reasonable may depend on the circumstances, including, for example, the period of notice that is required to be given to retire, remove or appoint trustees. The form of notification may also be relevant. For example, it may be questionable whether it is reasonable to, in the terms of engagement (particularly for more bespoke structures), refer the primary beneficiaries of a trust to the trustees’ website for details regarding material changes to the trustees’

fee structure or levels. The abovementioned approach applies equally to changes in particular trustee directors’ or administrators’ hourly charge out rates.

PART 3 – RECORDING TIME & INVOICING

Narratives

Trustees are generally only required to provide settlors and primary beneficiaries a breakdown of narratives for work performed if a trustee is charging fees based on time spent rather than entirely based on a fixed or ad-valorem fee. Time based charges are often vulnerable to attack because one person may take longer than another to perform a task, there may be a dispute regarding the selection of a particular level of employee to perform the work and because settlors, beneficiaries or successor trustees may not appreciate the complexity, risk or volume of the work performed. Trustees’ narratives should clearly and succinctly outline the work performed in a manner which adequately justifies the time spent. For example, it may be appropriate if the narrative identifies any documents reviewed, the number of pages of each document and any complex issues considered when reviewing the document. However, as the narratives may be disclosed to beneficiaries, it is important to describe certain matters in a way which, for example, maintains the confidentiality of the beneficiaries or settlor with respect to which the work relates. This may involve anonymising the identity of the settlor and the beneficiary or describing the work more generally than the trustee may otherwise for work performed in relation to less confidential issues.

Invoicing

It is suggested that, for invoices involving time charges, the narratives are reviewed and disclosed to the settlor, primary beneficiaries and other persons60 to whom the trustee is required to account for its fees. It is suggested that, by providing the narratives ultimately:

» the trustees may earn the trust of the persons who receive the narratives;

» any issues regarding the narratives are raised at

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a time when the employees of the trustee who performed the work are more likely to be available to provide input to respond to the issues raised;

» the disclosure of the narratives upon issue of the invoice will enable the trustee to resist any suggestions later that it has not been sufficiently transparent regarding the charging of its fees; and

» trust administrators may be more likely to learn from feedback and improve the content of their narratives.

It is suggested that trustees’ invoices be issued and delivered to the settlor, protector or enforcer and primary beneficiaries on a regular periodic basis. Failure to invoice in a prompt manner can lead to confusion as, for example, the settlor may die in the interim, the primary beneficiaries may change and the nature and complexity of the work performed by the trustee may be overlooked.

Can a trustee refuse to provide services until its invoices are paid?

A trustee cannot refuse to fulfil its duties as trustee because it has not been paid its fees.61 It is therefore important for the trustee to ensure that it has control over sufficient liquid funds to enable it to discharge its fees and expenses from time to time.

PART 4 - ISSUES ARISING ON RETIREMENT, REMOVAL OR TERMINATION

The general law position is that trustees are entitled to be indemnified from the trust fund for liabilities properly incurred (and it is suggested, entitled to

security for their reasonable fees) in administering the trust and that such indemnity and entitlement continues after the trustee has retired, or removed or the trust has been terminated.62 Certain jurisdictions have included in their trust statutes express provisions for trustees to be indemnified (and to retain reasonable security to discharge their fees and expenses) in connection with administering the trust, distributing the trust fund or transferring the trust fund to another trustee or beneficiary.63 As outlined above, the trust instrument may expressly preclude trustees from being paid their fees or being reimbursed for their expenses out of the trust fund.

An outgoing trustee (or a trustee of a trust that is terminating) is often placed under considerable pressure to transfer the trust fund to the incoming trustee, trustees of another trust or beneficiaries (as the case may be) as soon as possible. The incoming trustee and other persons applying such pressure may not have great regard for the outgoing trustee’s desire to recover its reasonable fees and expenses.

In these circumstances, it is suggested the outgoing trustee ascertain whether its fees and expenses are payable from the trust fund or another source and to ensure that the:

» funds available or source of the funds are sufficient or able to discharge the fees and expenses; or, more preferably,

» trustee is placed in possession of liquid funds to enable it to discharge its fees and expenses.

The relevant parties may consider putting into place an escrow arrangement64 to ensure that:

[60] See note 54 above.

[61] See In the matter of the Carafe Trust- Guardian Trust Company v Louveaux and ors [2005] JLR 159 where the Court was critical of an outgoing trustee who threatened not to perform any further work in respect of the trust until its fees were paid.

[62] Southern Wine Corp. Pty Ltd –v- Frankland River Olive Co. Ltd. [2005] WASCA 236.

[63] See, for example, Article 34(2) TJL.

[64] See In the matter of the Carafe Trust, Op. Cit. where the Court acknowledged the utility of such an arrangement.

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» sufficient funds are available to discharge theoutgoing trustees’ fees and expenses; and

» the process for the outgoing trustees’ removal orretirement or the termination of the trust is notunnecessarily delayed as a result of a dispute overtrustees fees and expenses.

Indemnification for trustees’ liabilities and payment of the outgoing trustee’s outstanding fees are often expressly dealt with in deeds or retirement and appointment of trustees. However, outgoing trustees may wish to ensure that the terms of such deed clearly permits the outgoing trustees’ to be paid their fees, including, for example, trustees’ time charges in circumstances where they are requested to provide information (such as responding to court orders for production of documents under a tax information exchange agreement in respect of the trust) many years after they have ceased acting as trustees. A detailed analysis of the various issues regarding trustees’ indemnification upon ceasing to act as trustees is beyond the scope of this Guide.65

CONCLUSION

Trust business is known for being a relatively low margin, high overhead and high risk business. Trust businesses are driven by the need to maximise profit and minimise personal liability. It is suggested that the best way to achieve that is for trustees to:

» before providing fee estimates, take the time toperform due diligence of the structure, the settlor,beneficiaries and proposed trust assets andcontemplated level and types of transactions;

» ensure from the outset of the relationship thatthe trust instrument and service agreement andfee schedule include clear provisions facilitatingthe trustees to charge fees and be released andindemnified for their liabilities;

» ensure, insofar as possible, that the engagement ofdelegates is on terms which do not unnecessarilypreclude the trustee from recovering from thedelegates the total loss to the trust fund caused bythe delegates’ breach of a delegation agreement;

» issue regular invoices which, where time chargesare involved, clearly describe the work performed,the time spent and the person and position and rateof the person performing the work;

» ensure any change to the fee structure or levels(including charge out rates) and are clearlycommunicated to the persons to whom the trusteesare reasonably required to account for their fees;and

» be transparent with the information that isprovided to the incoming trustee, settlor or primarybeneficiaries regarding the trustee’s fees andexpenses.

[65] See A Practical Guide to the transfer of trusteeship (Ed. R Williams, A Saker, T Graham), Society of Trust and Estate Practitioners, 2011; Ratcliffe H, Trusteeship changes and asset valuation points, Trust & Trustees, 13 October 2011; Booth M QC and Bourne R, How secure is security? Trust & Trustees, vol. 19, No. 5, 5 June 2013, pp475-480; and Ashley Fife, Transfer of Trusteeship- Discussion paper and case summary Trusts & Wealth Management Journal, January 2015

Ashley Fife | Senior Associate

Appleby, Bermuda OfficeTel: +1 441 298 3221 / Ext. 6185Afife@applebyglobal.comSTEP Private Client ‘International Legal Team of the Year 2014/15’Citywealth ‘Caribbean Law Firm of the Year 2015’