EQUITY AND TRUSTS
TRUSTEES 2
Other duties and powers
• Duty to distribute: must make correct payments of
income / capital as they are due or otherwise risk
breach of trust (non-delegable)
• Duty to maintain equality between beneficiaries
• Duty to provide accounts and information
NB Re Londonderry and P/C decision in Schmidt v
Rosewood [2003] UKPC 26
• Duty to terminate the trust (rule in Saunders v
Vautier)
• Duty to act personally, fiduciary duties and powers of
maintenance and advancement under TA 1925
DELEGATION
Delegation
• No delegation rule
See Turner v Corney (1841) 5 Beav 515 Lord
Langdale: “trustees who take on themselves
the management of property for the benefit of
others have no right to shift their duty on
other persons: and if they employ an agent,
they remain subject to responsibility toward
their cestui que trust, for whom they have
undertaken the duty”.
Delegation
This can be modified. As stated in Pilkington v IRC
[1964] AC 612.
“the law is not that trustees cannot delegate: it is that
trustees cannot delegate unless they have authority
to do so” (per Lord Radcliffe).
When does a trustee have authority to delegate?
1. Express clause in the trust instrument see e.g.
trust
deed paras 15 & 18 of schedule
2. No express clause then statute.
TA 2000 Delegation
S11 governs delegation but note pre-TA 2000
position
under the TA 1925, particularly the problems with ss
23 and 30 and the decision of Maugham J. in Re
Vickery [1931] 1 Ch 572. S.23 authorised (collective)
delegation of duties; permitted delegation of
administrative duties only; Still needed to select
agent within the usual scope of his business and
exercise discretion in selecting the agent – Re
Vickery; Liability: Under s.23 the trustee “shall not
be responsible for the acts of such agent if
employed in good faith.”
S23 and S30 TA 1925
S23 had to be read in conjunction with 30 TA 1925: a
trustee is answerable only for his own acts receipts
neglects or defaults and not for those of any other
trustee … nor for any other loss unless the same
happened through his own wilful default.
Vickery construes wilful default as a consciousness
of default or breach of duty or recklessness in
performance of a duty. Thus a trustee would only be
liable for his acts if conscious or reckless of his
breach – a low standard – trustees could almost
delegate without responsibility – poor protection to
beneficiaries.
Delegation
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S23 permitted delegation of administrative acts. Discretions nondelegable but some statutory exceptions:
S25 TA 1925 – delegation of “trusts, powers and discretions” but note
requirements, power of attorney, written notice to other trustees etc
AND liability remains liable for acts defaults of attorney subs(7)
S9 TLATA delegation to beneficiary under s.9. Delegation by power of
attorney for any period. No liability if reasonable care taken in deciding
to delegate to the attorney. However, note the change to liability by
virtue of s1 TA 2000 now applies – trustee only liable for act or default if
trustee fails to comp,y with duty of care or in carrying out duties in
s9(a)(3)
S34 Pensions Act 1995 Gives trustees of an occupational fund power
to delegate decisions about investments to a fund manager.
S. 1 Trustee Delegation Act 1999 allows a beneficial owner/trustee to
delegate his trusteeship to another The donor remains liable for the
acts of the donee (s.1 (4)).
Delegation
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S23 gave collective power to delegate
S.25 TA 1925 (as amended by the Trustee
Delegation Act 1999) deals with delegation of
powers and discretions by individual
trustees.
Full liability for the acts of the donee under
S.25(7)
Delegation of trusteeship for up to one year
by power of attorney
S.1 TDA 1999 delegation by beneficial
owner/trustee (see 7 below).
Delegation under TA 2000
S.11 gives trustees a collective power to delegate
(some of) their functions.
What can be delegated?
Trustees can delegate their “delegable functions” to
an agent (s. 11(1)) including both powers and duties
s. 39 except those listed at s11(2) – trustee “core”
functions, dispositive powers and powers to appoint
agent. The range of delegable functions varies
according to whether the trust is charitable or not.
Delegation under TA 2000
S12 S. 12 governs who can be
appointed as an agent. Can appoint one
or more of their own number. Where
there is more than one person acting as
an agent they must act jointly. The
agent cannot be a beneficiary.
No other statutory restrictions on choice
of appointee.
Protection
Agents exercising a trustee function are subject to the same
specific duties and restrictions as the trustee (S. 13) so e.g.
agent investing subject to ss 4 & 5 TA 2000
S14 – terms of the agency:
Trustees cannot appoint an agent on a term permitting the
agent to appoint a substitute or a term restricting the liability of
the agent or his substitute to the trustees or the beneficiaries or
a term permitting the agent to act in circumstances capable of
giving rise to a conflict of interest.
But note “get out” under subs (2) t can allow such term if
reasonably necessary.
Protection
S15 restrictions on asset management
functions Asset management includes
investment, the acquisition and disposal
of property and the management of
property (s. 15(5)) and subject to
restrictions under s15.
Protection
• Subs (1) – delegation must be by an
agreement (in / evidenced by writing)
• Subs (2)(a) – policy statement needed
• EN 62 – p.s. need not be in any
particular form, provided it constitutes a
record of the trustees’ policy on how the
functions in Q should be exercised.
Protection
• E.g. if delegating powers of investment, p.s.
should outline the trust’s investment
objectives, include considerations affecting
the investment policy – balance of capital
growth and income yield to meet the needs of
the trust, any restrictions on the types of
investment
• Subs (4) – p.s. Must be in/evidenced in
writing.
Section 22 duties
• Subs(1)(a) – to keep under review the
arrangements under which the agent
acts, and how those arrangements are
being put into effect
• By subs(1)(b) – must consider
intervention
• By subs(1)(c) – must do so.
Section 22 duties
If trustees delegate any asset
management functions then under
subs(2) need to keep the policy
statement under review – revise or
replace and check the agent’s
compliance.
Liability of trustee
• S23 determines the question of liability for
acts/defaults of the agent
• Liability for failure to comply with the soc applicable
to him under Sch1, paragraph 3. D of C applies to t
when entering into arrangements for agent, when
selecting, when determining any terms, and if agent
is to exercise asset management functions when
preparing policy statement under s 15
• D of C also applies when carrying out review duties
under s22.
Liability of trustees
• Ss 22 and 23 review requirements and liability for
agents apply whether trustees exercise an express
power of delegation or the statutory default power
(s21)
• s23 is important because it limits trustee liability for
the acts of their agents. Thus the TA 1925 provisions
are defunct. Trustee liability will depend on whether t
has fulfilled the D of C when entering into
arrangements and reviewing – this depends on
compliance with S 1 TA 2000.
The duty of care
• Set out in section 1 TA 2000.
• Standard of care applies to delegation,
investment, acquisition of land, compounding
of liabilities, insurance and exercising powers
in relation to reversionary interests (schedule
1).
• Applies to the powers given under the 2000
Act - Schedule 1
• Applies whether exercising express or default
power.
What is the standard of
care?
Flexible so phrased in quite general terms:
• S1(1) “such care and skill as is reasonable in the
circumstances”
• Allows nature, composition and purposes to be taken
into account (EN13)
• Liability likely to turn on application of paras (a) and
(b) (see below) knowledge/experience of the trustee
and adherence to professional standards for paid
trustees = the criteria for deciding issues of liability.
Standard of care
• Subs (a) – reference to the special
knowledge trustee has or holds himself out as
having
• Subjective reference but trustee will be
judged in light of that expertise. Prevents
impossibly high standards from being
imposed while preserving high expectations
of professional trustees. Includes trustees
with no experience must act with reasonable
skill and care.
S1(1)(a)
• Different standards will be applied according to character
of individual trustee. Different standard would be expected
of artist of teacher with no experience of investment than
an accountant or solicitor who must apply relevant skills to
the powers in schedule 1
• Whether a trustee is paid for services is irrelevant to
liability under this paragraph
• This provision may raise standard expected of lay trustees
with knowledge unrelated to qualifications / occupation.
May discourage unpaid trustees from acting
• Exemptions clauses maybe more important.
S1(1)(b)
• Paragraph (b) – standard of care expected
from a professional trustee must exercise
knowledge / skill reasonably to be expected
of such a person
• More required by (b) provisions than those in
(a).
• Issues of liability will be settled by reference
to trust instrument. Professional trust
instruments normally contain express
exclusion clause. Note possible effects of
express exclusion clauses.
Other Powers
• Note position on liability on powers not
granted under the Act but by the trust
instrument or default powers granted by other
statutes e.g. TA 1925 e.g. maintenance and
advancement
• Still governed by the standard of care under
Speight v Gaunt (ordinary prudent man of
business).
• Where powers granted by trust instrument
liability and standard of care usually governed
by express exemption clause.
Trustees’ Powers
Trustees subject to fiduciary duties –
see lecture Trustees 3 - Fiduciary
Duties.
Will now consider powers given to
trustees to effectively administer the
trust.
Trustees’ Powers
• Have considered key duties imposed on trustees but also need
certain powers to administer trust in interests of the beneficiaries
• E.g. investment, delegation – allow trustees to take care of fund
and to delegate their power of investment (formerly restricted by
ss 23 and 25 TA 1925). TA 2000 has widened these powers to
allow for wider investment but also to delegate to e.g. a fund
manager.
• New powers very useful but bring certain duties e.g. s4 standard
investment criteria and s5 advice, need for policy statement,
also various review duties.
• Other powers – concerning management and mainly under TA
1925
• Professional trust instrument normally allows additional powers.
Statutory powers more relevant to older trusts.
Basic powers under statute
• Sale – land, Ss.6&4 TLATA 1996;
chattels; s.12 TA 1925
• Receipts s.14 TA 1925
• Compound liabilities/settle claims s.15
TA 1925
• Insure s. 19 TA 1925 but note its
amendment under the TA 2000.
Power of sale
Trustees do not necessarily need a power of sale over the
trust assets but usually do.
Trust assets held subject to trust for sale in respect of
personalty or trust of land for realty
Land held either by absolute owner / under a trust of land
/ or before TLATA abolished it: under a strict settlement. If
property held under a strict settlement then power of sale
held by tenant for life not trustee. If land under trust of
land legal estate vested in trustees
Other property generally subject to express duty to sell.
Can be implied under rule in Howe v Earl of Dartmouth.
Receipts
• S14 TA 1925 written receipt of sole trustee is
good discharge for payer. Such receipt of
sole trustee acceptable despite anything to
contrary in trust instrument.
• Where more than one trustee all must sign.
• Trust property is land receipt must be signed
by two or more trustees or sole trustee trust
corporation.
S15 TA 2000
S15 TA 1925 confers wide discretion on
trustees for settling compromising disputes
trustees must act together but may accept:
any reduced payment of liability
extend period for repayment
Accept security for debt
Abandon claim
TA 2000 Sch 1(4) provides for new stand of
care for this power.
Insurance
• S19 TA 1925 replaced by s34 TA 2000
• S19 provided for insurance but trustees could
only insure max 75% of value of trust
property. New powers allow to insure for any
risk at any level they think fit.
• NB new stand applies to this discretion
• Proceeds of policy is capital to be dealt with
according to terms of trust.
Maintenance and
Advancement
Why powers of maintenance and advancement are
needed. Beneficiaries right to property is normally
postponed by settlor – maybe circumstances where
income / capital of trust could be used e.g. for education or
housing or career.
The power of maintenance.
There are three authorities for the trustees to apply income
arising under a trust for the maintenance of a beneficiary:
• Authority from the court;
• Statutory authority, see section 31 Trustee Act 1925
• Express authority in the trust instrument.
Authority from the court
The power of the court to award maintenance is not commonly sought,
because of the cost, and the existence of the statutory power. It should
however be remembered if all else fails.
Express maintenance clauses found in some trusts but section 31
Trustee Act 1925 make such clauses unusual, except in discretionary
trusts, to which section 31 does not apply. Express clauses are more
usually used to modify the statutory power
S.31 gives the trustees discretion to make maintenance payments.
Trustees must make payments as result of active exercise of their
discretion (Wilson v Turner (1883) 22 Ch D 521). Section 31 applies
where any property is held by trustees for a person for any interest,
whether vested or contingent. So makes no difference to the statutory
power that beneficiary has to satisfy some contingency before being
able to take.
Maintenance
• Applies during infancy of beneficiary only
• Applies whether interest is vested or
contingent e.g. if £10,000 on trust for Paul
aged 10 gift is vested but if £10,000 on trust
for Paul when he reaches 21 then if he is 10
gift is contingent.
• Payment made to parent or guardian or
otherwise applied for education maintenance
or benefit of infant.
Maintenance
• Power subject to test of reasonableness. Such part, if
any, of the income as may in all the circumstances be
reasonable
• Proviso to s31: trustees in deciding whether whole or
any part of income of property is to be applied for
education maintenance or benefit must have regard
to age and circs of case and other income applicable
for some purposes
• Reasonableness can be removed by trust instrument
in favour of more subjective test and omission of
proviso.
Maintenance
• Trustees power to use income is subject to any prior interests
• If income produced by property given to someone else e.g. life
tenant s31 cannot apply because ben not entitled to income
produced by property
• Power stops at bens majority
• Aged 18 ben is entitled to income unless contrary intention e.g.
direction to accumulate in Re Turner’s WT
• Age at which income vests is commonly raised
• Any income not used is accumulated
• Ben entitled to accumulations at 18 is entitled to capital
• Accumulations otherwise held as accretion to capital can be
used as if income arising in current year.
Intermediate income
The gift must carry the intermediate income. Directions of the
settlor /testator always prevail , so check the instrument first. Vested gifts
generally carry the right to the intermediate income (unless the income has
been given to someone else). The position with contingent gifts, however, is
more complex. In the absence of express provision then a combination of
s.31(3) TA 1925, s.175 LPA 1925 and case law decide which contingent gifts
carry the intermediate income. Note that the effect of these complex
provisions is that a contingent interest arising from an inter vivos settlement
carries income provided the contingency = the age of majority or some event
before that age, and generally all testamentary gifts except contingent
pecuniary legacies carry the intermediate income.
NB three exceptions: where legacy given by father of child legatee so long as
no other fund for maintenance and contingency is attainment of majority (ii)
where testator shows intent to maintain (iii) where testator has set aside
legacy as separate fund for legatee.
Express terms
The power of maintenance (and advancement below) subject to any
express terms of the trust instrument and may be varied or restricted
by the trust instrument (S.69 T.A. 1925)
Considered earlier how power often extended to remove
reasonableness requirement / s31 criteria / age of vesting.
Powers under the Act apply only in so far as a contrary intention is not
expressed in the trust instrument and entitlement to maintenance
under section 31 is subject to any such contrary intent – can be
express or by implication.
See Re Stapleton [1946] 1 All ER 323: trustees told MUST
accumulate the income until the beneficiaries reached a certain age.
This was held to deny the power which would otherwise have been
implied by section 31, that they might use (some of) it to maintain the
infant beneficiaries.
Discretionary trusts
• Section 31 is not implied into discretionary
trusts because the property is not held for
such beneficiaries. If power to maintain such
persons is desired, must be inserted
expressly
• Usually power to distribute income during the
continuance of the trust is discretions
afforded to the trustees in this type of trust.
Advancement
Advancement is the power to pay over some of the capital of the fund
for the “advancement or benefit” of a beneficiary, in advance of when it
would be otherwise due.
Authorities for the power to advance:
a) the court – can cover capital advancements
b) statutory power under section 32 TA 1925 – enables trustees to
advance capital for the "advancement or benefit" of beneficiaries (
adults and infant beneficiaries) who are or will be entitled to capital.
Thus statutory power cannot be used for the benefit of a person entitled
only to income, nor for objects under a discretionary trust.
Does not matter that capital entitlement is contingent or a future
interest. Power not limited to minor beneficiaries – can be used for the
benefit of any "capital" beneficiary. If advance made to beneficiary who
never gets a vested interest in capital then neither he, not his estate
has to repay.
Limitations in subs (1):
• S32(1)(a) – only up to one half of the
presumptive share can be advanced
• S32(1)(b) – when the beneficiary becomes
entitled the payment must be brought into
account
• S32(1)(c) – the payment must not prejudice
any person with a prior interest unless the
person agrees in writing to the payment
• Express clauses used to curtail statutory
provisions.
The meaning of “advancement
or benefit
“Advancement or benefit" appear in the statutory provision but put
there because invariably used in express provisions prior to 1925.
They appear to have the following meanings.
Advancement = setting the beneficiary up in life e.g. use of the funds
to purchase a business, a commission, or a house upon marriage
would be within this word.
Benefit is extremely wide and has few constraints upon its
interpretation. See Lord Radcliffe in Pilkington v I.R.C. (below)
The whole phrase "advancement or benefit," is to be interpreted
disjunctively, and appears to encompass "any use of the property
which will improve the material situation of the beneficiary."
Re Clore’s Settlement [1966] 2 All ER 272 where the power was held
to extend to making of charitable donations at request of beneficiary.
Problems with the statutory power
Wide interpretation of "advancement or benefit" is found in
statutory power, because of use of those specific words. Some
problem areas remain:
1. Does "benefit" permit advancement to person who has no
need, or does it carry a prerequisite of disadvantage?
2. To what extent can trustees exercise the statutory power in
order to resettle the advanced funds on different trusts from the
original?
3. If trustees can resettle, to what extent can they create a
protective, or discretionary fund out of advanced money? May
be seen as an attempted delegation of discretions because it
affords dispositive powers to the trustees of the sub-trust.
Pilkington v I. R. C. [1964] A.C. 612
Two trusts were set up. The first by a testator, who
ordered that shares of his estate should be held on trust
for his nephew Richard on protective trusts. After his
death, Richard's share to go to his own children, one of
whom was Penelope.
Second trust set up by advancing one half of Penelope's
share in trust 1, to trustees of trust 2. Required Richard's
consent. Was to be held for Penelope on reaching 30 with
gifts over to any of her children.
• Trustees of the first trust wished to advance
• Trustees of both settlements were the same people. The
real object was to save estate duty on Richard's death.
Pilkington
Could the trustees advance at all?
• HL held requirement of benefit to beneficiary does not
denote some condition of underlying need. This
removes one possible restrictions on operation of the
power sought by the Commissioners of Inland
Revenue
• Also held that a gift could be of benefit to the
beneficiary, even though terms more stringent than
original trust where the whole of the package is
beneficial to her even if persons other original
beneficiary take a possible interest.
Express provisions
Express provisions for advancement uncommon
given but are used to extend mechanical provisions
of the statutory power :
i) Often widened to allow advancement of up to 100%
of potential beneficiary's share of the capital.
ii) The requirement for the recipient beneficiary to
bring the advance into account upon the occasion of
the final distribution may be removed.
iii) Need for consent of a holder of a prior life
interest may be removed
iv) To permit advancement to a life tenant.
Re Pauling’s Settlement
• To what extent do trustees have to ensure the
money is used for the purposes which the
advancement is being made?
• See Re Pauling’s Settlement [1964] Ch 303
CA held that trustee could hand over capital
to ben if they thought they could be trusted or
if advance for stated purpose then pay if over
if R thought ben could be trusted.
Standard of care to be applied
These are not TA 2000 powers so common law
standard applies. Standard of care in the exercise
of the powers is that of the ordinary prudent man
of business in managing his own affairs. See
Speight v Gaunt
NB where powers are granted by trust instrument
or TA 1925, all issues of standard of care and
liability will most commonly be governed by an
express exemption clause.
In conclusion
In this lecture we have identified:
• Duties on trustees in administration of
the trust
• Powers trustees have to run the trust
• Standard of care relating to these duties
and powers