There is no single and indivisible package of trust duties present in all trust’s cases. Which duties apply will depend on the facts of each specific case. Some common duties are outlined below.
Duty to Follow the Terms of the Trust:
Among others, terms of the trust may spell out:
Who the trustee should (or should not) distribute the trust property to.
What investments they can (or cannot) make using the trust property.
Who the trustee is to consult in giving their discretion.
The trustee has a duty to follow the terms set in the trust.
If the trustee does not follow the terms, they are strictly liable and in breach of the trust. They may also be removed from office.
Duty of Care and Skill:
Trustees owe a duty of care during the administration of the trust assets.
Trustee Act 2000:
s1(1) – Whenever a duty of care applies, the trustee ‘must exercise such care and skill as is reasonable in the circumstances’ having regard to:
s1(1)(a) – any special knowledge / experience that they have or holds themselves out as having; and
s1(1)(b) – if acting as trustee in the course of business / a profession, any special knowledge / experience that it is reasonable to expect of a person acting in the course of that kind of business / profession.
Non-exhaustive.
This is an objective standard, thus creating a minimum standard of care that can be increased by the trustees (purported) qualification.
In Bartlett v Barclays, the trust held a 99.8% share in a property company established by the settlor. The company was administered by a board of directors that were appointed by the trust company. The directors began a programme of speculative property development and acquired property above market value. The trustee took little notice of this, only obtaining information available to other shareholders. If they underwent proper investigations, they would have discovered the hazardous nature of the plan and been able to stop the developments before incurring a loss.
When the investment was eventually sold for a significant loss, the Court held that the trustee was liable for the loss.
Schedule 1, para 7 – s1 can be expressly disapplied by a provision of the trust deed.
Investments:
In investment cases, the trustee has two jobs:
To grow the investment fund.
To distribute the fund’s gains.
Usually in investments cases, the trustee is under a duty to act in the beneficiary’s best financial interests. This means investing in the things that will give the best returns, setting aside ethical or moral considerations.
In Cowan v Scargill, pensions trust for (coal) mine workers was established. A question arise as to how the fund was to be invested. Advised by experts, some trustees wanted to invest in other (non-coal) energy companies; the beneficiaries (miners) objected.
The court held that the trustees do not have to consider non-financial considerations. Doing so would be a breach of trust. Their job is to make the most returns, so the objection of the miners was irrelevant to their duty.
A trust deed may expressly authorise ethical investment policies though, [1] or this may be authorised by the consent of all beneficiaries where they are of full age. [2] These intentions should be given effect to where expressed.
This also means a trustee often cannot simply put the money into an interest-bearing savings account. This would not be enough, unless authorised by the trust deed.
s3(1) – (generally) trustees may make any type of investment that they could make if they were absolutely entitled to the trust assets.
s6(1) – a trust document can broaden or restrict investment options.
s4-5 – Standard investment criteria (additional duties for investments).
s4(2) – trustee must review investments of trust occasionally to determine whether they should be varied having regard to the s4(3) criteria.
s4(3) – Criteria: (paraphrased)
s4(3)(a) – suitability to the trust of the investment.
s4(3)(b) – the need for diversification, so far as appropriate to the circumstances.
s5 – trustees must ‘obtain and consider proper advice’ in making investments from a person who ‘is reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investment’.
s5(3) – except where it is unnecessary or inappropriate (because the trustee themselves are knowledgeable and sufficiently qualified).
Duty to Consider All and Only Relevant Considerations:
This duty usually arises when the trustee makes a disposition from the trust fund which generates an unforeseen and unwanted tax liability.
When this occurs, such dispositions could previously be undone. [3] This no longer applies.
In Pitt v Holt, a man was seriously injured and paid compensation. P was appointed his received by the Court of Protection. P sought (inadequate) legal advice and chose to set up a trust for her husband and family, with the money to pay out long-term. A mistake was made on the trust deed, and this created large inheritance tax liabilities. They sought to undo this.
The SC asked two questions: whether the trustee was acting in their competence (if not, the disposition is void regardless), and whether there was a breach of duty to consider all and only relevant considerations. Only in cases where there is a breach of duty, the disposition can be set aside (voidable).
On the facts, P was acting within the scope of her CoP powers and court did not find breach because she sought legal advice. However, the court still set it aside on the grounds of mistake.
Disclosure and Rights to Information:
The beneficiaries’ rights are only meaningful if they can ascertain whether the trustee is performing their duties and take appropriate steps if not. To give effect to this, beneficiaries will prima facie be entitled to information about the trust.
Trustees are obliged to inform beneficiaries of the fact that they are beneficiaries (upon reaching the age of majority / 18).
Courts will sometimes oblige a settlor, or another involved to disclose to beneficiaries’ details of the current trustees.
Courts have broad discretion to order trustees to disclose information about a trust to beneficiaries.
Resources:
References:
[1] EG: Harries v The Church Commissioners for England [1992] 1 WLR 1241 [2] EG: Nestle v National Westminster Bank plc [1992] EWCA Civ 12 [3] Re Hastings-Bass (deceased) [1975] Ch 25 (CA)
Cases Mentioned:
Bartlett v Barclays Bank Trust Co Ltd [1980] 1 Ch 515
Cowan v Scargill [1985] Ch 270
Pitt v Holt [2013] UKSC 26
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