SQE Master Set > Trusts: Trustees > Flashcards

Trusts: Trustees Flashcards

(150 cards)

Study These Flashcards
1
Q

What is the core role of a trustee?

A

To hold and manage trust property for the benefit of the beneficiaries, exercising rights of ownership in their interests.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Can a person be forced to become a trustee?

A

No. Trusteeship is voluntary; a named trustee can disclaim the office and an alternative will be appointed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the ‘irreducible core’ of trustee duties?

A

A duty to act honestly, in good faith, and for the beneficiaries’ benefit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Who typically serves as trustees of family trusts?

A

Lay (unpaid) trustees, often family members, unless professional trustees are appointed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Are professional trustees entitled to remuneration?

A

Yes, under s 29 Trustee Act 2000 they may receive reasonable pay; lay trustees are unpaid but recover expenses (s 31).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Why is it good practice to have multiple trustees?

A

To ensure checks and balances; they must act jointly and are jointly and severally liable for breaches.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What happens if all named trustees disclaim?

A

Equity will not allow a trust to fail for lack of trustee—new trustees are appointed by instrument, beneficiaries, or court.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does the trust instrument affect trustee duties?

A

It may specify, add, or exclude powers/duties; default statutory duties apply only if not modified.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What must trustees consider when managing a pension trust versus a family trust?

A

Extent of active management: pension trustees may need complex investment; family trustees often have simpler duties.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What standard of care applies to trustees?

A

Reasonable care and skill under s 1 TA 2000—higher for professionals or those with special skills.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What statutory restriction applies to who can be a trustee of land?

A

A maximum of four trustees and a minimum of two, to permit overreaching (LPA 1925 s 36).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Who may serve as trustee?

A

Any adult of capacity (not a minor); bankrupts or those with conflicts are practically unsuitable (s 20 LPA 1925).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Can the settlor reserve appointment powers?

A

Yes—express powers in the instrument let the settlor appoint or remove trustees during their lifetime.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What statutory power allows replacement or addition of trustees?

A

Section 36 Trustee Act 1925: s 36(1) to replace, s 36(6) to add up to four trustees or a trust corporation.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If a named trustee disclaims, who appoints replacements?

A

The disclaiming trustee (s 36(8)), then beneficiaries under TLATA s 19, then the court under s 41 TA 1925.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

In testamentary trusts, who initially holds trust property?

A

Personal representatives (executors/administrators) until liabilities paid, then they vest property in named trustees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What role does TLATA 1996 s 19 play in appointments?

A

Beneficiaries with full entitlement can appoint new trustees or remove existing ones under Saunders v Vautier.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When might the court appoint trustees?

A

As a last resort under s 41 TA 1925 if no instrument power, trustees or beneficiaries can act, or for capacity/bankruptcy reasons.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why might charitable trusts use the Charity Commission’s appointment power?

A

To ensure proper oversight and replace or remove charity trustees under Charities Act powers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the minimum number of trustees required for a testamentary trust to minors?

A

At least two trustees or a trust corporation, to permit good receipt and overreaching of legacy funds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What express power may the instrument include regarding removal?

A

A settlor may reserve removal powers mirroring appointment powers, allowing continued control over trustees.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How can trustees be removed via statutory replacement?

A

By exercising the power in TA 1925 s 36 to replace an unwilling, incapacitated, or deceased trustee.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What inherent court power exists to remove trustees?

A

The court’s supervisory jurisdiction can remove for misconduct, incapacity, or conflicts even without statutory power.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

How can beneficiaries compel retirement?

A

Adult beneficiaries with full interests can direct retirement under TLATA s 19, provided at least two trustees remain.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What steps are required for voluntary trustee retirement?
Deed of retirement signed, co-trustees’ consent, at least two trustees remain or a trust corporation exists, and property vested accordingly.
26
What is an ouster clause?
A clause excluding a trustee’s duty (e.g. from management of company assets) though only certain duties can be ousted.
27
What is an exemption clause?
A clause limiting a trustee’s personal liability for breach of trust (excluding fraud) while duties remain enforceable.
28
How can trustees insure against liability?
By taking trustee indemnity insurance (premiums often paid from trust funds) covering negligence but not fraud.
29
What should a prospective trustee do before accepting office?
Review the instrument, ensure protection clauses (ouster/exemption), and consider liability insurance.
30
What protections exist for trustees unsure of powers/duties?
Seeking legal advice, court directions, AJA 1985 s 48 opinion, surrendering discretion, or obtaining beneficiary consent.
31
What does a s 48 AJA 1985 application achieve?
Court authorisation to rely on a barrister’s opinion, protecting trustees from liability when act on that advice.
32
When can trustees surrender discretion to the court?
If deadlocked or conflicted, they can ask the court to exercise specific powers on their behalf.
33
What is required for beneficiary consent to trustee decisions?
Fully informed written consent from all adult beneficiaries of sound mind; partial consent only protects against consenting beneficiaries’ claims.
34
How do trustees guard against unknown or missing beneficiaries?
By Benjamin Order, TA 1925 s 27 public notice, retaining funds, paying into court, indemnities, or insurance.
35
What is a Benjamin Order?
A court order allowing trustees to distribute on assumptions (e.g. presumed dead) after diligent search, protecting against later claims.
36
What must trustees include in a TA 1925 s 27 notice?
Advertise in the London Gazette, a local newspaper, and other relevant publications, giving two months’ notice for claims.
37
What duties arise immediately upon trust creation?
Ensuring correct appointment, protection clauses, insurance, and clarity of terms before administering trust.
38
What immediate protection steps can trustees take?
Require instrument provisions, obtain insurance, clarify powers in drafting, and decline if unable to accept risk.
39
What are the two broad categories of trustee powers and duties?
Administrative powers/duties (management) and dispositive powers/duties (distribution).
40
Under what sources do trustee powers/duties arise?
Trust instrument (express), statute (TA 1925, TA 2000), and common law; instrument may exclude or modify defaults.
41
What are administrative powers?
Powers to manage trust property: invest, acquire/sell assets, delegate, insure, and raise funds (charging assets).
42
What default investment power exists?
TA 2000 s 3: general power to invest as if absolutely entitled, subject to standard criteria and duty of care.
43
What must trustees consider under the standard investment criteria?
Suitability (general and specific) and diversification of investments (s 4 TA 2000).
44
When is ‘proper advice’ required?
Before investing or reviewing investments (s 5 TA 2000), unless trustees reasonably deem it unnecessary (s 5(3)).
45
What duty of care applies to investment?
Trustees must exercise care and skill: higher for professionals or those with special expertise (s 1 TA 2000).
46
What statutory power allows acquisition of land?
TA 2000 s 8: power to acquire land in the UK or overseas, subject to trust terms and duty to obtain advice.
47
What delegation powers exist?
TA 2000 s 11: trustees may delegate functions to agents, nominees, and investment managers under stated conditions.
48
What administrative duty accompanies delegation?
Duty to review delegated functions, monitor agents, and ensure proper execution of tasks.
49
What is a dispositive duty?
An obligation to distribute or transfer trust income or capital in accordance with trust terms or beneficiary rights.
50
When must trustees distribute capital under dispositive duties?
As soon as beneficiaries’ interests vest (e.g. age conditions), without waiting for demand, unless terms say otherwise.
51
What is the duty to distribute income?
Trustees must pay income to entitled beneficiaries as it arises (adult vested) or accumulate for minors (s 31 TA 1925).
52
What is the statutory power of maintenance?
TA 1925 s 31: trustees may pay income for minor beneficiaries’ maintenance, education, or benefit; otherwise accumulate until 18.
53
When does statutory accumulation apply?
Minor’s income must be accumulated until 18 unless maintenance power is exercised; then distributed with capital.
54
What is the power of advancement?
TA 1925 s 32: trustees may advance capital to beneficiaries (vested or contingent), subject to instrument and prior interest consent.
55
How much can be advanced?
For trusts after 1 Oct 2014 up to 100% of a beneficiary’s capital share; pre-2014 trusts limited to 50% without express term.
56
What qualifies as ‘advancement’?
Any use improving beneficiary’s material situation (Re Paulings) including education, marriage, or tax planning (Pilkington).
57
When is consent required for advancement?
Written consent from beneficiaries with prior interest (e.g. life tenants) because their interests would be prejudiced.
58
What follow-up duty exists after advancement?
Trustees must ensure funds are used for stated purpose and cease payments if misused (Re Pauling’s).
59
What default dispositive powers exist beyond maintenance/advancement?
TA 1925 s 31 & s 32 defaults unless modified: power to distribute, accumulate, or pay capital/income.
60
What is a power of appointment?
A dispositive power allowing trustees to select beneficiaries or vary shares within a class if given by instrument.
61
When might trustees use their power to appoint?
To give additional beneficiaries interests or adjust shares for fairness, subject to fiduciary duties and instrument limits.
62
What fiduciary duties restrict dispositive powers?
Duty to act within powers, for proper purposes, impartially between beneficiaries, and not for personal gain.
63
What is the duty of impartiality?
Trustees must balance competing beneficiaries’ interests fairly when exercising powers or making distributions.
64
What constitutes breach of trust in distribution?
Distributing late, to wrong persons, exceeding powers, or failing to consider beneficiary rights.
65
What actions expose trustees to personal liability?
Unauthorized investments, misapplication of funds, improper use of maintenance/advancement powers, or ignoring duties.
66
What relief can trustees seek if unsure after breach?
Apply to court for ratification or relief under Trustees Act 1925 s 61, potentially absolving them of liability.
67
What is the duty to keep proper trust accounts?
Trustees must maintain clear, accurate accounts of all trust transactions and balances, and make them available to beneficiaries on request.
68
Under which statute must trustees keep trust records?
Trustee Act 2000, s. 4 requires keeping records of decisions and actions, and Trustee Act 1925, s. 22 governs accounting to beneficiaries.
69
What is the duty to inform and report to beneficiaries?
Trustees must provide beneficiaries with information about the trust, its assets, and its administration when requested or as prescribed by the trust instrument.
70
Which case established the duty to provide trust information?
Schmidt v Rosewood Trust Ltd [2003] clarified trustees’ discretion to provide information to beneficiaries.
71
What is the rule against trustees profiting from their office?
Trustees must not gain any personal profit from trust property or transactions unless expressly authorized by the trust instrument or court.
72
What is the duty to avoid conflicts of interest?
Trustees must not place themselves in a position where their personal interests conflict with their duties, unless authorized by beneficiaries or court.
73
What is the consequence of a conflict of interest breach?
Trustees can be liable to account for any unauthorized profit and may be removed by the court.
74
What is the duty to act unanimously?
Unless the trust instrument provides otherwise, trustees must act jointly in all decisions, subject to any power to act by majority if granted.
75
What power allows trustees to pay their own costs?
Trustees may be paid for their time and recover costs only if the trust instrument or statute (TA 2000 s. 29) permits remuneration; otherwise only expenses.
76
What is the duty to segregate trust assets?
Trustees must keep trust property separate from their own and other trusts’ assets to avoid confusion and preserve beneficiaries’ interests.
77
What is the default rule on co-trustee liability?
Trustees are jointly and severally liable for breaches of trust, meaning a beneficiary can pursue any one trustee for full compensation.
78
What relief does section 61 TA 1925 provide?
The court may relieve trustees from liability for breach of trust if they acted honestly and reasonably and ought fairly to be excused.
79
What is the power to insure trust assets?
Trustees have an implied power to insure trust property against foreseeable risks unless the trust instrument prohibits it.
80
What is the duty to invest in accordance with trust terms?
Trustees must exercise investment powers strictly according to the trust instrument and statutory powers under TA 2000.
81
What is the duty to review investments periodically?
Trustees must regularly review the performance and suitability of investments and re-balance the portfolio as needed.
82
What is the effect of trustee exculpatory clauses?
Such clauses can limit trustee liability for negligence but cannot protect against fraud or willful default.
83
What adjustments must be made when a trustee retires?
The retiring trustee must ensure proper vesting of their share, usually by deed of retirement, and effect transfer of trust assets to continuing trustees.
84
What requirements exist for appointment of a corporate trustee?
A corporate trustee must be authorized under its constitutional documents, have capacity to act, and often satisfies statutory requirement of at least two trustees.
85
What is the duty when beneficiaries are under a disability?
Trustees must exercise additional care, act in the beneficiaries’ best interests, and may need court directions for complex matters.
86
What is the role of the court’s inherent jurisdiction over trusts?
The court can supervise trusts, remove or appoint trustees, approve transactions, and resolve questions about administration.
87
What is the power to vary trust terms?
Trustees may apply to the court under Variation of Trusts Act 1958 for approval to vary terms for the benefit of beneficiaries.
88
When must a trustee obtain consent before a transaction?
If the trustee or a connected person stands to benefit from a transaction, they must obtain prior informed consent or court approval.
89
What restriction applies to loans to trustees?
Trustees may not lend trust money to themselves or invest in their own businesses unless expressly allowed by the trust instrument or court.
90
What reporting must trustees make to the Charity Commission?
Charity trustees must submit annual reports and accounts if the trust is a charity, under the Charities Act 2011.
91
What is the duty to consider tax implications?
Trustees must consider income tax, capital gains tax, and IHT consequences of investments and distributions, often seeking professional advice.
92
What is the statutory power to distribute in advance of vesting?
Trustees can advance capital or income to beneficiaries before strict vesting dates under powers of advancement and maintenance.
93
What is the duty of even-handedness?
Trustees must balance the interests of income beneficiaries and remaindermen when making investment and distribution decisions.
94
What is the duty to obtain best price on sale?
Trustees must ensure trust assets are sold at the best price that can reasonably be obtained, possibly by competitive tender or valuation.
95
What is the rule on delegation to agents?
Under TA 2000, trustees can delegate non-fiduciary functions but must carefully select, review, and supervise agents.
96
What is the duty to administer the trust promptly?
Trustees must not unduly delay decisions or distributions; they should act without unnecessary delay once powers arise.
97
What protection do letters of reliance provide?
A solicitor’s letter of reliance can indemnify trustees for advice taken, protecting them from liability if they act on that advice.
98
What is the doctrine of cy-près in charitable trusts?
If the trust’s purpose becomes impossible or impracticable, the court may apply cy-près to redirect funds to a similar charitable purpose.
99
What is the duty to hand over trust property on termination?
Upon trust termination, trustees must transfer remaining assets to beneficiaries or new trustees as directed by instrument or court.
100
What are the two primary bases for trustee liability?
Breach of trust (unauthorised acts or failure to comply with duties) and breach of fiduciary duty (conflict or secret profit).
101
What constitutes a breach of trust by acting outside powers?
Performing an act not authorised by the trust instrument or statute, e.g., unauthorised investment or wrongful distribution.
102
How can a trustee breach trust even when acting within powers?
By failing to comply with statutory or equitable duties, such as ignoring the duty of care or the duty to review investments.
103
What is the no-profit rule?
A fiduciary duty prohibiting trustees from making any unauthorised personal profit from trust transactions.
104
When does misappropriation of trust funds occur?
When a trustee uses trust money for their own purposes or distributes trust assets improperly.
105
What remedy is available if trust property itself can be recovered?
A proprietary claim to recover the property or its traceable proceeds from the trustee.
106
What remedy is available if property cannot be recovered?
Equitable compensation for the loss caused to the trust fund.
107
What does 'falsifying the account' require trustees to do?
Restore the trust fund to the position it would have been in but for the misapplication, ideally by returning identical assets or value.
108
In a surcharging claim, how is loss assessed?
By comparing the actual value of the fund with the value it would have had if the trustee had acted properly (‘but for’ analysis).
109
Which case distinguished falsification from surcharging?
Target Holdings v Redferns [1996] AC 421.
110
How did Target Holdings affect causation for commercial trusts?
Held that loss must be shown; in bare commercial trusts no automatic falsification if the trust purpose was achieved.
111
What standard applies to traditional trusts post-Target?
Traditional trusts still use falsification for misapplication breaches, subject to causation showing actual or potential loss.
112
When can a trustee offset profits against losses?
Only when profits and losses arise from the same transaction or course of dealing (e.g., Bartlett v Barclays).
113
Who is liable when multiple trustees breach the same duty?
Each trustee is liable for their own breach; co-trustees liable if they fail to prevent or monitor the breach, jointly and severally.
114
Can a trustee be liable for breaches before appointment?
No—unless they fail to bring proceedings against previous trustees to recover losses they discover upon appointment.
115
When can a retiring trustee be liable for breaches after retirement?
If they retired to facilitate the breach or parted with trust property in retirement without due regard causing loss.
116
What is the effect of joint and several liability?
Beneficiaries can recover the full loss from any one trustee, who may then seek contribution from co-trustees.
117
Under which Act can co-trustees seek contribution?
Civil Liability (Contribution) Act 1978.
118
What presumption governs apportionment under that Act?
Equal responsibility, unless the court finds a different allocation just and equitable.
119
Name a circumstance warranting full indemnity for one trustee.
When a trustee is vicariously liable for another’s breach (e.g., solicitor trustee whose co-trustee relied entirely on their advice).
120
How can trustees protect themselves in the trust instrument?
By including exemption clauses to limit personal liability (excluding fraud or dishonesty).
121
Can an exemption clause protect against fraudulent breach?
No—a trustee cannot rely on an exemption clause if they acted fraudulently or dishonestly.
122
What defence arises from beneficiary consent?
Fully informed consent by all adult beneficiaries bar a trustee from liability for authorised breaches.
123
What partial defence arises from consent by some beneficiaries?
Trustees have a defence against consenting beneficiaries but remain liable to dissenting beneficiaries; the court may impound the consenting beneficiary’s share.
124
What is acquiescence?
When beneficiaries affirm a trustee’s unauthorised act after it occurs, barring their claim to challenge it later.
125
What is instigation or request by a beneficiary?
If a beneficiary requests or instigates a breach, the trustee gains a defence against that beneficiary and may impound their interest to indemnify the trust.
126
What statutory power allows impounding?
Trustee Act 1925, s 62 grants the court discretion to impound a beneficiary’s interest for instigation or consent.
127
What is the limitation period for breach-of-trust claims?
Six years from the date of breach for beneficiaries with vested interests; for future interests, six years from vesting.
128
Which claims are not subject to limitation?
Claims for dishonest or fraudulent breaches and proprietary claims to recover trust property or its traceable proceeds.
129
What is the equitable defence of laches?
An unreasonable delay in asserting a claim, making it inequitable for beneficiaries to enforce their rights.
130
What statutory relief may trustees seek post-breach?
Court relief under Trustee Act 1925, s 61, if they acted honestly and reasonably and ought fairly to be excused.
131
What three requirements must trustees satisfy under s 61?
Honesty, reasonableness, and that it is fair to excuse the breach given all circumstances.
132
When is relief under s 61 most likely for lay trustees?
Where they sought proper advice before acting and genuinely believed they were within their powers.
133
How does apportionment operate among third parties?
Parties liable (trustees, advisers, accessories) may claim contribution from each other under the Contribution Act after beneficiaries recover.
134
What liability may advisers face?
Accessory liability for assisting breach of trust or knowing receipt of trust proceeds, enabling contribution claims against trustees.
135
When does overreaching interact with liability?
Beneficiaries’ equitable interests overreached into sale monies, so trustees hold proceeds subject to trust rather than land, but remain liable for misapplication of those funds.
136
What is the ‘no-incomplete performance’ principle?
Trustees cannot rely on partial or incomplete execution of authorised powers to avoid liability if they fail to meet all conditions.
137
How should trustees respond upon discovering a co-trustee’s breach?
Commence proceedings against the defaulting trustee and, if necessary, seek indemnity or contribution to protect the fund.
138
What role does proper advice play in defences?
Taking and acting on professional advice strengthens defences of reasonableness and fair excuse under s 61 and in equity.
139
When may trustees seek court directions?
Before taking uncertain or high-risk actions to obtain certainty and protection against future liability.
140
How does indemnity insurance assist trustees?
It covers the financial consequences of liability for negligent breaches (but not fraud), shifting cost from trustees to insurers.
141
What is the effect of a clause ousting trustee duty?
Valid ouster clauses can remove certain duties, but courts interpret them narrowly and will not allow ousting fundamental trust obligations.
142
What duty arises regarding record-keeping?
Trustees must keep clear records of decisions and transactions to demonstrate compliance and support defences.
143
What is the court’s inherent jurisdiction over trusts?
It can supervise, remove trustees, approve transactions, and grant relief beyond statutory powers to protect beneficiaries and trustees.
144
What is knowing receipt, and how does it impose liability?
A trustee (or third party) is liable if they receive trust property in breach of trust and have sufficient knowledge of the breach, requiring restoration of the value received.
145
What is accessory liability (knowing assistance)?
Liability arises where a third party knowingly assists in a trustee’s breach of trust, even if they do not receive trust property directly.
146
Which test determines ‘sufficient knowledge’ for knowing receipt?
The Baden scale refined by Twinsectra and Barlow Clowes: actual knowledge, willfully shutting eyes, recklessness, negligence, and inquiry notice.
147
How does the rule in Re Hastings-Bass affect trustee decisions?
Decisions made by trustees under a mistaken interpretation of their powers can be set aside if they would not have made that decision but for the mistake.
148
What is the impact of the ‘no reflective loss’ principle for trustees?
Trustees cannot recover in trust for losses that mirror a beneficiary’s personal loss; their claim is to restore the trust fund itself.
149
How do concurrent duties under equity and statute interact?
Trustees must satisfy both equitable obligations (loyalty, good faith) and statutory duties (TA 2000 standards); breach of either can incur liability.
150
What role does the Trustee Act 2000 s.23 ‘range of investments’ power play in liability?
Fails to broaden liability by permitting only investments within a list of specified asset classes, guiding prudent portfolio construction.
SQE Master Set
flashcards
Decks in class (139)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions