Trustee Appointment and Removal

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Questions and Answers

Who can appoint the first trustee of a trust?

The settlor

The testator

The person named in the trust instrument

All of the above (correct)

If a trustee remains out of Malaysia for more than 12 months, they can easily continue managing the trust remotely.

False

A trustee can be removed if they are declared ____________.

bankrupt

What grounds are considered for the removal of a trustee under Section 40?

Several grounds include death, remaining out of the country, desiring discharge, refusal to act, unfit to act, incapable of acting, or being a minor. Signup and view all the answers

Match the circumstances under which a trustee may be removed with their respective examples:

Trustee is unfit to act = Trustee declared bankrupt Trustee refuses to act = Conduct endangers trust's interest Trustee is incapable of acting = Age and infirmity issues Trustee is a minor = Minor cannot be a trustee of an express trust Signup and view all the answers

When can a person disclaim the office of a trustee according to Re Lister?

Before making any acceptance Signup and view all the answers

What is the requirement for a trustee to retire under Sec. 40(1)?

Retirement must be done in writing with approval from co-trustees or the court, and finding a new trustee to take their place. Signup and view all the answers

A trustee may retire under Sec. 43(1) without a new appointment.

True Signup and view all the answers

On the death of the last surviving trustee, the trust property devolves upon their ____________.

personal representative Signup and view all the answers

Match the factors that may persuade the court in removing a trustee:

Dishonesty or incompetence = A trustee has been dishonest or incompetent Letterstedt v Broers principle = Continuation of trustee would be detrimental to the execution of the trust Breach of trust = Trustee in position to misapply trust funds Wilson v Turner case = Trustees paid income without enquiring into minor's needs Signup and view all the answers

Under Sec. 37, trustees may exercise their discretionary power to advance capital for the benefit of the beneficiaries regardless of the type of interest they hold in the fund, whether vested or contingent. What is the maximum amount of money that can be advanced to a beneficiary under Sec. 37(a)?

RM10,000 or half of the share of the beneficiary, whichever is greater Signup and view all the answers

What is the duty of a trustee upon appointment?

Ensure all trust properties are duly vested Signup and view all the answers

A trustee is entitled to receive benefits from his position as a trustee according to the fiduciary duty.

False Signup and view all the answers

Trustees can be held liable for not distributing trust property to rightful recipients.

True Signup and view all the answers

According to Bray v Ford, what does Lord Herschell state as an inflexible rule about a person in a fiduciary position?

A person in a fiduciary position is not entitled to make a profit unless expressly provided. Signup and view all the answers

Under what circumstances can all beneficiaries call upon trustees to convey the trust property to them?

When all the beneficiaries have reached their full age and are absolutely entitled to the trust property between themselves. Signup and view all the answers

Trustees have a duty to distribute the trust property to persons who are rightfully _____ to it.

entitled Signup and view all the answers

In the context of trustees' duties, a trustee cannot purchase trust property for himself due to the __________ rule.

self-dealing Signup and view all the answers

Match the following valid advancements with their examples:

Lowther v Bentick = Discharge of debt of the beneficiary himself Re Kershaw = Paying the debt of beneficiary’s husband Pilkington v IRC = An advancement to avoid tax Signup and view all the answers

Match the following duties of trustees with their descriptions:

Duty to keep accounts = Provide beneficiaries with a full and accurate record of trust management Duty to act in the best interest of beneficiaries = Put beneficiaries' interests before their own Duty to provide information to beneficiaries = Allow beneficiaries to inspect trust documents Signup and view all the answers

Study Notes

Appointment of Trustees

The first appointment of a trustee is usually done by the settlor, testator, or the person given the power to do so under the trust instrument.
The number of trustees should not exceed four, unless the trust is for charitable, religious, or public purposes.
New or additional trustees are appointed under an express power in the trust instrument or under Sec. 40 of the Trustee Act.

Grounds for Removal of a Trustee

Death of the trustee
Remaining out of Malaysia for more than 12 months
Desire to be discharged (retirement)
Refusal to act
Unfitness to act
Incapacity to act
Minority (if the trustee is a minor)

Mode and Method of Appointing New or Additional Trustees

Sec. 40(1)(a): Any person nominated in the trust instrument (express power)
Sec. 40(1)(b): If there is no such person nominated or able and willing to act, the power of appointment is given to:
- The surviving or continuing trustees
- The personal representatives of the last surviving or continuing trustee
The court may exercise its power to appoint a trustee if necessary

Instances where the Court would Invoke Sec. 45

Where the trustee has been imprisoned, declared bankrupt, or is mentally disordered
Where the trustee is incapable of acting due to old age and physical infirmity
Where there is doubt as to whether the statutory power or express power of appointment is exercisable
Where an infant is appointed as a trustee
Where there is no agreement as to whom should be appointed

Acceptance of Trusteeship

A person's appointment can be made without their knowledge or in their absence
A person cannot be compelled to accept the office of a trustee
Acceptance of trusteeship can be made expressly or impliedly
A person can only disclaim the office of a trustee before making an acceptance, otherwise, they have to retire according to the trust instrument or statute

Termination of Trusteeship

By retirement: A trustee may retire from the trust provided that it is done in writing with the approval of the co-trustees or the court
By death: On the death of the trustee, the office passes to the surviving trustees, and the trust property will vest in them automatically
By the court: The court will remove a trustee where they refuse to execute the trust, have mismanaged the trust, or have disqualified themselves by circumstances of conduct from continuing to hold the office

Vesting of Trust Property

The legal title to the trust property ought to be vested in the trustee
The method of vesting varies with the nature of the trust property (e.g. land, shares, bank balance)

Discretion of Trustees

A trustee must exercise their discretionary power as an active mental process and not allow a situation to result merely through inaction
If a trustee causes a wrong decision to be made, they will be personally liable to repay the amount lost to the trust fund### Trusts and Trustees
A trustee's power to maintain a minor can be exercised:
- During the beneficiary's minority only (before 21)
- At their own discretion
- By paying the money to the minor's parent or guardian, or by using it for the minor's benefit
- For the minor's maintenance, education, or benefit
- Through a payment of the whole or part of the income of that property, according to what is reasonable

Proviso to Sec. 36(1)

In exercising the discretionary power, trustees should consider:
- The age of the minor
- The minor's requirements
- The general circumstances of the case
- The existence of other income applicable for the same purposes

Sec. 36(2)

The residue of the income not paid out in maintenance must be accumulated by the trustee:
- Through authorized investments
- The trustee is required to hold such accumulations until the minor turns 21

Power of Advancement

To take capital out of a trust fund and pay it for the benefit of the beneficiaries
Applies to all trust instruments, unless the contrary has been stated
Sec. 37: Trustees may exercise their discretionary power to advance capital:
- For the benefit of the beneficiaries
- Regardless of the type of interest they hold in the fund
- Subject to the restrictions:
  - The money advanced does not exceed RM10,000 or half of the share of the beneficiary
  - The money advanced will be recognized as part of the beneficiary's share of the trust property
  - No advancement that would prejudice any person shall be made, unless such person has consented to it in writing

Duties of Trustees

Fiduciary Duty:
- A trustee is not entitled to receive any benefit from his position as a trustee
- A trustee must not allow his interest and duty to conflict
- A trustee who derives any incidental profits from his position as a trustee will be held in breach of the trust

Sub-duties of a Trustee

Duty to not allow his interest and duties to conflict:
- Bray v Ford: A trustee is not allowed to put himself in a position where his interest and duty conflict
- A trustee who derives any incidental profits from his position as a trustee will be held in breach of the trust
Duty to not take any secret profit:
- Unless authorised by the trust instrument, by the beneficiaries, or by the court
- Brown v IRC: A trustee may take a secret profit if authorised by the trust instrument, by the beneficiaries, or by the court
Duty to account for profits:
- A trustee must account for any profits made in breach of his duty
- Re Mulholland's Will Trusts: The rule remains applicable where the trustee has retired and intends to purchase the property

Breach of Fiduciary Duty

Purchase of trust property:
- Self-dealing rule: A trustee cannot purchase trust property for himself
- Campbell v Walker: Any trustee purchasing the trust property is liable to have the purchase set aside
Purchase of beneficial interest:
- Fair-dealing rule: A trustee may purchase from the beneficiary, but must show that he has taken no advantage of his position and has made full disclosure to the beneficiary
- Coles v Trecothick: A trustee may purchase from the beneficiary provided that there is a clear and distinct contract proving that the beneficiary intended for the trustee to make the purchase
Director's fees:
- A trustee must not take any director's fees obtained from a company due to the trust's shareholding
- Re Macadam: The trustees used their position to appoint themselves as directors of a company and were liable to account to the trust all the fees they received
Competing with trust:
- A trustee is prohibited from competing with any business belonging to the trust
- IDC v Cooley: A trustee will be liable to account for profits made by him from a business which competes with the business of the trust
Misuse of opportunities and information:
- Boardman v Phipps: A solicitor took the opportunity to reorganise the company in which the trust had a minority shareholding and was liable to account for the profit
Receiving bribes:
- AG of Hong Kong v Reid: A trustee who takes bribes in breach of his duty is liable to account for the bribe money
Full disclosure of material facts:
- Re Thompson: A trustee who concurs in a transaction in which he has an interest must disclose such interest to the beneficiaries

Duty of Trustees upon Appointment

Familiarise himself with the terms of the trust
Inspect the trust instrument and comply with the terms of the trust
Ensure that all trust properties are duly and properly vested in him
Investigate any prior breach of trust by any retired or removed trustees
Act impartially between the beneficiaries
Act unanimously and jointly with his co-trustees

Duty to Distribute

Trustees have a duty to distribute the trust property to those entitled to receive it in accordance with the trust instrument
The duty to distribute may arise in three circumstances:
- Payment of income to the beneficiary
- Distribution of the whole of the trust fund when all the beneficiaries have reached their full age
- Distribution of trust property when the trust requires immediate distribution### Benjamin Order
A court order that presumes a beneficiary has pre-deceased the settlor and is applied when the beneficiary's whereabouts are unknown.
The trustee can allocate the trust fund as though the beneficiary had died.
The court must be satisfied that all possible or reasonable inquiries have been made to locate the beneficiary before making the order.
If the beneficiary turns up, they may trace their share of the property from the recipients.

Duty to Act in the Best Interest of the Beneficiaries

Trustees must treat the beneficiaries' interests as paramount and not put their own interests before those of the beneficiaries.
In Cowan v Scargill, trustees refused to approve an investment plan that would compete with the coal mining industry, and were held not to be acting in the best interest of the beneficiaries.
Trustees must prioritize the beneficiaries' financial interests, usually the case when the purpose of the trust is to provide financial benefits.
In exercising their duty to invest, trustees must aim to yield the best return for the beneficiaries, considering the risks of the investments.

Duty to Invest

'To invest' includes applying money to purchase property from which interest or profit is expected.
Where the trust instrument does not expressly prohibit certain investments, authorised investments may be made.
Re Harari's Settlement: Express powers of investment under the trust instrument should not be interpreted restrictively.
If the trust instrument allows the trustee to invest as they think fit, the court will construe the power to invest widely.

Approved Investments

Loans to approved companies are permitted, subject to the requirements in Sec. 4(2).
An approved company is a company incorporated in Malaysia, or if incorporated prior to Malaysia day, in Sabah or Sarawak, and having a place of business in Malaysia.
Sec. 4(2)(a): The paid-up ordinary share capital of an approved company must be not less than five million ringgit.
Sec. 4(2)(b): The approved company must have paid a dividend at the rate of not less than 5% during each of the last three years prior to the time of investment.
Sec. 4(2)(c): The total amount of the borrowings of the approved company from all sources shall not exceed two-thirds of the amount excluding prospective interest, for the time being secured to the approved company from its borrowers.

Other Types of Investment

Trustees can sell shares belonging to the trust and buy other authorised shares.
Trustees can sell land under the trust property to buy another piece of land or other shares.
If the trust instrument does not expressly provide the trustees with power to sell or deal with the trust property, the trustee or beneficiary can apply to the court under Sec. 59(1) for such power to be granted, where the court considers it expedient.

Duty to Keep Accounts

Trustees have a duty to provide beneficiaries with a full and accurate record of their management of the trust property.
Pearse v Green: Trustees are required to keep and render proper, clear and accurate financial accounts, with supporting vouchers, receipts, and other documents.
Trustees must allow beneficiaries or their solicitors to inspect such accounts when requested.

Duty to Provide Information to the Beneficiaries

Beneficiaries have a right to access trust documents as they are beneficial owners of the trust property.
O'Rourke v Darbishire: Beneficiaries have a right to access documents they desire as they are beneficiaries to the trust.
Exceptions: The right does not extend to documents which the beneficiaries have no beneficial interest in, documents belonging to the trustees, and documents which record the reasons for the trustees' decisions.

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Description

This quiz covers the appointment, removal, and retirement of trustees in trusts, including the number of trustees and exceptions for charitable, religious, or public purposes.