Trustee Duties Overview

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Questions and Answers

What is required of trustees when distributing trust assets at the termination date?

Trustees must keep a portion of the assets.

Trustees can distribute assets to anyone.

Trust property must vest in those entitled to it. (correct)

Trustees must sell all property before distribution.

What is the consequence if a potential beneficiary cannot be located?

The trust fund is abandoned.

Trustees must hold the fund indefinitely.

Trustees have no authority to distribute the fund.

Trustees can apply for a court order for distribution as if the beneficiary were deceased. (correct)

Which case determined that a trustee's decision on a Total and Permanent Invalidity benefit is a trust duty?

Karger v Paul

Re Evans

Finch v Telstra Super Pty Ltd (correct)

McGarvie J v Standard Trusts

What is one component that is essential for a proper exercise of a trustee's discretion?

The purpose of the powers must be adhered to. Signup and view all the answers

According to McGarvie J, what does the court examine regarding a trustee's discretion?

The court examines whether the discretion was exercised. Signup and view all the answers

What is one of the expectations when a trustee exercises their discretion?

The discretion must be exercised in good faith. Signup and view all the answers

What should trustees ensure when dealing with trust property?

They must adhere to the terms of the trust. Signup and view all the answers

What does the failure to properly investigate a claim by a trustee constitute?

A breach of duty. Signup and view all the answers

What is one reason a trustee may be removed from their position?

Trustee negligence Signup and view all the answers

What does the duty to act impartially require from a trustee?

Trustee must fairly apportion trust assets between different beneficiaries Signup and view all the answers

Which of the following is NOT a duty of a trustee?

To act under dictation of beneficiaries Signup and view all the answers

What governs the self-dealing rule for trustees?

Trustees cannot acquire trust assets unless permitted by court Signup and view all the answers

Which statement best describes the duty to consider the exercise of powers by trustees?

The court's power limits how trustees can exercise their powers Signup and view all the answers

What must a trustee demonstrate when dealing with a beneficiary who wants to sell their interest?

That they have not taken unfair advantage in the situation Signup and view all the answers

Under the Trustee Act 1925 (NSW), what level of care is expected of trustees?

Care represented by a reasonable person in ordinary circumstances Signup and view all the answers

What does the joint and several liability of trustees entail?

Trustees share liability for all actions taken during their tenure Signup and view all the answers

What is a requirement for beneficiaries to terminate a trust according to Saunders v Vautier?

They must be unanimous. Signup and view all the answers

Under what condition can beneficiaries claim their share of the trust property before the vesting date?

If they have legal capacity. Signup and view all the answers

What does the term 'perpetuity period' refer to in the context of a trust?

The maximum length of time a trust can exist. Signup and view all the answers

What is a necessary condition for the trust property to be terminated by beneficiaries?

They must have an absolute, vested, and indefeasible interest. Signup and view all the answers

In Beck v Henley, what was the court's conclusion regarding the sister's claim of prejudice?

The brother's claim would not prejudice the sister's interests. Signup and view all the answers

What limits the exercise of beneficiaries' power to terminate the trust?

Legal and practical limitations. Signup and view all the answers

What can happen if all beneficiaries have an absolute and indefeasible interest in the trust property?

They can terminate the trust and require the transfer of property. Signup and view all the answers

What is one of the primary concerns when determining whether property is specifically severable?

The ease of division and risk of prejudice to beneficiaries. Signup and view all the answers

What is the primary nature of remedies in equity?

They are discretionary. Signup and view all the answers

Which type of fraud can an exemption clause not cover?

Actual fraud Signup and view all the answers

In Armitage v Nurse, what critical principle regarding trust instruments was established?

Trustees can exclude liability for negligence. Signup and view all the answers

What must a trustee prove regarding an exemption clause?

That the loss is excluded by the clause. Signup and view all the answers

What does actual fraud entail for a trustee?

Awareness of acting against beneficiaries' interests. Signup and view all the answers

What is implied by Millett LJ regarding the duties of trustees?

Trustees must act with utmost good faith. Signup and view all the answers

In Reader v Fried, what was the burden of proof placed on the trustees?

To show they acted honestly. Signup and view all the answers

When can a third party be held liable regarding a breach of trust?

If a breach of trust has occurred. Signup and view all the answers

What is required for a beneficiary to be held as consenting to a breach of trust?

Full knowledge of all material facts Signup and view all the answers

What constitutes acquiescence by a beneficiary in a breach of trust?

Full knowledge of the breach and acceptance through actions or inactions Signup and view all the answers

According to Lord Westbury, what must a beneficiary demonstrate to release a trustee from trust obligations?

Deliberate action with full knowledge and no undue influence Signup and view all the answers

In what situation is a written release preferred over an oral one?

When there is a risk of misunderstanding the terms Signup and view all the answers

What happens if a trustee makes an unauthorized profit from a trust?

The profit is stripped from the trustee, subject to court allowances Signup and view all the answers

What does the term 'profit-stripping' refer to?

Taking back profits made by unauthorized actions Signup and view all the answers

When can a beneficiary's disentitling conduct occur in relation to a breach of trust?

Simultaneously, prior, or after the breach Signup and view all the answers

What distinguishes a release from acquiescence in terms of beneficiary actions?

Release requires formal documentation while acquiescence does not Signup and view all the answers

Study Notes

Trustee Duties

Trustee negligence can be grounds for removing and replacing a trustee, but the court has discretion over this remedy.
Duty to Act Impartially: The trustee must act fairly between individual beneficiaries and classes of beneficiaries, and must fairly apportion income, capital, expenses, and losses between capital and income beneficiaries. (Re Mulligan)
Duty to Act Personally: Trustees must act personally and cannot delegate their decision-making power. If there are multiple trustees, they must act unanimously.
- Non-Delegation: Trustees cannot delegate decision-making powers but can appoint qualified agents under their supervision (Graham v Gibson)
- Not Acting Under Dictation: Trustees must not act under the dictation of beneficiaries (subject to exceptions in the deed). (Re Brockbank)
- Not Fettering Discretion: Trustees cannot bind themselves to make future decisions in a predetermined way. (Re Vesty’s Settlement)
Duty to Consider Exercise of Powers: Courts only ensure that powers are exercised properly, not how. (Re Hay’s Settlement Trusts and Turner v Turner)

Fiduciary Obligations

Duty to Act Gratuitously: Trustees must act for no profit, unless profit is explicitly authorized (Re Moore)
Self-Dealing Rule: Trustees cannot acquire trust assets even if at a fair price. The court may grant permission if the sale demonstrably benefits beneficiaries. (Patros v Patros)
Fair Dealing Rule: Beneficiaries can sell their interest to the trustee, but the court will closely scrutinize the transaction. The trustee must prove:
- They did not take advantage of their position as trustee.
- They made full disclosure to the beneficiary.
- The transaction is fair, honest, and at arm's length.

Winding Up a Trust

At the termination (or vesting) date, trust property vests in those entitled to it.
After settling outstanding claims, trust assets can be distributed.
If a potential beneficiary cannot be found, trustees can apply for distribution as if the beneficiary were dead, without prejudice to their rights if they return or acquire a vested interest in the trust. (Re Evans)

Trustee Powers

Trustees have the authority or discretion to deal with trust property consistently with the trust terms.
Dispositive powers allow trustees to authorize the distribution of income or capital to beneficiaries.
Total and Permanent Invalidity (TPI) Benefits: Trustees’ decisions on TPI benefits are trust duties (not discretionary decisions). (Finch v Telstra Super Pty Ltd)

Exercise of Power and Review

- **Proper exercise:** 
      - In good faith
      - Upon real and genuine consideration
      - For the purpose for which the powers were given
      - Not for an ulterior purpose.  (**Karger v Paul**)

Courts examine whether the discretion was exercised, but not how it was exercised. (McGarvie J)

Termination of Trust

A well-drafted trust instrument will include a vesting date.
Under the Saunders v Vautier rule, an adult beneficiary can claim their share of the trust property before the vesting date.
All beneficiaries can terminate the trust and require the trustees to transfer property to them, but they must be:
- Of full legal capacity.
- Unanimous in their decision.
- Entitled to the entire beneficial interest in the trust property.
Severability: Practical considerations (convenience of division and risk of prejudice to other beneficiaries) determine whether property is severable. (Beck v Henley)

Exculpation and Defences

Trust instruments can exclude or restrict liability for breach of trust, but not for actual fraud or dishonesty. (Armitage v Nurse)
Actual fraud: Conscious wrongdoing by the trustee, knowing their actions are contrary to beneficiaries' interests or being recklessly indifferent.
Equitable fraud: Innocent breach of fiduciary obligation.
Dishonesty: Acting in a way not honestly believed to be in the beneficiary's interests or with the intention of benefiting oneself or others not trust objects. (Reader v Fried)
Third Party Liability: Third party liability can be limited by an exemption clause, but they are liable if a breach of trust has been committed, even without trustee accountability. (Spellson v George)
Acquiescence: Beneficiaries must demonstrate knowledge of the breach and acceptance by actions or inactions. (Re Kerr)
Release: Explicit written release of the trustee from trust obligations with full beneficiary knowledge and no pressure or undue influence. (Lord Westbury)

Monetary Remedies

Unauthorised Profits: Profits will be stripped from the trustee subject to allowances determined by the court.
Account of Profits: Trustee’s profit is stripped by an accounting of profits or by a constructive trust order.

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Description

This quiz covers the fundamental duties of trustees, including the obligation to act impartially and personally. Key legal cases such as Re Mulligan and Graham v Gibson illustrate essential principles governing trustee behavior. Test your understanding of these critical responsibilities and their implications for trusteeship.