Trustee Duties Overview

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.

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.