POWER & DUTIES OF TRUSTEE

Topics to be covered: 1) What are power and duties2) Power to sell trust property3) Power to insure.4) Power to compound liabilities5) Power to maintenance and

advancement6) Duty to protect trust assets : investment7) Duties towards beneficiaries.8) Duty to distribute.

Introduction:Equity equips trustees with;

i) numbers of powers

ii) imposes a range of duties.

All these may be modified or excluded by express terms in the instrument.

The general principle:

Trustees have discretion as to whether or not they will exercise a power.

If after a proper consideration they decide on good faith not to exercise, beneficiaries will not be allowed to complain.

Duties and powers vary according to the character of the trust.

Some kinds of power are in principle widely available to trustee – most are now statutory and serve to facilitate the management of trust.

POWER

Trustee is under an obligation to invest the funds in authorised securities according to the powers given by the trustee instruments or under the Trustee Act 1949

Other power;

1. sale of trust property2. provision for infant beneficiaries3. power of appointment

DUTIES

Certain fundamental duties arising from fiduciary nature of trustee, eg; duty of loyalty & duty not to make personal profit out of trust property.

Duties may also be modified by the trust instrument

Other type of duties;

1. Duty to maintain custody of documents title

2. Duty to invest3. Duties towards beneficiaries4. Duty to provide information5. Duty to maintain equality between

beneficiaries,6. Duty to make proper distribution.

Sale of Trust property

Power to sell some or all trust property is usually given by the trust instrument .

In exercising their power of sale, trustee duty is obtain the best price on behalf of beneficiaries

Fry v Fry (185() 28 LJ Ch 591

The trustees were liable to make up, out of their own pocket money, the difference between selling price and the offer of £900.

S. 16 of Trustee Act 1949. Power of trustees for sale to sell by auction,etc.

(1) Where a trust for sale or a power of sale of property is vested in a trustee, he may sell or concur with any other person in selling of the

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property, subject to any such conditions as the trustee thinks fit, with power to vary any contract for sale, or to rescind any contract for sale and to resell, without being answerable for any loss.

S. 17. Power to sell subject to depreciatory conditions.

1) No sale made by a trustee shall be impeached by any beneficiary, unless it appears that the consideration for the sale was thereby rendered inadequate.

(2) No sale made by a trustee shall, after the execution of the conveyance, be impeached as against the purchaser, unless it appears that the purchaser was acting in collusion with the trustee at the time when the contract for sale was made.

(3) No purchaser, upon any sale made by a trustee, shall be at liberty to make any objection against the title upon any of the grounds aforesaid.

Power to Insure

Trustees are under no duty to insure the trust property.

They will not be liable for failure to insure if subsequent damage or loss occurs.

Unless the power to insure is stated in any express provision in the trust instrument.

S. 24 - Power to insure

(1) A trustee may insure against loss or damage by fire any building or other insurable property to any amount,… without obtaining the consent of any person who may be entitled wholly or partly to the income.

(2) This section does not apply to any building or property which a trustee is bound forthwith to convey absolutely to any beneficiary upon being requested to do so.

S. 19 - Power to compound liabilities

In the case of a legal claim, only the trustee will be able to sue

In pursuit of legal claims trustee need to use its discretion : litigation is a risky business

S.18- Power of Maintainance and Advancement

This power is very appropriate to family type-investment

The object is usually meant for infant beneficiaries (under 18) who are not yet entitled to income or capital BUT require financial support during their minority

Payment by way of maintenance are payments out of income for necessities. Eg : education

Payment by way of advancement are sums advanced from the capital

PART III of the Trustee Act 1949 deals with General powers of trustees and personal representatives, maintenance, advancement and protective trusts.

Section 36. Power to apply income for maintenance and to accumulate surplus income during a minority .

Section 37 : Power of Advancement

Permits the trustee to pay capital sums to beneficiary some time before he is entitled to claim : for the advancement and benefit of beneficiary

Trustee and the investment of trust funds

A trustee is under a duty to invest trust money in his hands. ie: to employ money in purchase of anything from which interest or profit is expected.

Matters to be considered in investing trust property

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1. The interest of life tenant2. To act fairly between beneficiaries3. Investments must produce income and

maintain capital

The Power to invest is provided by:

1) Trust instrument : incorporates wide power of investment

2) Statutory Provisions : range of investments is very restrictive (Section 4 – 15 of the Trust Act)

3) By the court.

Although investment is considered as power but the duty lies upon the trustee to continue protecting the trust assets i.e through investment.

General principle : Once assets are in, they must be protected and an important aspect is the selection of proper investment.

Divided to two:

1- Trustee have a general duty to act fairly as between beneficiaries

2- Limitations on the making of risky investment

i) Failure to invest amount to breach of trust

1) Tan Soo Lock v Tan Ger Choo (1930 ) SSLR 109 : It is a breach of trust to leave trust fund lying and was not invested.

2) In Re Tan Tye Deceased (1963) 29 MLJ 373 : The trustee fixed the trust fund in the bank account. It is a breach of trust

ii) Discretion in matter of investment

Trustee can choose where to invest.

They have to exercise the discretion as “An ordinary prudent man of business would take in managing single affairs on its own. But he can not choose speculative investment”

Speight v Gaunt (1993) 9 AC 1

Act honestly Must take into account while managing the affairs; “ all those precautions which an ordinary prudence man of business would take in managing similar affairs of business”

Followed by Bartlett v Barclays bank Trust Co Ltd (1980 ) Ch 515

Bank is the trustee

Beneficiaries : the settlor’s family and issue

Bank on the advise of the merchant bankers invested into two projects : one was successful and the other was not.

Held :Bank was liable. The bank as trustee was bound to act in relation to the shares and to the controlling position which they conferred in the same manner as a prudent man of business.

Re Whitely (1886) 33 Ch. D 347

Lindley LJ : the standard required of a trustee in exercising his power of investment is that he must “ take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.”

iii) Trustee’s personal views and investment

What is important is the interest of the trust property and beneficiaries.

Trustee will have to invest although investment may contradict his personal views

COWAN V SCARGILL (1985) CH 270

Megarry VC : they must exercise their powers in the best interest of present and future beneficiaries.

If the purpose of the trust was the provision of financial benefit, the best interest of the beneficiaries normally meant their best financial

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interest. The trustee must exercise their powers so as to yield the best return, putting aside personal interest and social and political views

DUTIES OF TRUSTEE AS FIDUCIARY

Not to take remuneration as trustee-director

Not to purchase trust property

Not to compete with trust

Towards Beneficiaries

1) Duty to maintain equality2) Duty to render account and information3) Duty to distribute

1. DUTY TO MAINTAIN EQUALITY BETWEEN BENEFICIARIESThere are 2 sets of beneficiaries:

1) Life tenant – normally wife of the deceased

2) Remainder man : those who inherit after the death of tenant for life normally child

Need to strike a balance between the provision of income for the life tenant and preservation of capital for the remainder man.

Tenant for life takes all the income

The remainderman’s interest is in the capital.

So long as those rules are observed, a trustee is usually under no duty to re- arrange investment to balance equality.

If not, they the trustee will have the duty to convert or reinvest in authorised investments depends on the terms of the trust.

HOWE V EARL OF WARMONTH (1802) 7 VES JR. 137.

The rule is that the direct conversion of an asset to take place where there is no direction in trust instrument.

Need to follow certain conditions;1. Trust must be created by will2. There must be at least two beneficiaries are entitled to succession3) Property consist of residuary personality4) The assets are vesting reversionary or of an unauthorized character. There is no contrary intention in the will. In other words trustee should convert all parts of trust which consist of future reversionary nature or unauthorized securities into authorized investments,

DUTY TO RENDER ACCOUNT AND INFORMATION

1) A beneficiaries is entitled only to see and inspect accounts.

2) It is common to provide a copy for each beneficairies.

3) Information : Trustee must have a ready supply of up to the date information.

Account : The trustee must keep accounts and be constantly ready to produce them for the beneficiaries

Information : Beneficiary are entitled to be informed about matters currently affecting the trust.

Unclear as to disclosure

RE LONDONERY’S SETTLEMENT [1965] Ch 918

Trustees bought a summons to determine the nature and extent of their duties in relation to disclosures.

COA defined what kind of trust documents that a beneficiary had a right to see.

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Salmon LJ : The categories of trust document could not be defined. They have however these characteristic in common.

1) They are documents in the possession of the trustees as trustee

2) Contain information about the trust which the beneficiaries are entitled to know

3) Beneficiary have a proprietary interest in the documents and accordingly are entitled to see them.

“If any parts of a document contain information which beneficiaries are not entitled to know, I doubt whether such part can be truly said to be integral part of a trust document.”

DUTY TO DISTRIBUTE

Failure to distribute is a Breach of Trust

If the trustee made payment to person not entitled, the beneficiary can take action to recover the payment back. Except as regards to bona fide purchaser for value without notice : Ministry of Health v Simpson [1951] AC 251

If the trustee is not clear on his duty the trustee may;

1) Seek direction from the court2)Made payment to the Court3)Benjamin Orders4) Advertisement.

BENJAMIN ORDERS

Taken from the case of In Re Benjamin [1902]

The court has power to authorize distribution of the whole of assets although not all beneficiaries or creditors have made themselves known so as to be able.

A typical situation is where the whereabouts of certain beneficiary is not known

The procedure is known as Benjamin Order

RE GREEN’S WILL TRUST [1985] 3 All ER 455

Testatrix left her property to her son provided that it should go to charity if he did not claim.The son had disappeared on a bombing raid in 1943 but the mum believed that he was not dead.

Benjamin order was made.

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S. 32 to protect themselves form BOT failure to distribute.

Trustee(s) may advertise in the Gazette and other notices including notices outside Malaysia.

Those who are interested should make their claim and he should be given 2 months to send in their particulars.

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