Trust Management, Variation & Termination.

Tutorial 4
Question 1(2) Lisa and Fran sold some of the trust shares earlier this year. The sale proceeds were 10,000. They left them in a safety deposit box at the bank for 6 months. What duties (if any) have been breached and why? The trustee(s) are known as being in a fiduciary relationship. This is defind as an individual who is aware that his judgement,confidence has and will be relied upon, by the claimant in a relevant matter. The courts test this concept in a flexiable and wide interpretation. It is ultimately a question of fact and one of degree. It is expected that a fiduciary should be expected to act selflessly and in the intrests of the benificary with loyalty to the beneficiary. A definition fo a fiduciary was given by Millet LJ in Bristol and West BS v Mothew [1994] 4 All ER 698. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to trust and confidence.1 Furthermore he must act in good faith; he must not make a profit of his trust; he must not place himself in a position where his duty and intrest might be in conflict. He must not act for his own benefit or for a third person unless he has informed consent of the princiable, these are accourding to Millet LJ the definning characteristics of a fiduciary. Statute has now intervened giving a new standard of care in S1 Trustee Act 2000.2 Leaving the money in the safety deposit box is wrong unless there is a good reson to do so. They, the trustees have a power to invest, but are not obliged to do so. There could be found to be a breach of the duty to act on good faith with loyalty to the benificary if they have not considered options to invest the money.

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Bristol and West BS v Mothew [1994] 4 All ER 698. Trustee Act 2000.

It is fair to reason that the 10,000 has been safe and that any income to be derived from it would over the course of six months be fairly small with interest rates so low, therefore no real breach has occurred as was found in Nestle v National Westminster Bank [1993] 1 WLR 1260.3 In order to show that they had considered what to do with the 10,000 they would have to show evidence, such as minutes of meetings etc..and that that they had used resonable caution in the matter. If you could prove as the benficiary considerable loss all the trustees including Emily would be jointly and individually resposible for the losses. Question 1(3) Michela and Tom, her 20 year old son, have asked to see the trust accounts and deciding how the fund is invested. The Trustees have refused. What duties (if any) have been breached and why? Trustees must keep clear and accurate accounts, furthermore a beneficiary is entitiled to see all reasonable information about the operation of the trust.The duty here is the duty to account, a non fiduciary duty. O Rourke v Derbyshire [1920] AC 5814, Lord Wrenbury declared that it is a proprietary right of the beneficiary as the documents belong to him. He went on to draw a distiction between disclosure and discoveries. However Schmidt v Rosewood Trust Ltd [2003] 3 ALL ER 76 decided that trustees are not bound to give reasons on why they have used their discretion; no beneficiary has an entitlement, as of right, to disclosure trust documents. However they can ask to see the documents as a right by going to court. The court will then decide exactly what they can see and what will be held back or redacted The fact that the Trustees have refused to discuss the request to make an advance therefore is a breach by them as they must a least discuss and give reasons why not to give Michela and Tom the trust accounts.

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Nestle v National Westminster Bank [1993] 1 WLR 1260. O Rourke v Derbyshire [1920] AC 581

Question 1(4) Tom complains that the trustees will not even discuss with him a power of advance capital even though Michaela supports him in this position. . What duties (if any) have been breached and why? Power of Advancement is in S32 Trust Act 1925. The consent of the beneficary must be given, in this case his mother Michela, who has given her support to the request. He therefore could request upto a 50% advance of the capital. The trustees have a duty to account and to act in good faith which is a fiduciary relationship.This power is not a personal power but a power of appointment which is granted to an individual virtue officio (by virtue of his office), such as a trustee. A fiduciary power is like a personal power in only one respect, that there is no obligation on them to distribute the property requested.They are however as trustees required unlike a personal power to deal with the discreation in a responsible manner. This means therefore that a number of duties are imposed upon them. This was summarised in Re Hays Settlement Trust [1982] 1 WLR 2025 by Meggary VC. The duties of a trustee which are specific to a mere power seem to be threefold.One being the obvious duty of obeying the trust instrument, in particular not making any appointment that is not authorised. Secondanly consider the range of objects of the power and thirdly consider the appointments of individuals and there appropriateness. 6 He stated that this was not an exhaustive list but the essentials so far as that case was concerned. The trustees must consider the request, which in this case they have not. This means they are in breach of the duties of the trust. They could have given instead reasons why they are not bowing to the request for capital in a wriiten form such as minutes from meetings held. This would mean they were compling with the duties of the trust as trustees.

Re Hays Settlement Trust [1982] ! WLR 202

Re Hays Settlement Trust [1982] ! WLR 202

Section 32 of the Trustee Act 19257 states that, subject to the finding of a contrary intention, all trusts created after 1925 offers the trustees discretion absolutely to apply capital (money) to advancement or benefit of the beneficiary. The words use benefit widen the scope of the power to make payments. Section 32 (1)(a) goes further by imposing a half share rule. This means that the money advanced does not exceed altogether in amount one half of the presumptive or vested share or interest of that person in the trust property8 This ensures that an advance Michaela and Tom would therefore ask the court to intervene to remendy the situation. The discretion of the court will be used to ensure that it will not have a detrimental effect on the trust to comply with the request for an advance. There is a cap in place of 50,000 under S329

Question 1(6) The trust fund has a substantial shareholding in a fast food company, Mcburger Ltd, Lisa has recently opened a resturant called Fine Dining Ltd in Burton-upon-Trent. . What duties (if any) have been breached and why? A trustee may not make an unauthorised profit. He must not place himself in a position where his duty to the trust and his own intrest might conflict. In Keech v Sandford (1726)10, illustrates this, were a trustee signed a lease for his own favour. It was held that no fraud had taken place as the lease was held by the trustee on trust for the infant beneficiary. This rule will only apply however, when a trustee or some other fiduciary obtains a benefit. This is illustrated in the case of Boardman v Phipps (1967), Mr Boardman a solicitor for the trust decided to use his own money in order to re organise a company that the trust had shares in. He used the shares to obtain a controllin interest in the company and install new magement. He and the trust made large returns on the shares held. However the profit made by the knowledge that was available to him from his position
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Section 32 of the Trustee Act 1925 Section 32(1)(a) of the Trustee Act 1925 9 Section 32 of the Trustee Act 1925 10 Keech v Sandford (1726)

as trust solicitor while acting on behalf of the trust and in a fiduciary capacity. This ment all the profit made had to be given to the trust it was not his. It is worth noting that it was held in this case that the mere hint of conflict is enough. Therefore Lisa would be in conflict with the trusts interests and has a fiduciary duty to have the trusts interests first. A fiduciary relationship is where one party or parties undertake to act in relation to the property or affairs of another (the benficiary) that give effect to a relationship of trust and confidence. Therefore the trustee owes core duties of loyalty and fildelity. In turn all profits made by Lisa at the resturant will have to be paid to the trust fund. Harry and Julie are trustees of a trust for Amanda for life, remainder to Amandas children living at the time of her death who attain 21. Amanda is 40 and she has two children Kevin,19 and Rachel, 5. Amanda wants to alter the terms of the trust so that she recives half of the capital immeadiately and the other half is held for her children who reach 25. Her reasoning for this is to save tax. The rule in Saunders v Vauntier (1841) 4 Beav 11511 Is if the benficiaries are of full age (18+) and of sound mind and are entitled absolutely to the trust property, they are able to deal with the equitable interest in any way they see fit. This means they can sell, gift away or exchange their interest. It must be also noted that beneficiaries acting as one are able to end a trust, to terminate it. They can also acting as one empower the trustees to perform any acts as they as beneficiares consider appropriate or to put it another way they are collectively entitled to rewrite the terms of the trust. It is not possible to use this rule in this case as the daughter Rachel is only 5 years of age and not of full age 18+. The court has little power to authorise a change to the terms of a trust, but a varition can be made under the inherent jurisdiction of the court. This was set out in the house of

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Saunders v Vauntier (1841) 4 Beav 115

Lords in Chapman v Chapman (1954)12 which are limted to three instances. These are salvage and emergency, compromise; and maintenance. There is a limited juridiction of the court to approve compromises on behalf of minors who are beneficiaries. Re Devonshire13 court will not re write a trust the exceptions being Amanda consents Saunders v Vauntier14, over 18 and of sound mind, entitled to and has a vested interest. Absolute indefisable interest not contingent, no longer need trustees. Varation Trust Act 195815 court can approve this variation, this is not new settlement Re Ts Settlement16 .

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Chapman v Chapman (1954) Re Devonshire 14 (1841) 4 Beav 115 15 Varation Trustees Act 1958 16 Re Ts Settlement