Variation of Trusts and Estates (Essay Style)

2009

Beneficiaries Right to Information( Essay Style)

Speight v Gaunt “a general rule a trustee sufficiently discharges his duty if he takes in managing trust
affairs all those precautions which an ordinary prudent man of business would take in managing affairs
of his own”

A professional and or paid trustee maintains a higher duty than an ordinary trustee. Higher standard of
due diligence and knowledge than an unpaid trustee, due to the fact that it holds itself out to have
higher degree of experience and skillsets.

Luke and John as trustees are under a duty to convert and apportion the trust assets, both under the
express provisions contained within the will, as well as a common law duty emanating from the case of
Howe v Lord Dartmouth.

The common law duty

Within the context of this question Martha is deemed to be the life tenant and the children are deemed
to be the remaindermen.

Legal Issue

Whether or not the trust assets are wasting or reversionary in nature?

Wasting assets items which will diminish in value. So by the time that the life tenant dies they may be of
little or no value to the remainderman. (i.e leaseholds, copyrights, royalties, motor cars, and racehorses)

Reversionary interest “any interest in property which is not immediately available on T’s Death and
which will only become available at sometime in the future. (i.e. life insurance policy)

The principle of Conversion and Apportionment is a presumption which can be rebutted.

Express Provision

Intention indicating otherwise

Dissection of Question: Duty to Convert and Apportion Perspective

The Will

Holding Assets upon trust for sale

Required to invest the proceeds of sale

Protective Trust

Life Tenant and Remainderman

 Residuary Personalty

Settled by Will

Enjoyed In Succession

Sell such part that is Wasting and or Reversionary nature

Duty not to Profit from the Trust

Bray v Ford

“It is an inflexible rule of a court of equity that a person in a fiduciary position is not unless otherwise
expressly provided entitled to make a profit, he is not allowed to put himself in a position where his
interest and duty conflict.”

This principle applies to all fiduciaries and its application to trustees is seen in the following rules:

a) Remuneration1 That a trustee acts gratuitously and is not entitled to payment or remuneration
for his services unless the trust instrument so provides
b) Self Dealing That a trustee may not purchase the trust property from himself and his co
trustees (the rule against self dealing) and
c) That a trustee is accountable for any incidental profits he makes from his position.

The beneficiary can have the self dealing purchase set aside, due to the fact that there is an absolute
prohibition against self dealing, no matter how fair the transaction may have been and however
beneficial it may have been to the Trust Estate. Roywest Trust Corporation (Bahamas) Ltd. V Savannah
NV

1
Justifiable Exceptions to the rules on Remuneration

1. Expenses
2. Remuneration Authorized by the Trust Instrument via a Charging Clause
3. Remuneration Authorized by statute
4. Remuneration Authorized by the court (Inherent Jurisdiction)
5. The case of Re Duke of Norfolk’s Settlement Trusts established that the court retains the
inherent jurisdiction to authorize remuneration where there is no charging clause in the
trust instrument and to authorize an increase in the agreed remuneration where there is a
charging clause. The basis for such inherent jurisdiction is grounded on the “good
administration of trusts)
6. Agreement with the Beneficiaries (All beneficiaries are sui juris and absolutely entitled to
the whole beneficial interest in the trust.)
Whether or not the Trustee will be deemed liable for Director fees?

Re Gee J Harman A Trustee is accountable only where (a) he has powers qua trustee, which (b) he uses
(c) to procure his appointment as director.

The court can allow retention of the fees, taking into account the degree of skill and effort shown by the
trustee/director in managing the company’s affairs.

An Express provision contained within the trust document can enable the trustee to hold the directors
fees.

Keech v Sandford

Principle that a trustee must not allow his personal interests to conflict with his duty to the trust.

Duty to Distribute

Methods of the Trustees Negating Liability

1. Application to the Court for directions

2. Payment into the Court (where beneficiaries cannot be ascertained
3. Benjamin Order is an order of the court authorizing the trustees or personal representatives to
distribute the whole assets of the estate to those creditors or beneficiaries who have been
ascertained, although there may be other unidentified beneficiaries and creditors. Trustees will
be held not liable and an action will be able to be brought against any person who has been
overpaid or he may trace against the property itself.
4. Advertisements for Claimants (two Months Official Gazette and twice in each of the local
newspapers)
Trustees are bound by four primary duties which are as follows:

Trustees must abide in accordance with the express terms of the trust instrument

Duty to Invest
What form of investment are the trustees entitled to make?

The terms of the trust document expressly authorize the trustee to perform certain investments.

Absence of an express term in the trust document authorizing the trustee to perform “any kind of
investment then the trustee will be deemed to abide by the Trustee Investment Act 1961

General Rule

The Trust investments must produce some income. 2

3

The Standard of Care

Take such care as an ordinary prudent man would take if he were under a duty to make the investments
“for the benefit of other persons for whom he felt morally bound to provide.

Re Whiteley

General Principles on Investment

1. Aim for Diversification

2. Avoid Hazardous investments
3. Should select interest bearing securities and
4. Should hold a balance evenly between the tenant for life and the remainderman.

2
However issues arise when there are requests made expressly by one of the beneficiaries of the trust.
Especially when there are distinctive differences in the nature of the beneficiaries, namely a life tenant
vs a remainderman, due to the fact that there will be diverging interests in the investment portfolio.

3
Three Types of Trust Investments

1. The Capital Value does not Fluctuate

2. Fixed interest Securities
3. Debentures
Duty to Convert and Apportion

General Rule

Trustee is under a duty to “hold the balance evenly between the life tenant and the remainderman, he
must act impartially and not favour one at the expense of the other.

Leading Case

Howe v Lord Dartmouth

Two Parts

Residuary Personalty is settled by will in favour of persons who are to enjoy it in succession, the trustees
are under a duty to convert (that is to say sell ) such part of it as if a wasting or reversionary proceeds in
authorized securities, unless there is a contrary provision in the will.

Where there is a duty to convert property under the rule in Howe v Lord Dartmouth there is a duty to
apportion the income of the property pending sale, unless the will shows an intention that the life
tenant is to enjoy the income until sale.

Duty to Profit from the Trust

Duty to Distribute

Legal Issues

General Rule (legal principle)

Tests to Be Applied

Legal Authority (Statute and Case Law)

Vocabulary

Life Tenant
Remainderman