The Law and Trustees: A Critical Review of Trustee Duties an Standards for Running Trusts - Essay Example

The Law and Trustees: A critical Review of Trustee Duties an Standards for Running Trusts Contents Introduction 3 English Law and Trustees: The Supply of Trustees 3 Standards of Performance for Trustees 5 Ensuring Satisfactory Performance for Trustees 6 Conclusion 8 Bibliography 9 Books 9 Cases 9 Statute 9 Introduction Every trust involves a settlor who seeks to achieve specific intentions by creating a trust. However, the creation of a trust or transferring a trust to the trustee does not actually create this end in full. There are numerous possibilities where a trustee might not meet the standard required of a decent person managing a trust in good faith. In other instances, a trustee might negligently manage a trust. In other cases, there could be some kind of reckless decisions that might not be in the best interest of the beneficiary or settlor. Gardner therefore makes the statement that “Fundamentally, though, the law also needs to ensure that there is a decent supply of people willing to serve as trustees…The centre of this effort must lie in ensuring that the demands made of trustees –their duties – are kept within tolerable bounds.’ In line with this statement, this paper examines and critiques the mechanisms that are put in place in English law to ensure that trusts are performed by trustees and the mechanisms put in place to ensure that trusts are performed properly. Therefore, we look at the minimal standards placed upon trustees and the mechanisms put in place to force trustees to meet these standards. English Law and Trustees: The Supply of Trustees According to the principles established in the case of Dodkin V Brunt1 it is identified that in the case of every trust, the settlor must identify a trustee to carry out the specific instructions that keeps the trust going. In cases where there is no such trustee to be found, the court will have to appoint one for the trust in order to keep it as a reasonable trust legal instrument recognised in English law. Section 39 of the Trust Act 1925 allows trustees to have some kind of discretion to either continue as trustees or opt out. However, in most cases, the humane motive and furthering a given cause or the profit motive encourages people from major professional bodies like attorneys, solicitors and accountants to be nominated to head trusts. In cases where the rules are too stringent, many people might want to opt out of taking up trusteeships. This is because in cases where there are many very rigid requirements and obligations placed on trustee, there is a general tendency for suitable persons to decline such appointments. Due to this, there is a general need for the law to be less demanding and realistic in order to create a framework and a system through which people can reasonably take this role and balance the competing needs and expectations of their roles with the requirements of being trustees. Thus, sensing that there were few people seeking to become trustees in the mid 1890s, the House of Commons Select Committee Report on the Administration of Trusts 1895 recommended the softening of rigid rules on the duties of trustees and encouraged the giving of remuneration for trustee services2. Historically, this created the opportunity for people to work within a setting where they could use some kind of comply-or-explain system to ensure that they sought the best interest of the trusts they managed as trustees3. These standards have been developed and enhanced over the years to ensure that trustees operate according to an appreciable level of expectation. Standards of Performance for Trustees Penner makes a distinction between the fiduciary and the trust obligations of a trustee. Basically, as an agent, a trustee has the obligation to act in good faith without seeking his own personal desires or expectations but there is an inherent obligation of a trustee to avoid breaching the fundamental elements and aspects of a trust4. Therefore, there is a proper act that is stated within the trust that the trustee must ensure occurs and this is absolute in itself and inherently defined in the trust. Failure to do so results in a breach of trust. On the other hand, where there is a misconduct or a conflict of interest involving the trustee, this is considered as a breach of fiduciary duty. There is a general liability for a trustee to account for the use of the trust. This therefore implies that there is an obligation for a trustee to keep the trust’s property separately from his own account or personal properties. This is because the accounting will give the beneficiary the right and reference point to ensure that the trustee is doing what is required of him or her. In cases of ambiguity, a trustee has the right and obligation to go to court to seek an interpretation of a given situation or concept that is not clear in law and this must be at the expense of the trust5. This is an elucidation of the general obligation to ensure that there is proper care and sensitivity to what exists in a given situation and context and this guides the trustee in terms of what s/he must do in relation to carrying out activities and conducting affairs in order to meet the basic and fundamental requirements and expectations of the trust owners and the beneficiaries in every case and situation. Trustees are required to act on their own initiatives to seek the best interest of the trust otherwise they could be held personally liable for breaches and this is enshrined in section 61 of the Trustee Act 1925. It provides a fundamental obligation and a general requirement for trustees to ensure that all reasonable care is taken and due diligence is factored into the affairs of running a trust in order to attain a given standard of results that will benefits the beneficiaries and meet the fundamental ends sought by the settlor in creating the trust. Ensuring Satisfactory Performance for Trustees The law sets out a framework to ensure that undesirable persons who cannot exercise sound judgements or meet the best interests of the trust are not appointed as trustees. For instance children cannot be appointed as trustees under section 20 of the Law of Property Act 1925. Persons convicted of crimes of dishonesty, bankruptcy are often banned from becoming trustees for charitable organisations according to Section 72 of the Charities Act 1993 and are required to resign as trustees under Section 36(1) of the Trustee Act 1925. With these standards and requirements, persons who are bound to run a trust in a negative way and less satisfactory manner can be eliminated from becoming trustees and hence, there is a general trend towards ensuring optimal performance amongst trustees in a the jurisdiction of English Law. The second item that ensures that trusts are ran satisfactorily is the visibility of trust activities to those interested in the trust. This is because according to Re: Londonderry’s Settlement6, it was held that a beneficiary is entitled to documents constituting the trust thus, the trustee has an obligation to record the state of the trust and its content and submit them for auditing by interested parties with the authority to make such demands. Also, trustees are required to disclose their running of the trust at any rate as a matter of routine. Hence, there is a general check that inherently requires that trustees keep some degree of transparency. Due to this, trustees cannot run a trust as they deem fit. Rather, they will have to take reasonable steps to ensure that they carry out their activities in a way and manner that is consistent with the requirements and expectations of the people who hold various levels of interests in the trust. There are three sub-rules that forbid a trustee from doing things that are against the interest of the trust and they include: 1. Prohibition against agreements that are calculated to influence their conducts7 2. The prohibition against purchase of property from their own trust8 3. Prohibition against extracting profits from a trustee’s own trust9 This involves prohibitions against agreements that indirectly induce their conduct and cause them to take a path that they will not normally get to choose or carry out. This keeps trustees productive and in the right track towards the attainment of their required results. There is a second prohibition against purchasing property from their own trusts. This creates a process and system in which trustees become prejudiced and it can keep them from conducting themselves in a way and manner that is appropriate. Finally, there is a prohibition against running a trust in a way and manner that gives a trustee profits that are not authorised. These three pointers forces a trustee to focus and carry out activities that are compliant and on the right pathway towards the attainment of proper and appropriate results as defined and stated in the trust arrangement. Conclusion The research identifies that a trustee has the obligation and the requirement to do things in a way and manner that is based on standards that prevent fiduciary breaches and the breach of trust. This involve basic rules that forces a trustee to act appropriately and some specific rules that are meant to attain a level of results and go beyond the normal. Bibliography Books Birks, Peter & Pretto Arianna. Breach of Trust. London: Hart Publishing. 2010. Gardner, Simon. An Introduction to the Law of Trusts. Oxford: Oxford University Press. 1999. Penner, JE. The Law of Trusts. Oxford: Oxford University Press. 2013. Stebbings Chantal. The Private Trustee in Victorian Britain Cambridge: Cambridge University Press. 2002. Cases Dodkin V Brunt [ 1868] LR 6 Eq 580 Keech V Sandford [1726] Sel Cas t King 61 Re Broklehurst [1978] All ER 767 Re Londonderry’s Settlement [1965] Ch 918 Vatcher V Paul [1915] AC 372. 379 Statute Charities Act 1993 Law on Property Act 1925 Trustee Act, 1925 Read More