Obligations of Trustees under the Will - Essay Example

Trust Law Case Law Introduction “He is thebeneficiary of a generous trust set up by his father” his condition or obligation of one to whom anything is confided; responsible charge or office.” We can summarize the term trust in this manner. The trust property is something held by one party for the benefit of another and the first party is called as the trustee and second party is the beneficiary. The main intention behind the creation of trust is that the devisee or grantee shall convey it, or dispose of the profits, at the will, or for the benefit, of another; an estate held for the use of another; a confidence respecting property reposed in one person, who is termed the trustee, for the benefit of another, who is called the cestui que trust. Law of equity and trust confers the provision regarding the trust. It laid down several duties and responsibilities for the trustees. Moreover there are provisions like co-ownership, proprietary estoppels, fiduciary relationship etc. Apart from this, one of the prominent feature of trust is, it can be raised from either trust deed/covenant as said before or by the Will, i.e. a testamentary trust is a trust created by a Will or a codicil to a Will. A testament is a Will. Now we shall discuss the scope of trust before analyzing the issues in the given problem. Scope of Trust As said before, generally we can define the a trust as a capacity by which a person can transfer title of the specific property to another who agrees to hold or manage it for the benefit of a third person. A trust of land is any trust of property which consists 2 of or includes land and the trustees of such a trust are trustees of land. Any description of trust includes an implied resulting or constructive trust and a bare trust. (1) An implied trust is based on the presumed intention of the parties at the time the property is acquired by the resulting trustee. That is the point at which the contributors beneficial interests crystallise. The beneficial shares are unaffected by subsequent conduct. This scope of implied trust has been rightly explained in Cowcher v Cowcher (2). Moreover a trust can be defined as a "land" which includes land of any tenure and property divided either vertically or horizontal (as in the case of a block of flats) and easements, but does not include an undivided share in land. (3)Now we shall scrutinize how far the scope of trust of land and its various ingredients will help to analyze the issues brought up in the given problem. PART 1 Before deciding rights of Ayesha and Ben in the property, the meaning and significance of the concept co-ownership and beneficial joint tenants is to be explained. Beneficial joint tenants Co-ownership (4) is where a person is entitled to hold land together with others who have simultaneous interests at the same time they are said to hold concurrently. Where ever there is co ownership there will be a trust of land. There are 2 types of co-ownership --------------------------------------------------------------------------------------------------------- 1. Trust of land and Appointment of trustees Act 1996, sub-section (1) (a) 2. Cowcher v Cowcher [1972] 1 WLR 425 (CA) 3. Law of property 1925 Act, Section 205(1) (ix) 4. Law of Property Act 1925, Sec 1 2 a) joint tenancy b) tenancy in common In this case the parties are beneficial joint tenants. Here only unity of possession is essential .Beneficial joint owners can have same interest in the land for the same length of time. Also they can receive their interest in the land in the same way from the same document. The joint owners in this category has no right of survivorship, but they can leave his share in his will. A beneficial joint tenant has his own share in the land but it is not yet divided up. So in this case Ayesha can claim her share in the property as she is the co owner whatever may be the background of availing the property in her possession. And also she can have her share of deposit from the bank. PART III There will always be some testators who draft their own will trusts, there will always be those who die intestate so that their property passes on statutory trusts, and there will always be legally qualified draftsmen who will not draft trusts as ably as other draftsmen. All deceased estates are for a time at least, “testamentary trusts”. On death, the assets of the deceased vest in the executor. A trust left in a Will may be a discretionary trust - which allows the trustee the discretion to distribute income or capital to the beneficiaries. It may be a fixed trust where the income distribution is fixed for a period – usually for the income beneficiary’s life .It may also be fixed in the sense that a particular person has right to occupy a house for life or until marriage or entry into a nursing home 3 or whatever. (5) Obligations of trustees under the Will The rule is that the trustees must consult with the beneficiaries "in the exercise of any function relating to the land subject to the trust"(6). In the case of trust created as per Will an Executor is obligated to execute the terms of a Will in strict accordance with the “the testators" instructions, subject to the rule that a trust under the Will only arises if expressly declared by the testator. They must completely manage and administer the trust fund. Trustees must be acquainted with the terms of the trust and all associated documentation. The trustees would be injudicious to invest all the estate funds in high income, low capital growth investments. And lastly, trustees must keep proper accounts and full records of all their decisions. Trustees are bound by powers given to the trustees under the Trustee Act 1956 with any specific powers mentioned in the will. Fiduciary Duties “A fiduciary is someone who has undertaken to act for or on behalf of another in particular manner in circumstances which give rise to a relationship of trust and confidence. A fiduciary must act in good faith; and he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. . ---------------------------------------------------------------------------------------------------------------- 5. eJTR (2006) Testamentary Trusts: Not Just “Another” Trust Arlene Macdonald 6. Trust of land and appointment of trustees Act 1996 Sec.11 4 The trustees /executors must never put themselves in a position of conflict between their duty as trustees and their personal interest. They cannot profit from their role as trustees. So for example, without specific authorization or the consent of all beneficiaries, it would be unreasonable for trustees to buy property from or sell property to the estate I.e. the Trustees always for their work. The trustees have a duty to act in good faith and in the interests of the beneficiaries. Thirdly, trustees cannot delegate their powers and must act personally. The trustees should be consulted about matters and agree before taking action. Emphasizing on the fiduciary relationship of trustees and beneficiaries in Bristol and West Building Society V Mathew(7) it was described that a servant who loyally does his incompetent best for his master is not unfaithful and not guilty of a breach of fiduciary duty, but may be guilty of a breach of a duty of care. Breach of trust(8) If a trustee commits a breach of trust, the beneficiaries may either affirm the transaction or, if a loss has occurred, hold the trustee liable for the amount necessary to compensate fully for the consequences of the breach. This may include recovery of lost income, capital gain, or appreciation that would have resulted from proper administration. (9) A trustee who commits a breach of trust is liable to the beneficiaries affected for the greater off, (1) the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred; or ----------------------------------------------------------------------------------------------------------- 7. Bristol and West Building Society V Mathew [1996] 4 All ER 698, 711 8. Anguilla, D, John (2007) Trusts & Trustee Volume 13, Number 8 Pp. 276-281 Published by Oxford University Press 9. Restatement (Third) of Trusts: Prudent Investor Rule § 205 (1992), Subsection (a) 5 (2) the profit the trustee made by reason of the breach. A trustee, or other person in a fiduciary position, is individually liable for his breach of trust or fiduciary duty. In this regard in Ministry of health V Simpson (10) it was held that a trustee is strictly liable for any breach of trust that he commits, even though he acts bona fide. However, it is probably a default for a trustee to fail to supervise the actions of a co-trustee, or to stand by while his co-trustee commits a breach of trust.This view is portrayed in Bahin v Hughes(11). Now we examine what all defenses/exemptions are available for a wrong doer trustee under the law. Defenses/Exemptions The trustees do not, however, have to consult all the beneficiaries of the settlement, but only those of full age and entitled to a beneficial interest in possession in the land (as to which see Section 9(1) above). Trustees hold the legal estate and (s.6), in general, provided they act in accordance with rules of equity and trusts, they have the powers to deal with land as an absolute owner. Here the testamentary trustees has got an exclusive powers of appropriation of trust property without the consent of person by virtue of limitation laid down in section11 of trusts of Land and Appointment of Trustees Act 1996. In the actual condition or state of investment of the same at the time of appropriation in or towards the ----------------------------------------------------------------------------------------------------------- 10. Ministry of health V Simpson (10) (1951) AC 251 11. Bahin v Hughes(11) (1886) 31 Ch D 390 6 satisfaction of the share or interest of any person or persons in the Trust Property (para 8 sch A) Moreover a trustee may be exempted from this in the following case. No Trustee shall be liable for any loss or damage which may happen to the Trust Fund at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud. In 1998 in Armitage v Nurse(12) the court exclude liability for ordinary or even gross negligence. The court held that a clause could exclude the trustee from liability for loss or damage to the trust property “no matter how indolent, imprudent, lacking in diligence, negligent or willful he may have been, so long as he has not acted dishonestly”. It is now settled law in England and Wales that trustee exemption clauses can validly exempt trustees from liability for breaches of trust except fraud.(13) Pertaining to the above provisions under various laws, we can assume the breach of trust committed by Ruth. It is apparent from above principles that Ruth has done breach of trust. Since she has not done it for the benefit of the trustees, undoubtedly it is misappropriation of trust fund for which she will be liable. Moreover she has not consulted the matter with beneficiaies and it is no longer a defense that the matter has been discussed with other trustees. Regarding the liabilities of other trustees, knowingly or unknowingly they are also liable for the act of Ruth, by the decision in Bahin V Hughes. -------------------------------------------------------------------------------------------- 12. Armitage v Nurse [1997] 2 All ER 705 13. Gisborne v. Gisborne, Underhill & Hayton, Law Relating to Trusts and Trustees (14th ed., 1987), p. 586 Pettit, Equity and The Law of Trusts (5th ed., 1984), p. 331. Snells Principles of Equity (28th ed., 1982), p. 234. 7 PART III Sole Ownership is where a person is entitled to hold land without any other person being joined with him or her in his or her own right at any one time he or she is said to hold in severalty. Under this circumstances also, the scope of implied trust may arise. If there is no declaration of trust in writing, signed by the person able to declare such a trust, the transferor, in compliance with LPA 1925 s.53 (1)(b), and beneficiaries will have to persuade a court that a trust relationship has been established on an implied trust basis. It doesnt matter that an implied trust of the shared home for the purposes of establishing the non-legal owners claim to a beneficial interest. However, the distinction is critical when it comes to determining the size of the claimants beneficial share. But it is to be remembered that the share is directly proportionate to the cash contribution to the purchase price. The scope of the allotment of share under implied trust has been given in Stack v Dowden(14) Proprietary estoppel Proprietary estoppel is another area in trust law and property law. The rule is that when a proprietary estoppel claim is successful, the claimant has an equity which binds the legal owner against whom the claim is made. The appropriate remedy, to satisfy that equity, may be to give effect to the claimants expectation which the legal owner is estopped from denying. There must be detrimental reliance on the assurance or silent encouragement to the extent that it is unconscionable in all the circumstances to repudiate ------------------------------------------------------------------------------------------------------------ 14. Stack v Dowden(14) [2007] UKHL 17 8 that assurance and deny the claimants expectation: In Yeoman’s Row Management Limited v Cobbe(15) by accentuating on expended substantial labour, skill, time and money to obtain a planning permission by the party the court enumerated that the fundamental question for the court in each case is to decide what relief justice requires to satisfy the equity. Relevant factors include the nature of the expectation created by the defendant’s conduct; the detriment suffered by the claimant in reliance on the defendant’s representations; the degree to which the defendant’s conduct can properly be said to be unconscionable; and the need for some proportionality between the claimant’s expectation and his or her detriment.’(16) In the given case Ayesha can be considered as a sole owner of the property since the property conveyed in her names. But Ben can have the right of co owner of the same property as the law gives the power through the provision of implied trust. However, if the property sold, he is only entitled to get the share directly proportionate to his cash contribution for the purchase price. Whatever he has done, whether it is in the form of house hold work or it is in the form of garden room he is entitled to get the said share. It is not the matter that he has some interest in the property. Conclusion Land law legal form an innovative mechanism enabling new solutions to be provided in respect of the problems set out elsewhere in this type of dispute, whether it is ------------------------------------------------------------------------------------------------------------ 15. Yeoman’s Row Management Limited v Cobbe(15) [2006] EWCA Civ 1139 16. The Remedial Discretion in Proprietary Estoppel (1999) 115 LQR 438 that “the approach is for the court to adopt whatever style and measure of relief it thinks fit, for whatever reason it thinks fit.” related to family or it is of general. Through the concept of ‘co-ownership’, and the ‘trust’ which flows from it, we can see the possibility of a truly sustainable development model where it is in the interests of developers to develop property that is energy efficient and sustainable rather than the reverse. ******************* Bibliography Books and Authors 1. Anguilla, D, John (2007) Trusts & Trustee Volume 13, Number 8 Pp. 276-281 Published by Oxford University Press 2. Goldworth, J (4th edn Oxford University Press, Oxford) The Law of Trusts and Equitable Obligations ISBN-10: 0-19-928535-7; ISBN-13: 978-0-19-928535-8 PP Statutes 3. Law of property Act 1925 4. Trustee Act 1925 5. Trustee Act 2000 6. Trusts of Land and Appointment of Trustees Act 1996 7. Restatement (Third) of Trusts: Prudent Investor Rule § 205 (1992), Journals and publications 8. Bray,J Key ,(2006) Cases: Equity & Trusts ISBN-10: 0340926805 Published: 25/08/2006 9. Horne,R, The New Land Law A Commentary on the Trusts of Land and Appointment of Trustees Act 1996 10. Macdonald, A eJTR (2006) Testamentary Trusts: Not Just “Another” Trust Table of cases 1. Armitage v Nurse [1997] 2 All ER 705 2. Bahin v Hughes (1886) 31 Ch D 390 3. Bristol and West Building Society V Mathew [1996] 4 All ER 698, 711 4. Cowcher v Cowcher [1972] 1 WLR 425 (CA). 5. Ministry of health V Simpson (1951) AC 251 6. Stack v Dowden [2007] UKHL 17 7. Yeoman’s Row Management Limited v Cobbe [2006] EWCA Civ 1139 Read More