Personal representatives and trustees in estate administration - Remedies available to beneficiaries

Learning Outcomes

After studying this article, you will be able to:

  • Identify the main fiduciary duties of personal representatives and trustees in estate administration.
  • Recognise the legal remedies available to beneficiaries when those duties are breached.
  • Apply the relevant statutory and equitable principles to SQE1-style scenarios involving breach of trust, tracing, and removal of trustees or personal representatives.

SQE1 Syllabus

For SQE1, you are required to understand the remedies available to beneficiaries in the administration of estates and trusts. In your revision, focus on:

  • the core fiduciary duties of personal representatives and trustees
  • the types of breach that may occur in estate administration
  • the personal and proprietary remedies available to beneficiaries (including compensation, tracing, and removal)
  • the process and grounds for removal of personal representatives or trustees
  • the interaction between statutory and equitable remedies in practice

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. What is the main difference between a personal and a proprietary remedy for breach of trust?
  2. Name two statutory duties owed by personal representatives to beneficiaries.
  3. What is the effect of a successful tracing claim by a beneficiary?
  4. In what circumstances can a court remove a trustee or personal representative?

Introduction

When a person dies, their estate is managed and distributed by personal representatives (PRs) or, where a trust arises, by trustees. Both PRs and trustees owe strict duties to the beneficiaries of the estate or trust. If these duties are breached, beneficiaries have a range of remedies available to protect their interests and ensure proper administration. This article outlines the main duties of PRs and trustees, the types of breach that may occur, and the remedies beneficiaries can seek, with a focus on the requirements for SQE1.

Duties of Personal Representatives and Trustees

PRs (executors and administrators) and trustees are fiduciaries. They must act in the best interests of the beneficiaries, comply with statutory requirements, and follow the terms of the will or trust instrument.

Key Term: fiduciary duty A legal obligation to act honestly, loyally, and in good faith for the benefit of another, avoiding conflicts of interest and unauthorised profit.

PRs must collect and safeguard estate assets, pay debts and liabilities, and distribute the estate according to the will or intestacy rules. Trustees must manage trust assets in accordance with the trust instrument and the law.

Key Term: duty of care The obligation to exercise reasonable skill and care in managing another’s property, as required by statute (e.g., Trustee Act 2000 s.1) and common law.

Key Term: breach of trust A failure by a trustee or PR to comply with their duties, resulting in loss to the estate or trust or unauthorised gain.

Remedies for Breach of Duty

If a PR or trustee breaches their duties, beneficiaries may seek remedies in court. The main types of remedy are:

Personal Remedies

A personal remedy is a claim against the PR or trustee personally, usually for compensation (also called equitable compensation or an account).

Key Term: equitable compensation A monetary award requiring a trustee or PR to restore the trust or estate to the position it would have been in but for the breach.

If a PR or trustee causes loss (e.g., by negligent investment or unauthorised payments), they may be ordered to pay compensation to the estate or trust.

Proprietary Remedies and Tracing

If trust or estate property has been misapplied, beneficiaries may be able to trace and recover the property (or its substitute) from the PR, trustee, or a third party, provided certain conditions are met.

Key Term: tracing The process by which beneficiaries follow misapplied trust or estate property into its proceeds or substitute assets and claim a proprietary interest.

If the property has been mixed with other funds, the court may award a proportionate share or a charge over the asset.

Removal and Replacement

The court has power to remove and replace a PR or trustee who is unfit, unwilling, or has committed serious breach.

Key Term: removal of trustee or personal representative A court order replacing a PR or trustee where it is expedient for the proper administration of the estate or trust.

Grounds for removal include dishonesty, persistent failure to act, conflict of interest, or breakdown of trust with beneficiaries.

Injunctions and Other Equitable Remedies

Beneficiaries may seek an injunction to prevent a threatened breach or to preserve assets. The court may also set aside unauthorised transactions or order delivery up of documents.

Defences and Limitations

PRs and trustees may have defences, such as beneficiary consent, statutory limitation, or relief under Trustee Act 1925 s.61 (if they acted honestly and reasonably).

Worked Example 1.1

Scenario:
A trustee sells trust property at a significant undervalue to a friend, causing a loss to the trust. What remedies are available to the beneficiaries?

Answer:
The beneficiaries can claim equitable compensation from the trustee for the loss suffered (the difference between the true value and sale price). If the friend was aware of the breach, the beneficiaries may also claim the property from the friend (proprietary remedy). The court may also remove the trustee for serious breach.

Worked Example 1.2

Scenario:
A personal representative mixes estate funds with their own money and uses part of the mixed fund to buy shares. The estate suffers a loss. What can the beneficiaries do?

Answer:
The beneficiaries can trace their share of the mixed fund into the shares purchased and claim a proportionate interest or a charge over the shares. They can also claim equitable compensation from the PR for any loss not recoverable through tracing.

Exam Warning

In SQE1, be careful to distinguish between personal and proprietary remedies. Not all losses can be traced into specific property, and tracing is not available against a bona fide purchaser for value without notice.

Revision Tip

For exam scenarios, always identify: (1) the duty owed, (2) whether there was a breach, (3) the loss or unauthorised gain, and (4) the appropriate remedy.

Summary Table: Remedies for Breach of Duty

Breach TypeRemedy TypeExample Outcome
Loss to estate/trustEquitable compensationTrustee/PR pays for loss
Misapplied propertyTracing/proprietary claimRecovery of asset or substitute
Serious misconductRemovalCourt appoints new trustee/PR
Threatened breachInjunctionCourt order to prevent breach

Key Point Checklist

This article has covered the following key knowledge points:

  • PRs and trustees owe fiduciary duties to beneficiaries, including care, loyalty, and impartiality.
  • Breach of duty may lead to personal (compensation) and proprietary (tracing) remedies.
  • Beneficiaries can seek removal of PRs or trustees for serious breach or unfitness.
  • Tracing allows recovery of misapplied property, subject to defences.
  • The court may grant injunctions or set aside unauthorised transactions to protect beneficiaries.

Key Terms and Concepts

  • fiduciary duty
  • duty of care
  • breach of trust
  • equitable compensation
  • tracing
  • removal of trustee or personal representative
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