Roles and duties of trustees arising from wills and intestacy

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Marianne has been appointed as a trustee for the estate of her late brother, who died intestate, leaving a spouse and a 14-year-old child as the only heirs. Among the estate assets is a large collection of encrypted cryptocurrencies stored in several digital wallets. Marianne has minimal experience administering digital assets but is aware that professional guidance may be necessary to discharge her obligations properly. She also worries about the significant market volatility associated with cryptocurrencies and how it might affect the beneficiaries’ interests. The spouse favors immediate liquidation for security, whereas the child’s guardian advocates holding these assets for potential long-term gains.


Which of the following is the single best explanation of Marianne’s fiduciary responsibilities regarding the estate’s cryptocurrency assets?

Introduction

The administration of an estate upon an individual's death requires a thorough knowledge of the legal roles and duties assigned to trustees under wills and intestacy laws. Trustees are entrusted with managing and distributing assets in accordance with the deceased's wishes or statutory provisions when no valid will exists. Governed by statutes such as the Trustee Act 2000 and the Administration of Estates Act 1925, as well as established common law principles, trustees must manage complicated responsibilities to ensure lawful and ethical estate administration.

Personal Representatives and Trustees: Distinct Roles in Estate Administration

Estate administration involves two primary roles: personal representatives and trustees. While they often overlap, recognizing the distinctions is essential.

Personal Representatives: Executors and Administrators

Legal Framework and Appointment

Personal representatives are responsible for managing the deceased's estate. They are classified as:

  • Executors: Appointed by the will to execute the testator's instructions.
  • Administrators: Appointed under the rules of intestacy when there is no valid will or no executors are named.

Under the Administration of Estates Act 1925, personal representatives obtain their authority either through a grant of probate (for executors) or letters of administration (for administrators). Their role is foundational to estate administration, ensuring that the deceased's affairs are settled appropriately.

Duties and Responsibilities

Personal representatives have a legal obligation to:

  1. Gather and Secure Assets

    They must locate, collect, and safeguard all assets belonging to the estate. This includes properties, bank accounts, investments, and personal belongings.

  2. Assess Liabilities

    Identifying and settling any debts or obligations the deceased had is imperative. This may involve paying outstanding bills, taxes, or loans.

  3. Distribute the Estate

    After settling debts, the remaining assets are distributed to the beneficiaries according to the will or, in cases of intestacy, the statutory rules.

  4. Maintain Fiduciary Duty

    Personal representatives must act in the best interests of the beneficiaries, exercising care, honesty, and impartiality in their duties.

Practical Challenges and Ethical Considerations

Consider a scenario where an executor discovers unexpected debts after the deceased's passing. Handling these liabilities requires meticulous attention to detail and following legal obligations. Failing to address debts properly can lead to personal liability. It's a delicate balance—ensuring creditors are paid while preserving assets for beneficiaries.

Trustees: Guardians of Trust Assets

Legal Framework and Appointment

Trustees are appointed to manage trust property for the benefit of the beneficiaries. Trusts may arise under a will or through intestacy. The Trustee Act 2000 outlines the powers and duties of trustees, highlighting prudent management and loyalty.

Duties and Responsibilities

Trustees are vested with significant responsibilities, including:

  1. Duty of Care

    Trustees must exercise reasonable care and skill in managing trust assets. The standard of care is higher for professional trustees due to their background.

  2. Duty of Loyalty

    Acting solely in the best interests of the beneficiaries is essential. Trustees must avoid conflicts of interest and cannot profit from their position unless authorized.

  3. Investment Duties

    Under the Trustee Act 2000, trustees have wide powers of investment but must follow the 'standard investment criteria'—considering suitability and diversification.

  4. Duty to Provide Information

    Beneficiaries are entitled to receive information about the trust. Trustees should maintain transparency and keep accurate records.

Trustees Facing Conflicts of Interest

Consider a trustee who owns shares in a company that the trust is considering investing in. This scenario poses a conflict of interest. The trustee must fully disclose the interest and may need to abstain from decision-making or seek court guidance. Upholding the duty of loyalty is critical to maintain trust integrity.

Intestacy and Statutory Trusts

When an individual dies without a valid will, their estate is distributed according to the intestacy rules established by the Administration of Estates Act 1925.

Statutory Succession and Distribution

The intestacy rules outline a strict order of inheritance:

  1. Spouse or Civil Partner

    The surviving spouse may receive the entire estate or a significant portion, depending on whether there are surviving children.

  2. Children

    If there are children, they usually inherit a share of the estate after the spouse's entitlement.

  3. Other Relatives

    In the absence of a spouse or children, inheritance passes to parents, siblings, and more distant relatives in a prescribed order.

Intestacy Leading to Unintended Outcomes

Consider a situation where a wealthy individual dies intestate, leaving behind a long-term partner (not married or in a civil partnership) and distant relatives. Under the intestacy rules, the partner may receive nothing, while the estate goes to relatives the deceased may hardly have known. This highlights the potential for intestacy to result in outcomes that do not reflect the deceased's wishes.

Statutory Trusts for Minor Beneficiaries

When beneficiaries are minors, statutory trusts are created to hold their inheritance until they reach adulthood. Trustees managing these trusts must follow the same duties and responsibilities outlined earlier.

Addressing Complex Assets and Modern Challenges

Estate administration today often involves complex assets and situations that require trustees and personal representatives to exercise heightened diligence.

Dealing with Digital Assets

In our digital age, individuals may hold significant assets online—cryptocurrencies, online businesses, digital art, and more. Trustees must:

  • Identify Digital Assets

    Locate and access digital assets, which may be secured by passwords or encryption.

  • Understand Legal Treatment

    Determine how such assets are classified under the law and the appropriate method for transfer or liquidation.

International Estates

Globalization means estates may include assets in multiple jurisdictions. Trustees and personal representatives must consider:

  • Cross-Border Legal Issues

    Different countries may have varying inheritance laws, tax implications, and estate duties.

  • Coordination with Foreign Entities

    Collaborating with legal professionals in other jurisdictions to ensure compliance.

Asset Management in Volatile Markets

The investment environment can be unpredictable. Trustees responsible for managing investments must:

  • Stay Informed

    Keep abreast of market conditions and economic forecasts.

  • Seek Professional Advice

    Engaging financial advisors can help in making prudent decisions that align with the beneficiaries' best interests.

Example: The Lee Family Trust

Suppose trustees are managing a trust heavily invested in technology stocks. During a market downturn, they must decide whether to hold, sell, or diversify. Their decision must balance the potential for recovery against the risk of further losses, all while maintaining their duty of care.

Ethical Challenges and Resolving Disputes

Disputes may arise among beneficiaries or between trustees and beneficiaries. Resolving these issues requires careful handling.

Mediating Beneficiary Disagreements

When beneficiaries disagree on aspects of estate administration:

  • Encourage Open Communication

    Facilitate dialogue to understand concerns and expectations.

  • Follow Legal Obligations

    Trustees and personal representatives must comply with the law, even if it conflicts with some beneficiaries' desires.

  • Seek Mediation or Legal Guidance

    Professional mediation can help reach amicable solutions.

Upholding Ethical Standards

Trustees may face ethical dilemmas, such as pressure to favor one beneficiary over another or to engage in risky investments for higher returns. Maintaining integrity involves:

  • Referring to Legal Duties

    Letting statutory obligations guide actions.

  • Documenting Decisions

    Keeping thorough records to demonstrate compliance and transparency.

Conclusion

The diverse role of trustees in estate administration demands a thorough knowledge of complex legal concepts and the ability to apply them effectively. The interaction between statutory duties, common law principles, and practical challenges creates a dynamic situation that trustees must handle with precision.

Consider the complex scenario where a trustee is managing an estate with both domestic and international assets, digital holdings, and beneficiaries residing in different countries with conflicting interests. Here, the trustee must:

  • Apply Legal Principles

    Utilize statutes like the Trustee Act 2000 to guide actions.

  • Coordinate Across Jurisdictions

    Understand and comply with foreign laws affecting the estate.

  • Balance Interests

    Ensure fair treatment of all beneficiaries, observing fiduciary duties.

This example illustrates how the roles and duties of trustees extend beyond mere asset distribution. They involve critical thinking, ethical judgment, and strategic decision-making. A solid understanding of these concepts is essential for legal professionals preparing for the SQE1 FLK2 exam, as it reflects the complexities they will encounter in practice.

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Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

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Senior Associate at Trilegal