Delegation of trustee duties and powers

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Harriet and Oliver are trustees of a discretionary family trust established to provide financial support for several beneficiaries with diverse needs. They seek to delegate the management of the trust’s investment portfolio to a professional adviser with expertise in global equities. Harriet believes they can delegate any task, including decisions about how trust funds are to be distributed among the beneficiaries. Oliver disagrees, citing what he understands to be non-delegable core duties. The beneficiaries worry that if the investments result in losses, they will have no recourse against the trustees.


Which of the following statements best reflects the trustees’ obligations and liability regarding delegation under the Trustee Act 2000?

Introduction

In trust law, the handling of trustee duties and powers examines the extent to which trustees may assign their responsibilities to others. Trustees, appointed to manage trust property for the benefit of beneficiaries, are bound by fiduciary duties that demand loyalty, care, and compliance with the terms of the trust. The guiding principles governing delegation involve balancing the necessity for efficient trust administration with the imperative of fiduciary accountability. Understanding the legal framework, including statutory provisions and case law, is key in determining the permissible scope of delegation and the associated liabilities.

The Role of Trustees in Trust Law

Trustees hold a key position in trust law, entrusted with managing and administering trust property for the benefit of the beneficiaries. They operate within a framework of fiduciary obligations that demand the highest standards of honesty and integrity. The actions of trustees impact not only the legal environment but also the lives of those who rely on the trust's assets.

Appointing Trustees: Legal Considerations

Trustees are typically appointed through the trust instrument or under statutory provisions when no explicit appointment is made. The selection of trustees is important, as they must possess the legal capacity to manage the trust and exercise sound judgment in fulfilling their duties. Legal capacity involves being of full age and sound mind, ensuring that trustees can enter into binding agreements and manage the trust property effectively.

For example, in a family trust established to support minor children, it is important that trustees are capable of making prudent decisions that safeguard the children's future. The trust instrument may specify certain qualifications or disqualifications for trustees, reflecting the settlor's intent and the nature of the trust property.

Fiduciary Duties: Upholding Trust and Integrity

The basis of trusteeship is the fiduciary duty—a legal obligation to act solely in the interests of the beneficiaries. Trustees must exhibit loyalty, avoid conflicts of interest, and administer the trust with due care and diligence. The case of Keech v Sandford (1726) exemplifies the strictness with which courts uphold fiduciary duties. In this case, a trustee who took a lease for personal benefit, which could have benefited the trust, was compelled to surrender the profits to the trust, emphasizing the principle that trustees must not profit from their position.

Trustees are also bound by the duty of care, as codified in Section 1 of the Trustee Act 2000, requiring them to exercise such care and skill as is reasonable in the circumstances. This standard is particularly stringent for trustees who hold themselves out as having special knowledge or experience, such as professional trustees or solicitors.

Moreover, trustees must act impartially, balancing the interests of different beneficiaries. In Cowan v Scargill [1985], it was established that trustees must not allow their personal views to influence the administration of the trust, especially when investing trust assets.

Statutory Powers of Trustees

Under the Trustee Act 2000, trustees are endowed with certain statutory powers to facilitate the effective administration of the trust. These include:

  1. Power of Investment: Section 3 grants trustees the general power of investment, allowing them to make any kind of investment that they could make if they were absolutely entitled to the assets of the trust. This power must be exercised in accordance with the standard investment criteria and the duty to obtain and consider proper advice.

  2. Power to Acquire Land: Section 8 permits trustees to acquire freehold or leasehold land in the United Kingdom as an investment, for occupation by a beneficiary, or for any other reason.

  3. Power to Delegate: Section 11 allows trustees to pass certain functions to agents, nominees, or custodians, subject to the statutory duty of care. However, core functions, such as deciding how trust assets are distributed, cannot be delegated.

Delegation: When Trustees Pass the Baton

Delegation of trustee duties and powers is a complicated area that requires trustees to balance efficient trust administration with the necessity of retaining ultimate responsibility for the trust. You might ask how trustees can pass tasks without breaching their fiduciary duties. Under Section 11 of the Trustee Act 2000, trustees may collectively assign any of their functions to an agent, except for decisions relating to whether fees should be paid out of income or capital, or the power to appoint new trustees.

Think of a team captain assigning roles to team members; the captain remains accountable for the team's performance. Similarly, trustees can employ professionals to manage investments or carry out administrative tasks, improving the overall management of the trust. However, they must actively supervise the agent and ensure that the arrangement serves the best interests of the beneficiaries.

For instance, trustees managing a diverse investment portfolio might appoint an investment manager to handle day-to-day decisions. Here's how the duty of care works: trustees must select a competent manager, set clear terms for the delegation, and regularly monitor performance.

Limitations and Liabilities in Delegation

While delegation can be beneficial, it carries certain risks. Trustees remain liable for the acts of their delegates if they fail to fulfill their duties in appointing and supervising them. The statutory duty of care under Section 1 of the Trustee Act 2000 requires trustees to exercise reasonable care and skill in selecting agents, setting the terms of delegation, and monitoring their performance.

In Re Speight (1883), it was established that trustees must not simply delegate and forget; they must continually supervise the actions of their agents. Failure to do so could result in personal liability for any losses incurred by the trust due to the agent's actions.

Moreover, certain functions are non-delegable. Trustees cannot delegate decisions about the allocation of trust assets among beneficiaries, as these are fundamental duties essential to trusteeship.

Just as financial regulators oversee institutions to protect the interests of the public, trustees must diligently supervise their delegates to safeguard the beneficiaries' assets.

Protecting Trustees: Defenses and Safeguards

Trustees may seek protection from liability through various means. Under Section 61 of the Trustee Act 1925, a court has the discretion to relieve trustees from personal liability if they have acted honestly and reasonably and ought fairly to be excused.

Trustees may also rely on exoneration clauses in the trust instrument, which may limit their liability for certain breaches of trust. However, such clauses are interpreted strictly by courts and cannot absolve trustees from liability arising from fraud or willful misconduct.

For instance, in Armitage v Nurse [1997], it was held that exoneration clauses could relieve trustees from liability for all breaches of trust except for those arising from their own fraud.

Conclusion

The delegation of trustee duties and powers involves a delicate balance between the necessity for efficient trust management and the imperative of fiduciary accountability. Trustees must observe statutory provisions, such as those in the Trustee Act 2000, and comply with common law principles established through case law. The interplay between a trustee's powers, duties, and potential liabilities requires meticulous attention to legal obligations when considering delegation. Understanding these interactions is key for trustees to fulfill their role effectively while safeguarding the interests of the beneficiaries.

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