Trustees: appointment, duties, powers, and liabilities - Protection of trustees and limitation periods

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Overview

Trustees play a vital role in trust law, handling significant responsibilities and legal obligations. This article explores trustee appointments, duties, powers, liabilities, and the available safeguards, essential for success in the SQE1 FLK2 exam and future legal practice in trust administration.

Appointment of Trustees

Trustees can be appointed through several methods:

  1. Trust Instruments and Wills: The main method where settlors name trustees in the trust deed or will.
  2. Statutory Provisions: The Trustee Act 1925 allows existing trustees or personal representatives to appoint new trustees under specific conditions.
  3. Judicial Intervention: Courts may appoint or remove trustees to maintain the trust's integrity and safeguard beneficiaries' interests.

Duties of Trustees

Trustees are bound by fiduciary duties, demanding loyalty and care:

Fiduciary Obligations

  • Duty of Loyalty: Act solely for beneficiaries' interests, avoiding conflicts.
  • Duty of Impartiality: Balance the interests of multiple beneficiaries.
  • Duty to Account: Keep accurate records and provide updates to beneficiaries.

Statutory Duty of Care

The Trustee Act 2000 outlines a duty of care, requiring trustees to exercise "such care and skill as is reasonable given the circumstances," considering:

  • Any special knowledge or experience.
  • Professional standards for trustees acting in a professional capacity.

Investment Duties

Trustees must:

  • Regularly review investments.
  • Seek advice when necessary.
  • Diversify investments effectively.
  • Follow standard investment criteria (Trustee Act 2000, Section 4).

Powers of Trustees

Trustees' powers come from trust instruments, statute, and common law:

Statutory Powers

Key powers include:

  • Investment (Trustee Act 2000, Section 3).
  • Acquiring land (Trustee Act 2000, Section 8).
  • Delegating functions (Trustee Act 2000, Sections 11-23).
  • Insuring trust property (Trustee Act 1925, Section 19).

Investment Decisions

Trustees must:

  1. Consider the suitability of investments.
  2. Diversify investments effectively.
  3. Obtain and consider proper advice.
  4. Regularly review investments.

Delegation of Authority

Trustees can delegate functions to agents, ensuring:

  • Actions align with the trust's best interests.
  • The agent's competence.
  • Appropriate terms and oversight.

Liabilities and Protection

Trustees face personal liability for breaches of trust but have several protective measures:

Breach of Trust

Consequences may include:

  • Personal liability for losses.
  • Removal from trusteeship.
  • Potential criminal charges in cases of fraud.

Indemnity and Exoneration

Protective measures include:

  1. Indemnity clauses in trust instruments.
  2. Trustee insurance.
  3. Exoneration clauses (limited by public policy).

Judicial Relief

Section 61 of the Trustee Act 1925 allows courts to grant relief to trustees who acted "honestly and reasonably."

Limitation Periods

Time limits for claims against trustees are important:

Statutory Limitation

  • Generally, a six-year period applies (Limitation Act 1980).
  • Exceptions exist for fraudulent breaches and recovery of trust property.

Equitable Doctrines

The doctrine of laches may bar claims due to unreasonable delay, considering:

  • Length of delay.
  • Reasons for the delay.
  • Prejudice to the trustee.

Conclusion

Understanding trustees’ roles, duties, powers, and liabilities is essential for SQE1 FLK2 exam success. Key points include:

  1. Trustee appointments occur through trust instruments, statutory provisions, or court actions.
  2. Fiduciary duties require loyalty, impartiality, and adherence to statutory care.
  3. Trustees have extensive powers in investment and management, guided by legal principles.
  4. Personal liability for breaches can be managed through indemnity clauses, insurance, and judicial relief.
  5. Limitation periods and equitable principles determine the viability of claims against trustees.

These concepts equip aspiring solicitors to handle complex trust law scenarios and excel in their practice.