[Member] Duties and Powers of a Trustee (Part 1)

As a general rule, a trustee has discretion as to whether they will exercise their powers. Should they decide (in good faith) not to exercise said powers after proper consideration, the beneficiaries will not be allowed to sue.

Duties and powers vary according to the character of the trust. It should be noted that in theory, some powers are in principle widely available to a trustee as most are now statutory and serve to facilitate the management of trust. However, a trustee may only use the powers in a proper way for the legitimate purposes of the trust. If they are about to exercise a power improperly, then they may be restrained by injunction.

So, what are the duties and powers of a trustee?

1) Duty to invest

As per s2(2) of the Trustee Act 1949 (“TA”), a trustee is obliged to invest trust funds in investments permitted for that purpose, explicitly as authorized by the trust instrument, by statute of the court. For context, “investment” means the use of money in the purchase of anything from which interest or profit is expected.

According to the case of Re Power, an investment must yield profits. As such, it was held that the purchase of a house for occupancy by the beneficiary which developed no profits was not considered an investment.

When making an investment, the trustee must be fair to both the income of the beneficiaries and to those entitled to the corpus. They must be honest and avoid risky or speculative investments. A well-designed trust usually has large investment powers, although it should be noted that the variety of investments allowed under the TA is comparatively limited.  

In regards to the standard of care, trustees should take such care as an ordinary prudent person might have taken if they have been minded to make an investment for the good of those that they felt morally obliged to provide as per Re Whitely.

However, as per Bartlett v Barclays Bank Trust Co Ltd (No. 2), if the trustee is a trust corporation, a higher level of care is required as a trust corporation is capable of providing expertise which would be unrealistic and unjust to expect from the ordinary man who accepts the burdens of a trusteeship.

It should also be understood that there are two types of investment powers:

a) Express powers of investment which are powers explicitly stated in the trust instrument and;

b) Statutory range of investment which can be seen in sections 4 to 15, Part II of the Trustee Act 1949.

2) Duty to Convert

This means that a trustee is obligated to deal with under-productive property by converting or re-investing the property into securities that produce a higher rate of earning as seen in Howe v Earl of Dartmouth.

A trustee is to act impartially between the life tenant and the remainderman. For context, a remainderman is a person who, at the dissolution of the estate of the former, inherits or is entitled to inherit the land.

This is usually due to the death or dissolution of the properties of the previous owner. However, this may also be due to a particular notation in a trust transferring ownership from one person to another.

3) Duty to apportion

Where there is a duty to convert, in the absence of the intention that the life tenant shall enjoy the income before the sale, there is also a duty to render an equal distribution between the life tenant and the remainderman the original property pending the conversion.

In Howe v Dartmouth, there was no need for income allocation. Thus, the life occupant was entitled to any profits from the trust fund while the interest of the remainderman is that of capital.

4) Duty to Distribute

If a trustee fails to allocate the trust property to those who are entitled to said property under the terms of the trust instrument, then there is a breach of trust.

According to Eaves v Hickson, trustees are required to identify the right beneficiaries. As such, in this case, it was held that the trustees were obligated to make up for the damages resulting from the payout to the wrong party on account of the paper forged.