Law of trust, power and duties of trustees.

1. 1
POWER & DUTIES OF TRUSTEE
Topicsto be covered:
1) What are powerandduties
2) Powerto sell trustproperty
3) Powerto insure.
4) Powerto compoundliabilities
5) Powerto maintenance and
advancement
6) Duty to protecttrust assets: investment
7) Dutiestowards beneficiaries.
8) Duty to distribute.
Introduction:
Equityequipstrusteeswith;
i) numbersof powers
ii) imposesa range of duties.
All these maybe modifiedorexcludedby
expresstermsinthe instrument.
The general principle:
Trusteeshave discretionastowhetherornot
theywill exercise apower.
If after a properconsiderationtheydecide on
goodfaithnot to exercise,beneficiarieswill not
be allowedtocomplain.
Dutiesandpowersvaryaccording to the
character of the trust.
Some kindsof powerare in principle widely
available totrustee –mostare now statutory
and serve tofacilitate the managementof trust.
POWER
Trustee isunderan obligationtoinvestthe funds
inauthorisedsecuritiesaccordingtothe powers
givenby the trustee instruments or underthe
Trustee Act 1949
Other power;
1. sale of trust property
2. provisionforinfantbeneficiaries
3. powerof appointment
DUTIES
Certainfundamental dutiesarisingfrom
fiduciarynature of trustee,eg;dutyof loyalty&
duty not to make personal profit outof trust
property.
Dutiesmayalsobe modifiedbythe trust
instrument
Other type of duties;
1. Duty to maintaincustodyof documents
title
2. Duty to invest
3. Dutiestowardsbeneficiaries
4. Duty to provide information
5. Duty to maintainequalitybetween
beneficiaries,
6. Duty to make properdistribution.
Sale of Trust property
Powerto sell some orall trustpropertyisusually
givenbythe trust instrument.
In exercisingtheirpowerof sale,trustee dutyis
obtain the bestprice onbehalf of beneficiaries
Fry v Fry (185() 28 LJ Ch 591
The trusteeswere liable tomake up,outof their
ownpocketmoney,the difference between
sellingprice andthe offerof £900.
S. 16 of Trustee Act 1949.
Power oftrusteesfor sale to sell by auction,etc.
(1) Where a trust forsale or a powerof sale of
propertyisvestedina trustee,he may sell or

2. 2
concur withanyother personinselling of the
property,subjecttoanysuch conditionsasthe
trustee thinksfit,withpowertovary any
contract for sale,orto rescindany contract for
sale and toresell, withoutbeinganswerablefor
any loss.
S. 17. Power to sell subjectto depreciatory
conditions.
1) No sale made bya trustee shall be impeached
by anybeneficiary,unlessitappearsthatthe
considerationforthe sale wastherebyrendered
inadequate.
(2) Nosale made by a trustee shall,afterthe
executionof the conveyance,be impeachedas
against the purchaser, unlessitappearsthatthe
purchaserwas actingincollusionwiththe
trustee at the time whenthe contractfor sale
was made.
(3) Nopurchaser,uponany sale made bya
trustee,shall be at libertytomake anyobjection
againstthe title uponanyof the grounds
aforesaid.
Power to Insure
Trusteesare underno dutyto insure the trust
property.
Theywill notbe liable forfailure toinsure if
subsequentdamage orlossoccurs.
Unlessthe powertoinsure isstatedinany
expressprovisioninthe trustinstrument.
S. 24 - Power to insure
(1) A trustee mayinsure againstlossor damage
by fire anybuildingorotherinsurable property
to any amount,…withoutobtainingthe consent
of anypersonwhomay be entitledwhollyor
partlyto the income.
(2) Thissectiondoesnotapplytoany buildingor
property whicha trustee isboundforthwithto
conveyabsolutelytoanybeneficiaryuponbeing
requestedtodoso.
S. 19 - Power to compound liabilities
In the case of a legal claim, onlythe trustee will
be able to sue
In pursuitof legal claimstrustee needtouse its
discretion:litigationisariskybusiness
S.18- Powerof Maintainance and Advancement
Thispowerisveryappropriate tofamilytype-
investment
The objectis usuallymeantforinfant
beneficiaries(under18) who are not yetentitled
to income or capital BUT require financial
support duringtheirminority
Paymentbywayof maintenance are payments
out of income fornecessities.Eg: education
Paymentbywayof advancementare sums
advancedfromthe capital
PART III ofthe Trustee Act 1949 dealswith
General powersof trusteesandpersonal
representatives,maintenance,advancementand
protective trusts.
Section36. Powerto applyincome for
maintenance andtoaccumulate surplusincome
duringa minority.
Section37 : Powerof Advancement
Permitsthe trustee topaycapital sumsto
beneficiarysome time before he isentitledto
claim: for the advancementandbenefitof
beneficiary
Trustee and the investmentof trust funds
A trustee isundera dutyto investtrustmoneyin
hishands.ie:to employmoneyinpurchase of
anythingfromwhichinterestorprofitis
expected.

3. 3
Matters to be considered ininvestingtrust
property
1. The interestof life tenant
2. To act fairlybetweenbeneficiaries
3. Investmentsmustproduce incomeand
maintaincapital
The Powerto investis provided by:
1) Trust instrument:incorporateswide powerof
investment
2) StatutoryProvisions: range of investmentsis
veryrestrictive (Section4– 15 ofthe Trust Act)
3) By the court.
Although investmentisconsideredas powerbut
the duty liesuponthe trustee tocontinue
protectingthe trust assets i.e through
investment.
General principle :Once assetsare in,theymust
be protectedandan importantaspectis the
selectionof properinvestment.
Dividedto two:
1- Trustee have a general dutytoact fairlyas
betweenbeneficiaries
2- Limitationsonthe makingof riskyinvestment
i) Failure to investamount to breach of trust
1) Tan Soo Lock v Tan Ger Choo (1930 ) SSLR 109
: It is a breachof trust to leave trustfundlying
and wasnot invested.
2) In Re Tan Tye Deceased (1963) 29 MLJ 373 :
The trustee fixedthe trustfundinthe bank
account. Itis a breach of trust
ii) Discretionin matter of investment
Trustee can choose where toinvest.
Theyhave to exercise the discretionas“An
ordinaryprudent manof businesswouldtake in
managingsingleaffairsonitsown. But he can
not choose speculativeinvestment”
Speightv Gaunt(1993) 9 AC 1
Act honestly Musttake intoaccount while
managingthe affairs;“ all those precautions
whichan ordinaryprudence manof business
wouldtake inmanagingsimilaraffairsof
business”
Followedby Bartlett v Barclays bankTrust Co
Ltd (1980 ) Ch 515
Bank isthe trustee
Beneficiaries:the settlor’sfamilyandissue
Bank on the advise of the merchantbankers
investedintotwoprojects:one wassuccessful
and the otherwas not.
Held:Bankwas liable.The bankastrustee was
boundto act in relationtothe sharesand tothe
controllingpositionwhichtheyconferredinthe
same manneras a prudentman of business.
Re Whitely(1886) 33 Ch. D 347
LindleyLJ: the standard requiredof atrustee in
exercisinghispowerof investmentisthathe
must“ take such care as an ordinaryprudent
man wouldtake if he were mindedtomake an
investmentforthe benefitof otherpeople for
whomhe feltmorallyboundtoprovide.”
iii) Trustee’spersonal viewsand investment
What isimportantisthe interestof the trust
propertyandbeneficiaries.
Trustee will have toinvestalthoughinvestment
may contradict hispersonal views
COWANV SCARGILL(1985) CH 270
Megarry VC: theymustexercise theirpowersin
the bestinterestof presentandfuture
beneficiaries.

4. 4
If the purpose of the trust wasthe provisionof
financial benefit,the bestinterestof the
beneficiariesnormallymeanttheirbestfinancial
interest.The trustee mustexercise theirpowers
so as to yieldthe bestreturn, puttingaside
personal interestandsocial andpolitical views
DUTIES OF TRUSTEE AS FIDUCIARY
Notto take remunerationastrustee-director
Notto purchase trust property
Notto compete withtrust
Towards Beneficiaries
1) Duty to maintainequality
2) Duty to renderaccountand information
3) Duty to distribute
1. DUTY TO MAINTAIN EQUALITY BETWEEN
BENEFICIARIES
There are 2 sets of beneficiaries:
1) Life tenant – normallywife of the deceased
2) Remainderman : those whoinheritafterthe
deathof tenantforlife normallychild
Needtostrike a balance betweenthe provision
of income for the life tenant and preservation
of capital for the remainderman.
Tenantfor life takesall the income
The remainderman’sinterestisinthe capital.
So longas those rulesare observed,atrustee is
usuallyundernodutyto re- arrange investment
to balance equality.
If not, theythe trustee will have the dutyto
convertor reinvestinauthorisedinvestments
dependsonthe termsof the trust.
HOWE V EARL OF WARMONTH(1802) 7 VESJR.
137.
The rule is that the directconversion of anasset
to take place where there isnodirectionintrust
instrument.
Need to followcertain conditions;
1. Trust must be createdby will
2. There must be at leasttwobeneficiariesare
entitledtosuccession
3) Propertyconsistof residuarypersonality
4) The assetsare vestingreversionaryorof an
unauthorizedcharacter.
There isno contrary intentioninthe will. In
otherwordstrustee shouldconvertall partsof
trust whichconsistof future reversionarynature
or unauthorizedsecuritiesintoauthorized
investments,
DUTY TO RENDER ACCOUNTAND
INFORMATION
1) A beneficiariesisentitledonlytosee and
inspectaccounts.
2) It iscommon toprovide a copyfor each
beneficairies.
3) Information:Trustee musthave a ready
supplyof upto the date information.
Account : The trustee mustkeepaccountsand
be constantlyreadyto produce themforthe
beneficiaries
Information: Beneficiaryare entitledtobe
informedaboutmatterscurrentlyaffectingthe
trust.
Unclearas to disclosure
RE LONDONERY’SSETTLEMENT [1965] Ch 918
Trusteesboughta summonstodetermine the
nature and extentof theirdutiesinrelationto
disclosures.
COA definedwhatkindof trustdocumentsthata
beneficiaryhada rightto see.

5. 5
SalmonLJ : The categoriesof trustdocument
couldnot be defined.Theyhave howeverthese
characteristicincommon.
1) Theyare documentsinthe possessionof the
trusteesastrustee
2) Containinformationaboutthe trustwhichthe
beneficiariesare entitledtoknow
3) Beneficiaryhave aproprietaryinterestinthe
documentsandaccordinglyare entitledtosee
them.
“If any parts ofa document containinformation
whichbeneficiariesare not entitled to know, I
doubtwhether suchpart can be trulysaid to be
integral part of a trust document.”
DUTY TO DISTRIBUTE
Failure todistribute isaBreach of Trust
If the trustee made payment topersonnot
entitled,the beneficiarycantake actionto
recoverthe paymentback.Exceptas regardsto
bona fide purchaserforvalue withoutnotice:
Ministryof Health v Simpson [1951] AC 251
If the trustee is not clear on his duty the trustee
may;
1) Seekdirectionfromthe court
2)Made paymenttothe Court
3)BenjaminOrders
4) Advertisement.
BENJAMIN ORDERS
Takenfrom the case of In Re Benjamin [1902]
The court has powerto authorize distributionof
the whole of assetsalthoughnotall beneficiaries
or creditorshave made themselvesknownsoas
to be able.
A typical situationiswhere the whereaboutsof
certainbeneficiaryisnotknown
The procedure isknownas BenjaminOrder
RE GREEN’SWILL TRUST [1985] 3 All ER455
Testatrix leftherproperty toherson provided
that itshouldgo to charityif he didnot
claim.The sonhaddisappearedonabombing
raid in1943 but the mumbelievedthathe was
not dead.
Benjaminorderwasmade.
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S. 32 to protect themselvesformBOTfailure to
distribute.
Trustee(s) mayadvertiseinthe Gazette and
othernoticesincludingnoticesoutside Malaysia.
Those whoare interestedshouldmake their
claimand he shouldbe given2 monthsto send
intheirparticulars.