Learning Outcomes
After reading this article, you will be able to identify how trustees are appointed, describe their core duties and powers, and explain the legal principles governing the exercise of trustee discretion. You will understand when courts may compel trustees to act, the limits of judicial intervention, and the remedies available for breach of duty. This knowledge is essential for answering SQE1 questions on trust administration and beneficiary rights.
SQE1 Syllabus
For SQE1, you are required to understand the legal framework for trustees’ appointment, their core duties and powers, and the circumstances in which courts may intervene in the exercise of trustee discretion. In your revision, focus on:
- The statutory and practical rules for appointing, removing, and retiring trustees
- The main fiduciary duties owed by trustees (loyalty, care, impartiality, accounting)
- The distinction between mandatory and discretionary powers of trustees
- The principles limiting court intervention in trustee discretion
- The remedies and liabilities arising from breach of duty or improper exercise of powers
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the general rule regarding court intervention in the exercise of trustees’ discretionary powers?
- Name two statutory powers that allow for the appointment or removal of trustees.
- In what circumstances can beneficiaries ask the court to compel trustees to exercise a discretionary power?
- What is the difference between a trustee’s duty of care and their duty of loyalty?
Introduction
Trustees are central to the operation of trusts, holding legal title to trust property and managing it for the benefit of beneficiaries. The law sets out how trustees are appointed, their core duties, and the scope of their powers. A key issue for both trustees and beneficiaries is whether, and when, trustees can be compelled to exercise their powers or discretion. This article explains the relevant legal rules, focusing on the limits of judicial intervention, the rationale for trustee discretion, and the remedies available if trustees fail in their obligations.
Appointment of Trustees
Trustees are usually appointed by the trust instrument. If a trustee retires, dies, or is otherwise unable to act, statutory provisions allow for the appointment of new or additional trustees.
Key Term: trustee
A person or corporate entity holding legal title to trust property, responsible for managing it according to the trust’s terms and the law.Key Term: appointment of trustee
The process by which a person is selected and formally becomes a trustee, either under the trust instrument or by statutory or court powers.
The Trustee Act 1925 provides key mechanisms:
- Section 36: Surviving or continuing trustees (or a person nominated in the trust instrument) may appoint a new trustee if a trustee dies, retires, is absent from the UK for over 12 months, or is unfit or incapable.
- Section 41: The court may appoint a new trustee if it is expedient and it is difficult or impractical to do so without the court’s assistance.
Core Duties of Trustees
Trustees owe a range of duties to the beneficiaries. These are primarily fiduciary in nature and are enforced by both equity and statute.
Key Term: fiduciary duty
An obligation to act in good faith, for the benefit of another, and to avoid conflicts of interest or personal profit unless authorised.Key Term: duty of care
The obligation to exercise such care and skill as is reasonable in the circumstances, considering any special knowledge or experience.Key Term: duty of impartiality
The requirement to act fairly between different classes of beneficiaries, not favouring one over another without justification.Key Term: duty to account
The obligation to keep accurate records and provide information about trust administration to beneficiaries.
Trustees must:
- Act honestly and in good faith for the benefit of all beneficiaries
- Avoid conflicts of interest and unauthorised profit
- Exercise reasonable care and skill (higher for professionals)
- Treat all beneficiaries impartially
- Keep proper accounts and provide information on request
Powers of Trustees
Trustees derive their powers from the trust instrument, statute, and the general law. Powers may be mandatory (must be exercised) or discretionary (may be exercised, but not required).
Key Term: discretionary power
A power given to trustees to decide whether or how to act, such as selecting beneficiaries or making investments.Key Term: mandatory power
A power that trustees are obliged to exercise, such as distributing fixed shares to named beneficiaries.
Statutory powers include:
- Power of investment (Trustee Act 2000, s.3)
- Power of sale (Trustee Act 1925, s.13)
- Power to insure trust property (Trustee Act 1925, s.19)
- Power to delegate functions (Trustee Act 2000, s.11)
Trustees also have express powers set out in the trust deed, such as the power to advance capital or apply income for a beneficiary’s maintenance.
Whether Trustees Can Be Compelled to Exercise Their Powers or Discretion
The general rule is that courts will not interfere with the exercise of trustees’ discretionary powers, nor compel trustees to exercise them in a particular way. This preserves the settlor’s intention that trustees, not the court, should make decisions about trust administration.
Key Term: judicial non-intervention
The principle that courts will not substitute their own judgment for that of trustees when trustees are exercising a genuine discretion.
When Can the Court Intervene?
Courts may intervene in limited circumstances:
- If trustees refuse to consider exercising a discretionary power at all, the court may order them to do so (but not dictate the outcome).
- If trustees act in bad faith, for an improper purpose, or take into account irrelevant factors (or ignore relevant ones), the court may set aside their decision.
- If trustees are under a mandatory duty and fail to act, the court can compel performance.
Worked Example 1.1
A trust gives trustees discretion to distribute income among a class of beneficiaries. The trustees refuse to consider any distributions, stating they prefer to accumulate income indefinitely. Can the beneficiaries seek court intervention?
Answer: Yes. The court may order the trustees to consider exercising their discretion, but will not direct them to make a particular distribution. The trustees must genuinely consider the exercise of their power.
Worked Example 1.2
Trustees exercise a discretionary power to advance capital to one beneficiary, ignoring the interests of other eligible beneficiaries and failing to consider relevant information. Can this decision be challenged?
Answer: Yes. If trustees fail to consider relevant matters or act for an improper purpose, the court may set aside their decision and require them to reconsider, applying the correct principles.
Exam Warning
The court will not substitute its own decision for that of the trustees. It will only intervene if trustees fail to exercise discretion, act in bad faith, or breach their duties. Beneficiaries cannot force trustees to exercise a discretion in a particular way.
Remedies and Liabilities
If trustees breach their duties or exercise powers improperly, they may be personally liable for any resulting loss.
Key Term: breach of trust
A failure by trustees to comply with their duties or the terms of the trust, whether by act or omission.
Remedies include:
- Compensation for loss to the trust fund
- Setting aside improper decisions
- Removal or replacement of trustees (by court order)
- Injunctions to prevent threatened breaches
Trustees may be protected by exemption clauses in the trust instrument (except for fraud or dishonesty), statutory relief (Trustee Act 1925, s.61), or limitation periods.
Key Point Checklist
This article has covered the following key knowledge points:
- The statutory and practical rules for appointing, removing, and retiring trustees
- The core fiduciary duties owed by trustees: loyalty, care, impartiality, and accounting
- The distinction between discretionary and mandatory powers of trustees
- The principle of judicial non-intervention in trustee discretion
- The limited circumstances in which courts may compel trustees to act or set aside their decisions
- The remedies and liabilities arising from breach of duty or improper exercise of powers
Key Terms and Concepts
- trustee
- appointment of trustee
- fiduciary duty
- duty of care
- duty of impartiality
- duty to account
- discretionary power
- mandatory power
- judicial non-intervention
- breach of trust
