Learning Outcomes
This article examines trustees’ appointment, duties, powers, and liabilities in the SQE1 context, including statutory and court mechanisms for appointing, retiring, and replacing trustees (with emphasis on TA 1925 and TLATA 1996 s 19 beneficiary directions); clarifies the distinction between fiduciary and administrative duties and discretionary powers, together with the applicable standards of care and investment duties under the Trustee Act 2000; analyzes the scope and limits of judicial intervention in trustee discretions, including the Hastings-Bass jurisdiction, mistakes, improper purposes, and bad faith; and discusses practical routes by which beneficiaries can influence trust administration, such as the Saunders v Vautier principle, TLATA directions, information rights, and applications to bless “momentous” decisions. It also reviews remedies and protective measures for breach of trust, including setting aside defective decisions, equitable compensation, injunctive relief, removal of trustees, trustee protections (exoneration clauses and s 61 TA 1925 relief), and limitation rules, with particular emphasis on identifying, in examination-style problems, when trustees can be compelled to act, when discretions are immune from outcome control, and how beneficiaries can obtain effective relief.
SQE1 Syllabus
For SQE1, you are required to understand trustees’ appointment, duties, powers, and liabilities, including whether trustees can be compelled to exercise their powers or discretion, with a focus on the following syllabus points:
- Appointment, retirement, and removal of trustees: TA 1925 ss 36, 39, 41; vesting under s 40; TLATA 1996 s 19 beneficiary directions
- Core fiduciary and administrative duties: loyalty, avoidance of conflicts, even-handedness, investment, accounting, confidentiality, acting personally and jointly
- Powers versus duties: maintenance (TA 1925 s 31), advancement (TA 1925 s 32 as amended 2014), delegation (TA 2000 s 11), investment (TA 2000 ss 3–5)
- Judicial control of trustee discretions: non-intervention, relevant/irrelevant considerations, improper purpose, bad faith, and the clarified Hastings-Bass jurisdiction in Pitt v Holt
- Remedies for breach: equitable compensation, setting aside decisions, injunctions, and removal; protection and defences including exemption clauses, s 61 TA 1925 relief, limitation
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, remains outside the UK for over 12 months, refuses to act or disclaims, is unfit or incapable, or is a minor.
- Section 39: A trustee may retire by deed if at least two trustees or a trust corporation remain and the continuing trustees consent by deed.
- Section 40: Where trustees are appointed by deed, trust property (other than certain assets such as company shares requiring registration) can automatically vest in the continuing and new trustees.
- 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.
In addition, beneficiaries can, in specific circumstances, direct change:
- TLATA 1996, section 19 allows adult beneficiaries who, taken together, are absolutely entitled to the trust property to direct a trustee to retire and to appoint a replacement or an additional trustee, unless excluded by the trust instrument or a nominator is specified for appointments.
As a matter of best practice, trusts of land should have at least two trustees or a trust corporation to facilitate overreaching on sale. There can be no more than four trustees where land is involved. Trustees generally take decisions unanimously unless the trust instrument provides otherwise.
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
Trustees must also act personally and jointly, ensure trust property is properly vested in their joint names, and not abdicate decision-making to others. The duty to invest is informed by the Trustee Act 2000:
- General power of investment (s 3): trustees may make any kind of investment as if they were absolute owners.
- Standard investment criteria (s 4): suitability and diversification; regular review is required.
- Proper advice (s 5): obtain and consider advice from an appropriately qualified person unless it is reasonable to conclude it is unnecessary.
Ethical or non-financial considerations may be taken into account only where consistent with beneficiaries’ best financial interests or where authorised (for example, with informed consent by all adult, competent beneficiaries, or in narrow charitable contexts where an investment would conflict with the charity’s purposes).
Trustees owe a duty of confidentiality and a duty to provide information sufficient to enable beneficiaries to hold them to account. While beneficiaries can see core trust documents (such as the trust instrument and accounts), trustees are generally not obliged to disclose reasons for discretionary decisions, and minutes revealing their deliberations may be withheld to protect proper administration.
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.
Two core financial support powers are frequently examined:
Key Term: power of maintenance
The statutory power to apply trust income for the maintenance, education or benefit of a beneficiary under 18 with an interest in income, subject to any prior life interest (TA 1925 s 31, as amended).Key Term: power of advancement
The statutory power to apply trust capital for the advancement or benefit of a beneficiary with an interest in capital, up to the full presumptive share for trusts taking effect on or after 1 October 2014 (TA 1925 s 32, as amended).
- Maintenance (s 31): trustees may apply income at their discretion for a minor beneficiary’s maintenance, education or benefit. If there is a prior life tenant entitled to income, the income cannot be diverted to the remainderman’s maintenance. Income not applied should be accumulated. From 18, an adult contingent beneficiary is generally entitled to income as it arises until vesting unless the trust provides otherwise.
- Advancement (s 32): trustees may advance capital for the beneficiary’s material advancement or benefit up to the whole of the presumptive share for post-1 October 2014 trusts (half for earlier trusts). Written consent of any adult prior life tenant is required where their interest may be prejudiced. Advances are brought into account on ultimate distribution.
These are powers, not duties. Trustees must consider from time to time whether to exercise them but cannot be compelled to do so in a particular case, provided they act properly in considering the matter.
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.
A clear distinction must be drawn between duties and powers:
- Duties (for example, a duty to distribute fixed shares, to invest, or to consider exercising a power) can be compelled by the court.
- Discretionary powers (for example, deciding to whom and in what amounts to distribute under a discretionary trust, or whether to advance capital) cannot be controlled as to outcome, though their exercise (or failure to exercise) is reviewable for proper process.
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 and require them to reconsider, applying the correct principles.
- If trustees are under a mandatory duty and fail to act, the court can compel performance.
- If a significant and “momentous” decision is proposed, trustees may seek the court’s blessing in advance, which focuses on process: whether the decision is within power and taken in good faith on the right grounds, rather than the merits.
Improper decision-making may arise where trustees are influenced by extraneous considerations (for example, personal animosity), or fail to inform themselves sufficiently before deciding. Where a decision is vitiated by breach of fiduciary duty in the decision-making process, it is liable to be set aside; if the alleged flaw is a mistake of law or fact, relief depends on whether the mistake undermines the decision-making process and whether equity should set the decision aside.
Beneficiaries cannot force trustees to divulge their reasons, but if trustees do volunteer reasons, those reasons may be examined and, if improper, the decision may be set aside.
Beneficiaries have practical levers beyond challenging decisions:
- If all beneficiaries are adult and absolutely entitled, they can direct termination of the trust and call for the property to be transferred to them (the Saunders v Vautier principle). This can effectively bypass trustee discretions that would otherwise continue.
- Where TLATA 1996 s 19 applies, adult beneficiaries absolutely entitled may direct retirement of a trustee and appointment of a replacement to alter the decision-maker, though this is not a route to dictate outcomes.
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.
Worked Example 1.3
A discretionary trust has adult beneficiaries who, taken together, are absolutely entitled to the whole beneficial interest. The trustees decline to exercise a power of appointment in their favour. Can the beneficiaries compel an appointment?
Answer:
They cannot compel the trustees to appoint under the discretionary power. However, if they are of full capacity and absolutely entitled together, they may invoke the Saunders v Vautier principle to terminate the trust and call for the trust fund, thereby achieving control without compelling the exercise of the discretion.
Worked Example 1.4
Trustees hold on statutory trusts for A for life, remainder to B (currently a minor). A is entitled to income. B’s parent asks the trustees to apply income to pay B’s school fees. The trustees refuse. Can B compel payment?
Answer:
No. The trustees have no power to apply income for B’s maintenance while A’s prior life interest in income subsists. B cannot compel payment of income against A’s life interest. Once A’s life interest ends, the trustees may consider maintenance, and from age 18 B will generally be entitled to income as it arises until vesting unless varied by the trust.
Administrative and informational controls
Trustees are not generally required to disclose their reasons for discretionary decisions. Beneficiaries are entitled to core documents necessary to hold trustees to account, but disclosure remains subject to the court’s supervisory jurisdiction. The court balances the beneficiary’s need for information against harm to the trust or to other beneficiaries. Refusal to disclose reasons does not, of itself, suggest impropriety.
Mistakes and the clarified Hastings-Bass principle
If trustees exercise a discretion based on a mistake or without properly directing themselves as to relevant matters, the decision may be set aside where the error involves a breach of fiduciary duty in the decision-making process and the court considers it appropriate. However, decisions will not be set aside merely because, with hindsight, they prove fiscally disadvantageous. Trustees who act on competent professional advice and inform themselves adequately are unlikely to have their decisions impeached even if the outcome is unfortunate.
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 (equitable compensation) to restore the trust fund to the position it would have been in but for the breach
- Setting aside improper decisions and requiring reconsideration according to law
- Injunctions to restrain threatened or continuing breaches
- Removal and replacement of trustees where expedient for the proper administration of the trust
Liability is personal to the trustee in breach. If more than one trustee is liable, liability is joint and several, though as between trustees the court may apportion responsibility or order indemnity where appropriate (for example, against a trustee who acted fraudulently or a controlling professional trustee). A trustee is not vicariously liable for a co-trustee’s separate breach but may be liable for failing to supervise or for allowing trust property to be controlled by a co-trustee alone.
Where an improper decision is set aside, the court may unwind transactions and restore the status quo. If the trust has suffered loss through misinvestment or failure to invest, compensation is assessed by reference to the loss caused, considering the standard of care and what a prudent trustee would have done. Where trustees commit a linked series of transactions, profits and losses may be netted if they form one scheme; otherwise, beneficiaries may keep gains from one breach and claim losses from another.
Trustees may be protected by exclusion clauses in the trust instrument to the extent they exclude liability for negligence or even gross negligence, but not for fraud or dishonesty. Clauses are strictly construed, and any ambiguity is resolved against the trustee relying on the clause. The court also has a statutory discretion to relieve a trustee from liability where the trustee has acted honestly and reasonably and ought fairly to be excused.
Limitation periods apply. Claims for breach of trust are generally subject to a six-year limitation period, but time may run from when a beneficiary’s interest falls into possession. There is no limitation period for claims against a trustee who is party to a fraud, or for claims to recover trust property or its proceeds from a trustee. Equitable defences such as laches or acquiescence may bar relief where the claimant has unreasonably delayed and prejudice would result.
Trustees in doubt about the proper course can seek directions and, in appropriate cases, an order blessing a proposed “momentous” decision to protect against later challenge, provided they have acted in good faith, within their powers, and on proper grounds.
Key Point Checklist
This article has covered the following key knowledge points:
- Statutory and court powers to appoint, retire, and remove trustees; beneficiary directions under TLATA 1996
- The core fiduciary and administrative duties owed by trustees, including the duty to invest and to act impartially, personally, and jointly
- The distinction between discretionary and mandatory powers and the effect of each
- The principle of judicial non-intervention and the limited circumstances in which courts will compel trustees to act or set aside decisions
- Practical routes for beneficiaries to influence outcomes (for example, Saunders v Vautier) without compelling the exercise of discretions
- Remedies for breach of trust and improper exercise of powers; trustee protections and defences, and the operation of limitation
Key Terms and Concepts
- trustee
- appointment of trustee
- fiduciary duty
- duty of care
- duty of impartiality
- duty to account
- discretionary power
- mandatory power
- power of maintenance
- power of advancement
- judicial non-intervention
- breach of trust