The Administration of Trusts (part one)

Nearly any adult can act as a trustee provided they have mental capacity. Even a company can be appointed to act as a trustee as long as its own constitutional documents allow it. Corporate trustees that carry out trust business for profit are known as ‘trust corporations’.

In the case of land, trusts must have at least two human trustees or a sole trust corporation. This ensures that a buyer can purchase it safe in the  knowledge that any beneficial interests have been overreached if the trustees need to sell it.

While trusts over land cannot have more than four trustees, trusts of personalty can have more.

While it is unusual, the trust instrument might include an express power to remove and/or replace trustees under certain circumstances.

Section 36(1) of the TA 1925 provides the following grounds for replacing a trustee:

(a)       the trustee is dead

(b)       remains outside the UK for more than 12 months

(c)       desires to be discharged (retire)

(d)       refuses to act (disclaims)

(e)       is unfit to act

(f)        is incapable of acting (e.g. mental or physical incapacity)

(g)       is a minor.

Who effects the replacement?

(a)       the person nominated in the trust instrument to exercise the s 36 power, but if none:

(b)       the continuing trustee(s) including a retiring trustee if they are willing to join in the appointment;

(c)       if all trustees have died, the PRs of the last surviving trustee.

Section 36 states that the appointment must be in writing. Why is it advantageous to use a deed? (See TA 1925, s 40)

Under s 40, a deed automatically vests the trust property (apart from e.g. company shares) in the continuing and new trustee.

Section 41 of the TA 1925

•          The court will replace a trustee if it is expedient to do so and it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance.

•          The court makes the appointment following an application by the trustees or the beneficiaries.

Section 19 of the TLATA 1996 allows beneficiaries to serve a written direction on a trustee or trustees to retire and appoint the person (if any) specified in the direction.

•          s 19 does not apply if the trust instrument:

  • excludes it, or
  • the trust instrument nominates someone to appoint new trustees.

•          s 19 applies only if the beneficiaries are of full age and capacity and taken

together are absolutely entitled to the trust property.

•          Following a valid written direction, the trustee must retire by deed if:

(a)       reasonable arrangements have been made to protect their rights;

(b)       after their retirement there will be two trustees or a trust corporation left; and

(c)       another person is appointed to replace them or the continuing trustees consent by deed to their retirement.

If the trustees or beneficiaries do not want any of the existing trustees to step down, but do want to appoint more, they can use one of the following provisions.

(1)        The trust instrument may contain an express power to appoint new trustees but this is unusual.

(2)        Section 36(6) of the TA 1925

•          Who makes the appointment?

The person nominated in the trust instrument or, if none, the continuing trustee(s).

There can be no more than four trustees once the additional appointments

are made.

•          s 36 states that the appointment must be in writing. Why is it advantageous to use a deed? (See TA 1925, s 40)

Automatic vesting of trust property as above.

(3)        Section 41 of the TA 1925

•          Grounds?

As above. The court will appoint a new trustee if it is expedient to do so and

it is otherwise inexpedient,  difficult or impractical to appoint without the court’s assistance.

The court makes the appointment following an application by the trustees or the beneficiaries.

(4)        Section 19 of the TLATA 1996 allows beneficiaries to serve a written direction on the current trustees requiring the appointment of an additional trustee.

For conditions see above.

If two or more trustees are appointed, they hold legal title to trust property as joint tenants. This means that if one dies, legal title will devolve to the surviving trustees (TA 1925,s 18). If only one surviving trustee is left alive, they should appoint a replacement fellow trustee under s 36(1) of the TA 1925.

If a trustee feels they will not be able to perform their functions for any length of time, they can delegate those functions to a ‘deputy’ or attorney. The delegation should be made by deed in the form prescribed under s 25 of the TA 1925. It can last for up to 12 months. Written notice of such delegation must be given within seven days to all other trustees, and to anyone else with the power to appoint new trustees.

Trustee Powers

It is acknowledged that trustees may need some flexibility to adapt to the changing circumstances of the trust’s beneficiaries, especially if those beneficiaries need access to trust property early. The trustees will be guided by their judgement of what the settlor would have wanted. Solicitors need to be able to offer advice on how to provide such flexibility in administering the trust.

Where the trust instrument contains explicit powers for trustees, this makes matters more straightforward. Otherwise, they can defer to the Trustee Act.

Under section 31 of the TA 1925, trustees can use trust income to pay for the maintenance, education and benefit of a beneficiary under the age of 18 years (an ‘infant beneficiary’ or a minor) under the following conditions:

(a)       there is no contrary provision in the declaration of trust; and

(b)       the trustees can only exercise this power in favour of infant beneficiaries who have some kind of interest in income, whether vested or contingent, but not where there are any ‘prior interests’ to income.

The income should be paid directly to the beneficiary’s parent or guardian where applicable, or directly to the provider of maintenance, education or other benefit.

Under Section 31 of the TA 1925, however, the trustees cannot be compelled to exercise this power, as it remains at their discretion.

Section 31 of the TA 1925 also specifies that adult contingent beneficiaries are entitled to trust income as it arises. Trustees are obliged to pay them that income, pending the vesting of their beneficial interests.

Under s 32 of the TA 1925, meanwhile, trustees can apply trust capital early under certain conditions, but again at the their own discretion. They cannot be forced to exercise it.

The conditions are as follows:

(a)       There is no contrary provision in the declaration of trust.

(b)       The beneficiary has an interest in capital. Such beneficiaries include:

(i)         beneficiaries with a vested interest in trust property;

(ii)        beneficiaries with a contingent interest in trust property; and

(iii)       beneficiaries with a remainder interest in trust property.

(c)       The payment must be for the beneficiary’s advancement or benefit. This includes any use of money that will improve the material situation of the beneficiary. This is broad in application – most things will improve the material situation of the beneficiary, save perhaps for money that will be used for pleasure, leisure or hobbies.

The trustees have to be careful to ensure that the capital being advanced will benefit the beneficiary in some way and will not solely benefit someone else. However, if the advancement is made to or for the benefit of the beneficiary, it does not matter that there is an incidental benefit to other people.

(d)       For trusts created after 1 October  2014, the advance payment must not exceed the beneficiary’s entitlement.

For trusts created on or before 1 October 2014, the trustees can only advance up to half the beneficiary’s entitlement.

Trustee Duties

Trustees are obliged to exercise their powers in accordance with their duties. Indeed, in certain circumstances, the trust’s beneficiaries can actually compel the trustees to exercise those powers.

The extent and use of trustee powers is governed primarily by the wording of the trust instrument, but trustees also have a common law duty of care to take ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’ (Speight v Gaunt (1883) 9 App Cos 1). This is an objective standard, but the standard can be higher for paid, professional trustees.

When initially appointed, a trustee must:

(a)       ensure that they have been properly appointed;

(b)       ascertain of what the trust property consists, and take all reasonable and proper measures to obtain control of it. If the transfer of trust property to the new trustee is outstanding, the new trustee must press for that transfer to take place;

(c)       review the trust document and associated paperwork to familiarise themselves with the trust and how it works. The other trustees must produce any papers relating to the administration of the trust;

(d)       enquire into the past business of the trust to ensure that there have been no past breaches of trust, and to take appropriate action to remedy any breaches; and

(e)       where there are chattels held on trust, ensure that a proper inventory is drawn up.

In the course of their duties, a trustee may face a choice between two beneficiaries whose interests appear to be in conflict. In such a case, the trustee must act fairly in the interests of each beneficiary.

In general, co-trustees must generally take decisions unanimously unless the trust document provides otherwise.

Trustees cannot sit back and allow others to take decisions on their behalf. Indeed, a trustee may be liable to make good any loss the beneficiaries suffer because of their negligence, such as if they:

(a)       leave matters in the hands of a co-trustee without enquiry;

(b)       allow trust funds to remain in the sole control of a co-trustee;

(c)       fail to watch over and, if necessary, correct the conduct of their co-trustees; or

(d)       fail to take action knowing that a co-trustee was committing, or about to commit, a breach of trust;

Finally, trustees can take advice from legal, financial and other experts, but they cannot allow such experts to take decisions on their behalf.

Trustees must exercise their powers:

(a)       in good faith;

(b)       rationally;

(c)       for the purpose for which it was created;

(d)       with regard to relevant material matters and without regard to irrelevant ones;

(e)       with regard to all relevant facts; and

(f)        with regard to any legitimate expectation that a beneficiary might have that the power be exercised in a particular way.

Beneficiaries are entitled to see the following documents:

(a)       the trust document or will that created the trust;

(b)       the trust accounts; and

(c)       a schedule of trust investments or other documents that show how trust property is invested.

Beneficiaries do not have a right to see documents recording trustees’ deliberations on a discretion or power, and trustees do not have to explain their decisions.


Trustees may decide to invest trust capital in order to provide a return for the beneficiaries, whether in terms of income, capital or both. In that case, they should tailor their investment strategy according to the particular trust in question. Questions to consider include the following:

(a)       What sorts of interests do the various beneficiaries have?

(b)       What are the particular circumstances of each?

(c)       How long is the trust intended to last for? is short-term or long-term investment appropriate?

(d)       How big is the trust fund?

(e)       What is the tax position of the trust and of its beneficiaries?

Sections 3 and 8 of the TA 2000 set out what investments trustees can purchase on behalf of the trust.

Under s 3 of the TA 2000, a trustee can invest as if they were absolutely entitled to the assets of the trust, with the exception of investments in land, which are covered by s 8 of the TA 2000. Section 3 sets out what is known as the ‘general power of investment’.

When it comes to land, s 8 of the TA 2000 provides that a trustee may acquire freehold or leasehold land in the UK either:

(a)       as an investment;

(b)       for occupation by a beneficiary; or

(c)       for any other reason.

Trustees must also review the trust’s investments periodically, and consider the ‘standard investment criteria’. These are listed in s 4 of the TA 2000:

  • The investments must be suitable for the trust.
  • There is a need for diversification (insofar as is appropriate to the circumstances of the trust).

S 5 of the TA 2000 states that trustees should obtain and consider professional investment advice when reviewing investments or before selling or purchasing investments. This is unless the trustees have reason to believe this is unnecessary, because, e.g., one of the trustees is a qualified financial adviser.

Moreover, when exercising any power or fulfilling any duty in relation to investments, the trustees must exercise such care and skill as is reasonable in the circumstances (TA 2000, s 1).

There are also non-statutory obligations for trustees when it comes to investment:

(a)       Trustees must invest in a way that strikes a fair balance between the different needs of the beneficiaries. For example, a life tenant will primarily require income, while a remainder beneficiary will be more concerned with capital.

(b)       Trustees must secure the best return for the beneficiaries, with financial considerations taking precedence over other considerations. The trustees’ own ethical or moral views should not be relevant, for example.

Nevertheless, trustees may take ethical considerations into account when choosing investments under certain conditions:

(i)         if an investment in an ethical concern is likely to yield just as good a return as a more morally dubious investment;

(ii)        if the trust is charitable, the trustees can properly refuse to invest in things that are at odds with its charitable purposes and that could consequently alienate the trust’s supporters; and

(iii)       if the settlor has set out in the declaration of trust that trustees should not invest in specific sectors for ethical reasons.

Delegation of investment functions

If they chose collectively to do so, trustees can also delegate their investment functions to a third party, in which case they must comply with various processes:

(a)       They must retain the investment agent by a written agreement.

(b)       They must prepare a written statement (known as the ‘policy statement’) providing guidance to enable the agent to act in the best interests of the trust.

(c)       This written agreement must specify that the agent will comply with the policy statement.

(d)       The agent must comply with the same statutory and non-statutory investment duties that would otherwise apply to the trustees.

(e)       The trustees must regularly review both the arrangements under which the agent is acting and how those arrangements are working in practice.

(f)        The trustees must ensure the agent is suitably qualified.

Section 23 of the TA 2000 states that a trustee is not liable for any act or default of the agent, unless the trustee has breached any of the personal duties listed above, causing loss to the trust.


A fiduciary is someone ‘who has undertaken to act for or on behalf of another in a particular matter in circumstances that give rise to a relationship of trust and confidence’ (Bristol and West Building Society v Mathew [1998] Ch 1).

The people who fall within this definition include:

(a)       trustees, who owe fiduciary duties to beneficiaries;

(b)       company directors, who owe fiduciary duties to their company;

(c)       business partners, who owe fiduciary duties to each other

(d)       solicitors, who owe fiduciary duties to their client.

Trustees often have numerous opportunities to  prefer their own interests over those of the trust’s beneficiaries. Accordingly, the trustee must ‘not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit … without the informed consent of his principal [the beneficiaries]’ (Bristol and West Building Society v Mathew).

Nevertheless, trustees are not absolutely prohibited from earning a personal profit. They are entitled to personal profits provided that:

(a)       this is authorised by the declaration of trust;

(b)       all the beneficiaries are aged 18 years or over, know the full facts and consent; or

(c)       this is authorised by a court order or by statutory provision.


If a trustee sells property to, or purchases property from the trust, they put themselves in a position of conflict. If purchasing land from the trust, for example, then as a trustee acting for the trust they will want the highest possible price, while as a private individual making the purchase, they will want the lowest possible price.

If a trustee has been involved in this kind of transaction, it is not automatically void, but the beneficiaries can later set the transaction aside according to the ‘self-dealing rule’.

Similarly, where the trust includes a business, trustees are not allowed to set up businesses of their own that are in competition with that of the trust. They would therefore be liable to account for any profits made by such a business.