17. Administering the trust

The standard of care

Equity's standard is that of the ordinary prudent man of business managing his own affairs. Speight v Gaunt set it. Learoyd v Whiteley added that when investing for others, a trustee must avoid speculative investments that a prudent man would avoid when investing for people he is morally bound to provide for. A paid professional trustee is held to a higher standard. In Bartlett v Barclays Bank Trust Co a bank trustee was liable for failing to watch over speculative property dealings by a company the trust controlled.

In England the Trustee Act 2000 now sets a statutory duty of care: such care and skill as is reasonable, taking account of any special knowledge and of whether the trustee is paid.

Investment

Trustees must invest the fund to produce a return. The instrument may set what they can invest in. Otherwise statute decides. Under older English Acts, trustees could invest only in a narrow list of authorised investments. The Trustee Act 2000 gives a general power to invest as if the trustee were absolutely entitled, but with duties to consider suitability and diversification and to take proper advice. Nestle v National Westminster Bank held that trustees must act fairly between the life tenant, who wants income, and those entitled to the capital later.

The rule in Howe v Earl of Dartmouth required trustees of residuary personal estate left to persons in succession to sell wasting or unauthorised investments and reinvest them in authorised ones, to keep the balance between income and capital.

Duty to act unanimously and personally

Private trustees must act together. They must exercise their discretions themselves, and consider exercising them, even if they then decide not to.

Information and accounts

Trustees must keep accounts and let beneficiaries see trust documents. In Re Londonderry's Settlement, the Court of Appeal held that trustees need not disclose the reasons for their discretionary decisions. In Schmidt v Rosewood Trust the Privy Council said disclosure is part of the court's supervision of trusts and is in its discretion, not an absolute right of any beneficiary.

Payments to beneficiaries

Trustees must pay the right people the right amounts. A trustee who pays the wrong person is liable, even if he acted honestly, though he may recover from the person paid and the court may relieve him. Where trustees are unsure, they can advertise for claimants, or apply to the court for directions. Powers of maintenance and advancement let trustees use income or capital for a child beneficiary. In England these are in sections 31 and 32 of the Trustee Act 1925.

Trustees' expenses and pay

A trustee may recover expenses properly incurred from the trust fund. The old rule was that a trustee could not be paid for his time unless the instrument allowed it, all the beneficiaries agreed, or the court authorised it. Boardman v Phipps shows the court may allow pay for skill and work. Professional trustees in England now have a statutory right to reasonable pay under the Trustee Act 2000.

Applying to the court

Trustees, and beneficiaries, may ask the court for directions on the meaning of the trust or on how to administer it. A trustee who acts on the court's directions is protected.

Breach of trust

A trustee commits a breach by doing what the trust forbids, failing to do what it requires, or falling below the standard of care. He must restore the loss to the fund. Target Holdings v Redferns held that the loss must be caused by the breach, judged with hindsight. Trustees who join in a breach are jointly and severally liable.

The defences include consent by an adult beneficiary who knew the facts, which binds that beneficiary; an exemption clause in the instrument, which cannot cover fraud or dishonesty; the court's power in England to relieve a trustee who acted honestly and reasonably and ought fairly to be excused; and limitation, though there is no limitation period for fraud or for recovering trust property from the trustee.