Adhere to the Terms of the Trust Deed 

This is the most important duty of all. Also called First Duty. You can modify most other rules, but not this one.

“You can change the terms of the trust. But you can’t change the duty to follow the terms of the trust.”

But there are exceptions. Saunders v Vautier is an example where an exception applied. And court orders might also override this rule.

Act Impartially Between Beneficiaries

This is an issue when you have successive trust interests, like a life tenant and remainder. Two competing interests and the trustee is caught in the middle. How to allocate expenses? How much to spend on maintenance? Capital v income?

But what does this mean for a discretionary trust? Is it even possible to act impartially? There is the Edge’s Case as an example. Acting impartially in a discretionary trust just means that the trustee must follow the trust terms and its purpose, consider relevant matters and discard irrelevant matters.

Not to Fetter Discretion

This rule has been around for over a century, going way back to the English courts of equity.  It is the duty of the trustee not to fetter their discretion. To fetter means to restrain.

Trustees are not bind themselves to make a decision at some time in the future. In the 1902 decision of Re King the court held that the “trustees ought, as far as possible, to keep their discretion open and unfettered.”

If the trustee enters into a legally binding agreement that forces them to act in a particular way or if the trustee, that has discretionary power, decides how it will exercise its power in the future, then such a decision will in all probability constitute a breach of their duty to act in an unfettered way.

It is then open to a party, normally a beneficiary of the trust, to challenge the trustee’s action. Previous court cases have involved executors (trustees) of an estate, testamentary trusts and discretionary trusts.

Duty to Account

This involves the provision of information as well as for property like accounting records. In a fixed trust beneficiaries have a “proprietary interest” and hence a right to account.

But in a discretionary trust there is no proprietary interest and hence no right to account –Gartside’s Case. There is no right to disclosure. However, it might be an important part of  a “balancing exercise” (Schmidt’s Case) arising out of the First Duty and the Court’s right (duty) of supervision.

Duty Not to Delegate

The trustee must discharge “trusts” personally unless the deed provides otherwise.

Duty Not to Profit 

The most famous illustration of this duty is the Murdoch case. Rupert was a trustee for trusts set up by Sir Keith. Dame Elisabeth was a life tenant (income) and Rupert was the remainderman. Rupert as trustee invested in News Group of which Rupert was CEO. Dame Elisabeth derived more income than otherwise

But…

Dame Elisabeth sued trustees for breach of trust and argued that the investment favoured capital growth over dividend. It settled for $85m.

Reasonable Care

Another duty is the duty to take reasonable care. It prohibits loans to trustees and mixing trust funds unless authorised by trust deed.

There are more duties but these are the main ones.

More information? To find out more, give us a call on 1300 023 782 or email team@cdrta.com.au.

Schedule Appointment

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)

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Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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Post Author: Craig Dangar

Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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