DUTIES OF TRUSTEES
CONTENTS
1.0 Introduction
2.0 Objectives
- Main Content
- Duties of Trustees
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment (TMA)
7.0 References/Further Readings
INTRODUCTION
The trustee by virtue of the fiduciary position that he occupies in relation to the trust property and the beneficiaries, there are enormous duties placed on in order to ensure that he perform the roles of his office efficiently and without any conflict of interests. It will not be an understatement to say that the duties are onerous but these are designed by equity in order to achieve the purpose of the trust and anyone appointed as trustee needs to find out what these duties are before accepting to act as one.
OBJECTIVES
In this Unit, you will essentially learn about the duties of the trustee in relation to the trust property and the beneficiaries. These duties are so many and places heavy responsibilities on the shoulders of the trustee. You will learn for instance that in spite of the numerous duties of the trustee which he may need to perform for years, yet equity regards him as a volunteer and therefore expected to act gratuitously without any remuneration, except in special circumstances. You also learn that a trustee may liable for a breach of the trust despite having acted honestly and reasonably, and may in fact be liable for a beach committed by his co-trustee. You will however learn of the situations when a reprieve might come the way of the trustee in respect of a breach not due to his negligence or fault. At the end of this Unit, you should be able to:
- State what the duties of a trustee are.
- Explain why some of the duties are so placed despite appearing too harsh
- Give circumstances when a trustee may be absolved or liability in respect of a breach of trust.
- Explain the equitable underpinnings of some of the duties of trustees
MAIN CONTENT
Duties of Trustees
Upon the appointment and acceptance to act as trustee, the trustee must bear in mind that his duty is an onerous one. Importantly, it is the duty of the trustee to distribute the income and/or capital of the trust to the beneficiaries and shoulder the management or administration of the trust property. This essentially involves the safeguarding and enhancing the value of the trust property. See Low v. Bouvery (1891) 3 Ch. 82 at 99 per Lindley L.J. The duties of a trustee are so numerous but we shall consider some of these as follows:
Duty to Collect and Secure the Trust Property
When a trustee is appointed and he accepts to act, he should ascertain what the trust property is and make sure that the same is vested in him. In other words, the trustee must inquire about the whereabouts of the trust property, locate them and secure them by taking possession of them. See Hallows v. Lloyds (1886) 39 Ch. D. 686 at 691 per Kekewich J. The trustee is liable if he did not perform his duties in this respect and loss results to the trust in consequence thereof. See Re Brogden (1888) 38 Ch.D. 546.
Where the trust property is an equitable interest, the trustee must give necessary notices to the legal owner in order to preserve the priority of the beneficial owners.
In the case of additional trustee, he must make inquiries about the trust property and be satisfied that no breach of trust has been committed.
Duty of Investment
A trustee has a duty to invest the trust fund in order to grow it and ensure that the fund is not eroded and can invest the trust fund as the trust investment or law may permit. For this purpose, the law has categorized some investments in which trustees may invest. See The Trustee Investment Act, Cap. 449 Laws of the Federation of Nigeria, 1990. By virtue of Section 2 of the Act, a trustee can invest in government securities (both Federal and State), securities of government corporations specified in the schedule to the Act, debentures and fully paid up shares of any public company incorporated in Nigeria, etc.
A trustee is however limited in its power of investment and cannot invest in a company unless the nominal value of the fully paid up shares of the company is at least one million Naira, the company securities is quoted on the Stock Exchange and the company must have paid dividends aggregating five per cent of the nominal value of each share in each of the three years preceding the current year and the dividends must have been paid when they became due. See Section 2(3) of the Act as to when any investment is prohibited.
Despite the provisions of the law, a trustee must take such take such due care as an ordinary prudent man would take when investing trust property. See Re Whiteley (supra).
Duty Not to Delegate
Trustees by virtue of their peculiar and fiduciary position cannot delegate their duty to others, as equity does not allow a delegate to further delegate his duties known as delegatus non postest delegare. In addition, by virtue of the trustee’s assuming responsibility for the management of the trust property for the benefit of others, they cannot shift their duties on others and even where they employ agents, their responsibility to the beneficiaries is not affected. See Turner v. Corney (1841) 5 Beav. 515 at 517 per Longdale M.R.
It is however permitted for a trustee to delegate his duty if the trust instrument allows it or when it is reasonably necessary or when engaged in the ordinary course of affairs. See Exp. Belchier (1754) Amb. 218. Where an agent was employed merely to carry out things already agreed by the trustees, it is permitted to delegate. A trustee could however not delegate the exercise of his discretion except if this was expressly permitted by the trust instrument. See Robson v. Flight (1863) 4 De G.J. & S. 608; Re Airey (1897) 1 Ch. 164.
A trustee who engages the services of an agent in breach of trust is liable for all losses that might flow from this. See Att.-Gen v. Scott (1749) 1 Ves. Sen 413.
A trustee must be prudent in his choice and supervision of an agent and must exercise the care of a prudent man of business in his choice of agent. He should not employ an agent to perform act outside the scope of the agent’s business. See Fry v. Tapson (1884) 28 Ch.D 268.
Apart from the express authorization by the trust instrument, statute can also confer on a trustee the right to delegate by appointing agents to perform specialised or professional duties. See Section 17 of the Trustee Act 1893; Section 2(4)(C) of the Trustee Investment Act and Section 14(3) and (4) of the Trustee Law.
Duty to Distribute Trust Property
One of the cardinal duties of a trustee is the distribution of the trust property, i.e. of income and/capital to the beneficiaries according to the dictates of the trust instrument. See Low v. Bouvery (supra). A trustee is therefore liable for the breach of trust if he fails to do this or made payments to wrong persons. See Eaves v. Hickson (1861) 30 Beav. 136.
In order to properly ascertain those entitled to benefit from the trust fund or property and avoid paying to wrong persons, Section 18 of the Trust Law has laid down the procedure to be followed in this regard. The Trustee is required by law to identify the beneficiaries by giving notice through advertisement in State Gazette or in a newspaper circulating in the area where the trust property is located. A beneficiary who did not bring his claims within the time specified by the notice cannot make the trustee liable for any distribution made which excluded him. See Section 27 of the Trustee Law.
When there is uncertainty as to the existence or otherwise of a beneficiary, a “Benjamin Order” as laid down in Re Benjamin (1900) 1 Ch. 723 can be sought by the trustee, on application to the court as to the interest of a missing beneficiary.
In situations where the trustee overpays a beneficiary in good faith, he can ask for a refund of the amount overpaid or deduct the same from any future payments due to the particular beneficiary. See Re Musgrave (1916) 2 Ch. 417.
When the trustee has fully distributed the trust property, the trustees should present their final accounts to the beneficiaries and obtain a discharge from them, which can appropriately be done through a Release by Deed and the trust is thereby determined.
Duty to Act Gratuitously
A trustee is by the rules of equity a volunteer and therefore expected to act gratuitously without any remuneration, notwithstanding the onerous tasks placed upon him by the trust. See Barrett v. Hartley (1866) L.R. 2 Eq. 786. A trustee may however earn remuneration if a provision to that effect is reserved in the trust instrument and the court can grant an order to that effect. In addition, statutes may in some cases authorize trustees to earn remuneration, especially in respect of particular trustees.
Some of the recognised exceptions to the rule that a trustee cannot earn remuneration are follows:
i.) Authorization by the trust instrument - where there is a charging clause authorizing the trustee to charge for their services.
ii.) Authorization by statute – by virtue of Section 19 of the Public Trustee Law, Cap. 162, Laws of Lagos State 1994 and Section 19 of the Public Trustee Law, Laws of Western Nigeria.
iii.) Authorisation by court – a court can remunerate where it appoints a judicial trustee e.g. a corporation. See Section 1(5) Judicial Trustee Act 1895 and Section 29 of the Trustee Law, Cap. 125, Laws of Western Nigeria, 1959.
iv.) Authorisation by beneficiaries – where all the beneficiaries enter into agreement with the trustee for the remuneration of his services.
v.) Remuneration under the rule in Craddock v. Piper (1850) 1 Mac & G. 664. Here, the rule is that a solicitor cannot recover remuneration for professional services as solicitor where he acts for himself alone but if he acts for co-trustees he can. See Re Corsellis (1887) 34 Ch.D. 681 at 682 per Cotton L.J.
Duty to Provide Accounts and Information
It is a cardinal duty of a trustee to provide accounts of the trust property and equally furnish necessary information as regards the same, as may be required by the beneficiaries. See Low v. Bouvery (supra). In this regard, it is incumbent on the trustee to keep accurate accounts of the trust property and furnish information with respect to the same. This includes the right of the beneficiaries to access and inspect all trust documents. See O’Rourke v. Darbyshire [1920] A.C. 581 at 619 per Lord Wrenbury.
Section 14(4) of the Trustee Law applicable to the States forming the former Western Nigeria and Mid-Western Nigeria, provides that it is the discretion of the trustee to audit accounts of the trust and this should be done once in three years. Where a trustee failed to keep accounts of the trust, the beneficiaries on application to the court can compel him to do so.
Other duties which you may wish to further examine are:
i.) Duty not to purchase trust property. See Okesuji v. Lawal [1986] 2 N.W.L.R (Pt. 22) 417. A trustee may however purchase a beneficiary’s interest.
ii.) Duty of loyalty.
iii.) Duty not to deviate from the terms of a trust. iv.) Duty of impartiality.
SELF ASSESSMENT EXERCISE (SAE) 1
A trustee is expected to act gratuitously without any remuneration despite the heavy duties placed on him by his position as trustee. Discuss the justification or otherwise of this equitable rule.
CONCLUSION
The duties of a trustee are necessary for the effective and efficient performance of the position of trustees and in order to ensure that the trust property is adequately protected and that the interests of beneficiaries do not suffer. At burdensome as some of the duties are the terms or purposes of a trust may be derailed without them. You should however need to ascertain in appropriate cases, the suitability or otherwise of persons being proposed as trustees in terms of being able to carry out those duties.
SUMMARY
In this Unit, you have learnt about duties of trustees, how numerous these duties are and how some of these are in fact onerous. You further learnt that most of the equitable rules concerning the duties of trustees are so designed in order to protect and the trust property and beneficiaries interests under the same. You however learnt that in appropriate cases, a trustee may be granted reprieve from a breach of trust, where he has acted honestly and reasonably. In the next Unit, you will learn about the powers of trustees.
TUTOR-MARKED ASSIGNMENT (TMA)
- Discuss the duty of the trustee not to delegate and the circumstances when it is permitted for the trustee to deviate from this duty
- The duty to distribute is the bedrock of the trustee’s duties. Discuss and state how a trustee can resolve the dilemma surrounding the uncertainty as to the existence or otherwise of a beneficiary
REFERENCES/FURTHER READINGS
Banire, Muiz. (2002). The Nigerian Law of Trusts. Lagos: Excel Publications. Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo
University Press Ltd.
Hayton, D.J. (2001). Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies. London: Sweet & Maxwell.
Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.
Lagos: MIJ Professional Publishers Limited.
Judicial Trustee Act 1895.
The Public Trustee Law, Cap. 162, Laws of Lagos State 1994. The Public Trustee Law, Laws of Western Nigeria.
Trustee Act 1893.
Trustee Law, Cap. 128, Laws of Oyo State,
The Trustee Investment Act, Cap. 449 Laws of the Federation of Nigeria, 1990.