The Shilling Law Book

The Shilling Law Book

Chapter V

Trusts and Trustees

THERE are many definitions of the word " Trust " to be found in various legal works, but one of the best and most comprehensive is that of Mr. Underhill, who, in his work on the subject, defines a Trust as follows :

"A trust is an equitable obligation, either expressly undertaken or constructively imposed by the Court, under which the obligor (i.e., the person on whom the obligation is imposed), who is called the trustee, is bound to deal with certain property over which he has control (and which is called the trust property), for the benefit of certain persons who are called the beneficiaries." The old Norman expression "cestui que trust" is frequently used by lawyers to mean " beneficiary," but not so commonly as it formerly was.

When property is vested in A and B upon trust for C and D, A and B as trustees are said to have the legal estate, and C and D as beneficiaries to have the equitable estate. Until recent years (1873) the Common Law Courts took no cognisance of trusts, and would not look beyond the legal owner of property, using " legal" in its narrower sense. Trusts grew up under the protection and care of the Court of Chancery or Equity, and in spite, as it were, of the Courts of Law. Now, since the Judicature Act, 1873, the Chancery and Common Law Courts are simply the Chancery and Queen's Bench Divisions of the same High Court, administering the same law, the only difference being that the cases relating to Trusts, and other matters formerly within the special jurisdiction of the old Court of Chancery, are now assigned to the Chancery Division of the High Court.

Trusts are generally divided by legal writers into four classes, namely,

express;
implied ;
constructive ;
resulting.

We shall only concern ourselves here with direct or express trusts, i.e., those declared by words showing an intention to create a binding trust, as where A makes his will and leaves property by it to B in trust for C.

Express Trusts - How created. - The essentials necessary to constitute an express trust are:

1. Intention to create.-It must be clear from the words used that the creator of the trust, who is always called the settlor (unless the trust is declared in a will, when he is called the testator), intended to create a binding trust in favour of a certain person or persons. He must indicate, so as to identify them:-

the trust property ;
the purpose or plan of the trust ;
the beneficiaries for the benefit of whom the trust is intended.

A gift of property to A, with a mere request or expression of the settlor's wish or hope that he will hold or use it for the benefit of B, or that he will provide for B out of it, will not now as a rule create a valid trust enforceable by B against A. The words used should be unequivocal words of command, such as "direct," "require," &c.

A trust will always be created if two or more persons enter into a contract to create one. No money or other valuable consideration is necessary to constitute a trust. The only conditions necessary are that the settlor must either do all he can to legally transfer the property to a trustee, or else declare himself to be a trustee for the persons whom he intends to benefit. But a mere voluntary agreement or undertaking to declare a trust at some future time will not be enforced unless money or some other valuable consideration is given. Marriage in general is "valuable consideration " in the eye of the law.

All property, real or personal, present or future, situate at home or abroad, can be made the subject of a trust, so long as it can be disposed of. There arc certain kinds of property, however, which cannot be disposed of, and therefore cannot be made the subject of a trust. Such are, for example, certain Government pensions, incomes of church livings, and the future income of a married woman restrained from anticipating it.

Unlawful Trusts.-Any trust declared for an unlawful purpose is absolutely void, but the invalidity of one trust in a settlement or will will not of itself affect the validity of other trusts therein which are unobjectionable. The commonest forms of illegal trusts are :

Trusts for the accumulation or tying up of property for an indefinite period, or for a definite period longer than that allowed by the law. No property can be tied up for a period longer than the lives of persons living and twenty-one years afterwards, and a trust which may exceed these limits will be void, while the income of property may not be accumulated for more than twenty-one years from the death of the settler. An accumulation of income directed, say for thirty years, will hold good for twenty-one years, but it must then cease.
Trusts providing for the enjoyment of property in such a way that it shall not be liable to the claims of the beneficiary's creditors or his trustee in bankruptcy. A trust, however, for A until he shall become bankrupt, and then over to B, is valid, unless A is the settlor himself, in which case it will be void, and the property will go to A's trustee in bankruptcy.
Trusts prohibiting or restraining the alienation of property (except for the protection of married women).
Trusts for superstitious purposes, and trusts which benefit no one, for example, a trust to keep a house shut up. There are other kinds of illegal trusts, but these instances will suffice.

How a trust is declared.-An express trust in relation to land or any interest in land must be contained in a will, or in some other writing signed by the settlor, else it is void. The writing must clearly show the terms of the trust or refer to some document or documents which show them. But a trust relating to personal property may be made by word of mouth, and need not be written, though it is usually put into writing, as otherwise it would be very difficult to prove properly. A trust declared by will cannot be altered, nor can a gift in a will be turned into a trust by anything less than a codicil or a new will.

Who may be a Settlor or Beneficiary. Any person who is capable of holding and disposing of property may settle it or create a trust of it, and any person who is capable of holding property, including an infant, may be a beneficiary under a trust.

Setting aside Trusts.-There are certain circumstances under which the Court will set aside a declared trust upon the application of the settlor.

The principal cases are :

Where the settlor has been induced by a fraud practised upon him, to declare the trust.
Where the settlor has declared the trust under a mistaken notion or in ignorance of its true legal effect.
Where undue influence (and especially the influence of a solicitor or minister of religion, or any other confidential adviser) has been brought to bear upon the settlor to induce him to declare the trust.

But in any one of the foregoing cases, where the settlor or his representatives have become aware of their right to set aside the trust on any of the above grounds and have not chosen to take the necessary steps to do so, but have acquiesced in the trust, they will not be allowed to turn round and change their minds after some time has elapsed. Delay will prevent them from succeeding in such a case. The length of time necessary to constitute delay sufficient to defeat the settlor or his representatives depends upon the circumstances of each case, but would hardly be less than a year or two.

Finally, a trust will be set aside by the Court if the consideration for it fails, that is, if the object for which it was created ceases to exist. Thus, if parties about to be married execute a marriage settlement, and then the marriage is broken off at the last moment, or for some reason never takes place, the settlement will be set aside. As a rule, however, a marriage settlement contains trusts on behalf of the settlor " until the intended marriage," besides the trusts which are intended to take effect after the marriage is solemnised.

Fraudulent Trusts.- Apart altogether from the bankruptcy law, if a man executes a settlement, with an intention to defeat, defraud, or delay his creditors, whether present or future, it can and will be set aside by the Court under the Act 13 Elizabeth, chap. 5, upon the application of a creditor who is hindered thereby. The question whether the settlor did or did not intend to defeat or defraud his creditors is a question of fact to be decided according to the circumstances of each case. The settlement need not necessarily be voluntary. Formerly the doctrine prevailed that if what a settlor did had the natural effect of defeating his creditors, the intention to do so must be imputed to him, but this is no longer the law, and intention must be proved, just like everything else.

Avoidance of Trusts by Bankruptcy.- Although a trust may be valid against creditors under the statute of Elizabeth, yet it will be void under the Bankruptcy Act, 1883, if any one of the following conditions is present :

If the trust, is voluntary, i.e., if no money or other valuable consideration has been given to the settlor in order to induce him to declare it, and the settlor becomes bankrupt or compounds with his creditors within two years from the date he created it.
If the trust is voluntary and the settlor becomes bankrupt or compounds with his creditors within ten years from its date, unless he can show that he was solvent at the time he made it.

Mere proof that the settlor was solvent when he made a voluntary settlement will not avail him, if he becomes bankrupt within two years afterwards. A contract by a man to settle property which he is not yet entitled to, but may acquire in the future, on his wife and children, will also be void against his trustee in bankruptcy, unless the contract has been actually carried out and the money paid or the property transferred to the trustees. It does not follow because a settlement is valid under the Bankruptcy Act that it may not still be void under the statute of Elizabeth, for the protection of creditors, before referred to, but in the latter case it can only be set aside by an order of the Court to that effect, and till then it is valid. On the other hand, it may be very difficult or impossible to set aside a settlement under the last mentioned statute, owing to inability to prove intention to defraud, and yet it is void under the Bankruptcy Act. So that the creditor has alternative remedies.

Acceptance and Disclaimer of a Trust.- Suppose a man is appointed trustee in a will. As a rule, his consent will have been asked previously, but whether that be so or not, he is not bound to act, but can refuse to do so, or disclaim when the trust comes into active operation, i.e., upon the testator's death. He must then, however, make up his mind which course he will take, and either accept or disclaim the trust without further delay. If he intends to disclaim, he should do so by deed, but this is not absolutely necessary, except perhaps in the case of a married woman. Acceptance of a trusteeship under a will may be express, but it is more usually implied by acts showing an intention to exercise rights of ownership over the property, such as receiving rents of the trust estate. In the case of a trust under a settlement little difficulty arises about acceptance and disclaimer, for a man is not a trustee under the settlement until it is executed, and his execution of it implies an acceptance of the trust.

If a man is appointed a trustee, and does not disclaim or do anything else to show that he either accepts or disclaims, for a long period, he is held to have accepted the trust.

In the following pages it must be borne in mind that where the word " trustee " is used in the singular it is intended to include "trustees" in the plural, where the context so admits. The usual number of trustees in a trust is two, the appointment of a sole trustee being rare, and for many reasons undesirable

Duties of Trustees.

The trust having been properly constituted and accepted by the trustee, it becomes necessary to consider his duties in administrating it. They are many and complex, but may be ranged under a few important heads, embodying settled principles. This portion of the law relating to trusts is of the greatest importance, especially to the trustee himself.

His first, and in some respects his most important duty, because he can hardly neglect this without neglecting all his other duties, is to find out for himself what are the terms and conditions of the trust as shown in the will or other instrument creating it, and the nature and value of the trust property - and in fact to learn as soon as possible what his duties in relation to the trust are. And here, if he feels the least uncertainty, he should consult a solicitor. A trustee's duties may be divided into two classes:-

general duties common to all trustees ; and
special duties arising under the particular trust.

It is most important that he should learn his special duties thoroughly, and in particular the permissible range of investments.

A new trustee who is appointed in the place of another who has retired or is dead, should be careful to see that the trust funds are in order and properly invested, and that they have not been allowed to get under the absolute control of a single co-trustee.

Next it is the duty of a trustee, having thoroughly learnt the terms of the trust, to bear them well in mind, and never to deviate from them in any respect, but to obey the directions of the settlor, in spite of any attempt by beneficiaries or other persons to persuade him to depart from or disregard them.

If a trustee is directed by the trust instrument to sell or purchase or invest certain property in a particular way, and he neglects to do so, and loss is thereby incurred, he will be liable for that loss. If he has to exercise his discretion he must do so wisely and prudently, regarding the interests rather than the wishes of the beneficiaries, and observing any conditions which limit the exercise of such discretion.

A great many, possibly most of the cases of non-fraudulent breach of trust arise from the trustee being persuaded by a beneficiary to disregard the strict terms of the trust instrument. This is known as " instigation to breach of trust," and such cases usually arise in something like the following manner :

A man dies, leaving a widow and young children, for whom he has provided by his will, the trustees of which are only authorised to invest in " gilt-edged," of absolutely safe securities. The widow. finding it hard to live on her small income, and tempted by the prospect of a high rate of interest, which will perhaps double it, tries to persuade the trustees to sell out of the existing safe investments and to re-invest in some gold mine or other highly speculative security. If the trustee is wise he will remain firm, and be deaf to all such appeals. If they are acceded to, he will probably find that, after bringing in an increased income for a longer or shorter period, ultimately the investment turns out a failure. The money, or most of it, is lost, and then one of the children who has come of age, or some relation, or even a stranger, as " next friend " of one who has not, turns round on the trustee and sues him for breach of trust to recover the money lost. In such a case he will be liable, and his only protection will be his right of indemnity against the widow, a right which may turn out to be worth little or nothing. There are, after all, only three cases where a trustee is safe in departing from the strict terms of the trust instrument. These are:

Where he is advised that the directions are illegal or manifestly injurious to the beneficiaries.
Under an order of the Court.
Where all the beneficiaries (including every person having a present or future interest in the property), being of full age, consent to such a departure being made. If there is an infant interested in the property, then an application will have to be made to the Court to sanction the proposed alterations in the trust.

The third duty of a trustee is to sell without delay any "wasting" property comprised in the trust estate, i.e., property which is bound from its very nature to depreciate in value as time goes on, such as leaseholds, where the term has only a few years to run, or terminable annuities, and to invest the proceeds in an authorised trust investment of a more permanent character. For to retain property the income from which must inevitably gradually diminish, and finally vanish altogether, would have the effect of unduly favouring the persons in the present enjoyment of it (the tenant or tenants for life) at the expense of those who will be entitled after them legally known as the " remaindermen. "

There are two principal exceptions to this rule. "Wasting" property need not be sold by the trustee-

where the settlement or will expressly directs that the property in question is to be retained as it is, and not sold ; and
where it contains a power to the trustee to postpone the sale and conversion of the trust property at his discretion.

This last case is common, but it imposes a discretion on the trustee which should be carefully exercised by selling the property as soon as it seems clear that a favourable opportunity for doing so has arrived.

Frequently questions arise as to who is to bear the expenses incurred in the management of the trust property, and whether they are to be paid out of income, and fall on the tenant for life, or out of capital, and in consequence be borne by the persons entitled in remainder. As a general rule, apart from special direction in the trust instrument to the contrary, capital charges, such as the repayment of mortgage debts, the cost of permanent improvements, and legal expenses, come out of capital, while annual charges, such as interest on mortgages, insurance premiums, cost of repairs, and, in fact, any outlay calculated to increase the income of the property for a time, rather than to enhance its permanent value, must be paid out of income, and therefore be borne by the tenant for life.

The next important duty of a trustee is to use as much diligence in the management of the trust property and to take as much care of it as a prudent man of business would use and take, not merely in the management of his own affairs, but, as the present Master of the Rolls, Sir Nathaniel Lindley, has put it in a well known case, " as if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide." For he has to consider not only the person in the actual enjoyment of the income for the time being, but also those, if there are any such, who will enjoy it after the death of the tenant for life, who are probably infants, possibly yet unborn at the time when the trust first comes into existence.

The fact that a trustee before acting in any particular matter took his solicitor's advice, or even counsel's opinion, will not, of itself, exonerate him from the consequences of a breach of trust, but it will be evidence of diligence and care. A trustee will not be liable for the consequences of a mere error of judgment if he has acted with reasonable care. For instance, if he retains property unconverted under a power to do so, and in the honest belief that it will rise in value, and it falls instead, and he is obliged to sell out at a loss, he will not be liable for that loss. Nor will he be liable for the fraud, theft, or negligence of an agent, such as a banker, stockbroker, or solicitor whom he has employed in connection with the trust in a matter which would ordinarily be delegated to such an agent by a reasonably prudent man of business. A trustee cannot be expected to do everything himself, or to guarantee the honesty of the agents he is sometimes obliged to employ.

On the other hand, as it is the duty of a trustee to see that he pays over trust moneys to the persons entitled, and to them only, he will be liable to pay again if he has paid money to the wrong person, even if he has been induced to do so by fraud or forgery.

A trustee cannot delegate the performance of his ordinary duties as a trustee to any other person, unless specially authorised so to do, but this rule will not prevent him from employing a solicitor, stockbroker, or other business agent, where an ordinary business man would do so. In particular he may authorise in writing a solicitor or banker to receive money payable under a policy of assurance, or a solicitor to receive money in certain other cases. The law could hardly, for instance, if a tree belonging to the estate had to be felled, or rent had to be collected, require the trustee to do it himself.

Special Duties of Trustees with regard to the Investment of Trust Moneys.-There are none of a trustee's duties that require more careful attention on his part than those relating to the investment of trust funds. We have seen that a trustee ought to make himself thoroughly acquainted with the investment clause (where there is one) in the will or settlement under which he acts, and it is his further duty

Where there is an investment clause to keep closely within its terms on all changes of investment.
Where there is none, to keep strictly within the statutory range of investments, as defined by the Trustee Act, 1893.

A trustee may always invest in any security for the time being authorised by the Trustee Act, unless investment in that particular security is expressly forbidden by the terms of the trust. For instance, a practice has grown up of excepting from the power of investment mortgages on real estate in Ireland, an investment authorised by the Act, though there is now less reason for doing so than formerly.

The following is a list of what are called " trustee investments," because all trustees may, unless expressly forbidden, invest trust funds in them.

TRUSTEE ACT, 1893, Sec. I.

The Parliamentary stocks or public funds or Government securities of the United Kingdom.
Real or heritable securities (i.e., mortgages of real estate) in Great Britain or Ireland.
Stock of the Bank of England or the Bank of Ireland.
India 3� per cent. stock and India 3 per cent. stock, or any future issue of Indian Government stock.
Any securities the interest of which is for the, time being guaranteed by Parliament.
Consolidated stock of the Metropolitan Board of Works or the London County Council, or Debenture stock created by the Receiver for the Metropolitan Police District.
Debenture or Preference stock of :my railway company in Great Britain or Ireland, incorporated by special Act of Parliament, which has paid a dividend of at least 3 per cent. on its Ordinary stock for the last ten years before investment.
Stock of any railway or canal company leased in perpetuity or for not less than two hundred years at a fixed rental to any railway company mentioned under (g).
(j) (k) Debenture stock of any Indian railway guaranteed by. the Indian Government, and stock of any railway company in India on which a fixed minimum dividend interest is guaranteed by the Government of India, and certain other Indian railway securities.

Debenture, Guaranteed, or Preference stock of any water company in Great Britain or Ireland incorporated by special Act or Royal Charter which has paid at least 5 per cent. on its ordinary shares for the last ten years before investment.

Nominal or Inscribed stock issued by a municipal corporation with a population exceeding 50,000 at the last census before investment, or stock issued by any County Council under an Act of Parliament or Provisional Order.
Nominal or Inscribed stock issued by Water Commissioners who have a power of levying rates over an area with a population of at least 50,000 at the last census before investment, provided that during each of the ten years before investment the rates levied have not exceeded 8o per cent. of the amount authorised by law to be levied.
Any of the stocks, funds, or securities for the time being authorised for the investment of cash under the control or subject to the order of' the High Court.

And the trustees may from time to time vary such investments.

Unless there is a special investment clause in the will or settlement creating the trust, the trustee is limited to the range of securities specified above. As however; these securities are all high in price, and rarely bring in an income of much more than 3 per cent. on the capital, if as much, there is usually inserted in most wills and settlements a special investment clause, permitting a somewhat wider range of investments, whereby a larger income can be obtained without unduly risking the money. The mere fact that an investment is authorised by law to trustees so enhances its value by increasing the demand for it that investments only just outside the statutory range yield a decidedly better rate of interest as a rule. Special investment clauses generally modify the statutory range of investments by permitting the trustees to invest in securities of the class mentioned under (g) (h) and (l) without the restrictions as to interest on ordinary shares, or of the class mentioned under (m) and (n) without the condition as to the population exceeding 50,000 also in authorising investment in freehold ground rents and various other fairly safe investments. Such a special investment clause may be as wide or as narrow as the settlor or testator desires, but, whatever its limits, they must be rigidly adhered to by the trustee.

It may easily be seen that a statutory investment may under certain circumstances cease to be such, for example, in the case of railway debenture stock by the payment of a dividend of only 2� instead of 3 per cent, on the ordinary stock, and in the case of corporation stock by a decrease in the population below 50,000 A trustee will not be liable for breach of trust merely on the ground that he has retained such an investment after it has ceased to be authorised by law. On the other hand, the fact that he has invested trust funds in a manner and upon securities authorised by law will not excuse him from liability if he has been careless or imprudent and the investment was not a desirable one under the circumstances.

Investment on Mortgage.-A trustee about to invest money on mortgage of real estate must observe special precautions. He can only advance money upon a first legal mortgage, not upon a second or equitable mortgage. He cannot advance money upon a " contributory " mortgage, that is, join with any other person not a co-trustee in advancing the loan. He must not advance more than two-thirds of the value of the property, as estimated by an absolutely independent, competent, and practical valuer or surveyor, who should be instructed that the valuation he is asked to make is for the purpose of an advance of trust moneys. In estimating such value only the actual value of the land or houses must be considered, and not that of any trade or business carried on on the land. " Real securities " include, besides freeholds and copyholds, long terms in leasehold property with not less than two hundred years to run, and not subject to a rent greater than 1s. per annum. A trustee, however, is not to be liable for a breach of trust by reason only of the proportion borne by the total amount of the loan to the value of the property - other circumstances must also be present to constitute a breach of trust.

Trustees' Receipts.-Where there is more than one trustee they must all act together in the execution of the trust. For, as we have seen, a trustee cannot delegate his powers to another, with certain exceptions, and on the same principle trustees cannot delegate their powers to one of their number, except in matters where they can properly employ an agent. One of these is the receipt of income. The trustees may appoint one of their number as an agent to receive rents, dividends, and income generally, and his receipts for such will be good. But all the trustees must join in signing receipts for the payment of any capital moneys.

A trustee who has signed a receipt merely for the sake of conformity will not be liable if his co-trustee who has received the money misappropriates it, provided that he (the former) can show that he never actually received the money at all.

Cheques drawn on the trust account should be signed by all the trustees, and the bankers should be instructed not to honour cheques signed by only one trustee. One trustee may be allowed to keep the title-deeds from necessity and, the inconvenience of joint control. Or they may be kept in a deed-box to which each trustee has a key, at the office of the solicitor to the trust.

In any legal proceedings which it may be necessary for the trustees to take or defend for the protection, of the trust estate, they must act jointly, and by the same solicitors, for they will only, be allowed one set of costs, except under very special circumstances.

Duty of Trustee not to make a Profit:- It is the duty of a trustee not to deal with the trust property in any way so as to make any profit for himself out of it. All profits which he may make by carrying on a business belonging to his testator or otherwise, belong absolutely to the beneficiaries, and must be held by him in trust for them. Consequently, a trustee is prohibited from buying or leasing or taking a mortgage of trust property, either from himself or from his co-trustees, or both, and, any such transaction will be set aside unless specially authorised by the trust instrument or by order of the Court. The rule is not quite so strict as to transactions between a trustee and a beneficiary, though in the latter case the trustee may be called upon to prove that the transaction in question was perfectly fair and for the advantage of the beneficiaries generally, that no undue influence was exerted, and that the beneficiaries were fully informed of the value of the property, and had independent advice. It would not be wise to prohibit such transactions altogether, for, it frequently happens that a trustee is willing to give a higher price than any stranger for trust property put up for sale.

The general rule is not applicable, however, where the trustee is also the ultimate beneficiary, subject to paying legacies or annuities to certain other persons.

A trustee will not be allowed to retire from the trust and then purchase trust property from his late co-trustees, as it would be presumed that he had, while a trustee, been able to acquire special knowledge of its value.

Duty of Trustee to keep proper Accounts.- A trustee must keep proper accounts of all payments and receipts of money in connection with the trust, and he is bound to produce such accounts for the inspection of a beneficiary or his solicitor if called upon to do so. He must be ready to show exactly the amount and the state of investment of the trust funds, as well as the condition of any real property subject to the trust, if requested by a beneficiary. Neglect to keep proper accounts has often made a trustee liable to pay his own costs of an action for the administration of the trust instead of getting them out of the estate.

A trustee, however, is not obliged to supply copies of accounts, deeds, or other documents connected with the trust, or to obtain information which may cost trouble and money, except at the expense of the beneficiary who requires the same.

The last duty of a trustee is, where any question of difficulty or doubt arises, either upon the construction of the trust instrument, or in the administration of the trust, or the distribution of the property, to consult a solicitor, and if he so advises, to instruct him to take the necessary steps, by the issue of an "originating summons" (see p. 114.) or otherwise, to have the matter decided by the Court.

Having dealt with what is by far the most important part of the law relating to trustees, viz., that concerning their duties, there still remain to be considered some miscellaneous points in connection with the rights, powers, and liabilities of trustees and beneficiaries, the appointment of new trustees, and other matters which should be noticed.

Powers of Trustees.

A trustee has of course all the power conferred upon him by the settlement or will creating the trust, subject to any restrictions therein contained, as to consent of parties or otherwise, as well as all the powers which the law gives to trustees generally. With regard to the former he must use a wise discretion in exercising them, and have regard to the interest of all the beneficiaries. He has implied power to take all necessary steps for the protection of the trust property. and may bring or defend actions for that purpose, but before doing so, or otherwise incurring any serious expense, he ought to apply to the Court for directions as to how he should act.

The law with regard to the sales of land and real estate by trustees under trusts for powers of sale is difficult and complicated, but it may be said that, although trustees have now much greater powers in this respect than they formerly had, they have not, as trustees merely, any implied or statutory power of sale. But where there is no trust for sale, or power of sale contained in the trust instrument, the beneficiaries, whether absolute or limited owners, being of full age, may sell under the very extensive powers of sale given to them-under the Settled Land Acts.

The exercise of these powers cannot be prohibited or restrained in any manner whatever, by any directions contained in the trust instrument. In a conveyance under the Acts the practice is for the tenant or tenants for life to convey the property, and for the purchase money to be paid to the trustees, who join in executing the conveyance, for the purpose of giving a receipt for it. The purchase money thus becomes subject to the same trusts as the land which was sold. For the principal statutory powers of trustees the reader is referred to the Trustee Act, 1893.�

�There is an excellent annotated edition of this Act by Rudall and Greig (published by Jordan & Sons), which should be in the possession of and carefully, studied by every trustee.

Powers of Beneficiaries.

Where all the beneficiaries are of full age and sound mind and none of them are married women restrained from anticipating their shares, they can, if they unanimously agree to do so, put an end to the trust at once, and require the trustee or trustees to convey to them the trust property, in the various shares and proportions to which they are entitled. In turn the trustee will have a right to be released from and indemnified against all further liability in connection with the trust, and from any further claim on the part of the beneficiaries.

Where there is only one beneficiary he will similarly be entitled, upon giving such release and indemnity, to have the trust property handed over to him, assuming that he is not under any disability.

The power of a single beneficiary, where there are more than one, is not very great, apart from the powers of selling, leasing, and mortgaging land conferred upon tenants for life by the Settled Land Acts. It is chiefly confined to preventing the trustees from doing anything for which his consent is required, without such consent. He may apply for an injunction to restrain them from so acting, and he is not obliged to give his consent unless he likes. In settlements and wills dealing with land, the consent of the beneficiaries, or at any rate of some or one of them, is usually required before the trustees can exercise their power of sale.

Rights of Trustees.

Trustees have so many onerous duties and liabilities that it may be some consolation to them to learn that they also possess certain rights, of which they cannot be deprived, unless they have been negligent, or have misconducted themselves in the conduct of the trust.

It is not only the right of a trustee, but also his duty, to take the opinion and ask for the directions of the Court upon any difficult question arising, either upon the meaning of the will or settlement, the rights of the beneficiaries or the administration of the trust estate. The trustee may also ask the Court to approve any proposed sale, purchase, lease, family arrangement, or other transaction in connection with the trust. He has also the right - where any conflicting claims are made to trust funds, or where a beneficiary who is absolutely entitled cannot be paid or give a receipt for the money, because, for example, he is an infant or a lunatic - to pay the fund into court. But at the present day, when almost any question can be decided by taking out an originating summons, it is safer and better not to pay money into court where such a course can be avoided. It may here be mentioned that there is one thing which cannot be decided upon an originating summons, viz., the question whether or not a trustee is liable for breach of trust. To charge a trustee with breach, an action must be commenced against him by writ of summons in the usual manner.

Payment of Trustees.-A trustee is, as a rule, not entitled to any payment for his services, apart from any legacy left to him as trustee of a will. There are certain cases, however, where he is entitled to receive remuneration. These are :

When it is authorised to be paid by the trust instrument.
Where the trustee has stipulated for it at a certain rate upon accepting the trust, and the beneficiaries, being all of full age, have agreed to give it to him.
Where he has applied to the Court for remuneration and his application has been granted.

In the latter case the amount of the allowance will depend upon the value of the estate, and the nature and extent of the liabilities to which the trusteeship is subject. A trustee who is also a solicitor cannot charge profit costs to the estate for professional work done in connection with it, unless there is a special clause in the will or settlement empowering him to do so, or except by agreement with all the beneficiaries. Such clauses are now very commonly inserted in trust instruments.

The right of a trustee to indemnity and contribution will be dealt with later on.

The Appointment of New Trustees.

The office of trustee may be vacated in several ways.

By the death of the trustee.
By his retirement either under an express power contained in the trust instrument, or under the power conferred by the Trustee Act, 1893.
By his removal under the same powers on the ground of unfitness or unwillingness to continue to act, or by order of the Court, on the ground of his misconduct, bankruptcy, or permanent residence abroad.

If a trustee dies, the office survives to the other trustees or trustee, and it is then usual to appoint a new trustee, and very desirable, not to say necessary, to do so if two or more trustees were originally appointed and there is only one left. In wills and settlements there is usually a beneficiary named to whom is given the power of appointing new trustees ; if there is no such person, then the surviving trustees or trustee, or, in default of any such, the personal representatives of the last surviving or continuing trustee, may, by writing, appoint a new trustee or trustees in the place of any who have died, retired, been removed from the trust, or cannot be heard of. The trust property devolves in the same manner as the office of trustee, and in the deed appointing a new trustee or trustees it will be conveyed to him or them by the use of a simple form of words called a " vesting declaration." A person who has a right to appoint new trustees cannot appoint himself. Where no one can be found with power to appoint a new trustee or trustees, or there is any difficulty in the way, e.g., where infants, lunatics, or persons who are abroad or cannot be found are interested in the property the Court will itself appoint new trustees, and may increase their number. The Court will then transfer the trust property to the new and continuing trustees by a " vesting order."

Under a recent Act of Parliament (The Judicial Trustees Act, 1896), the Court has now a discretionary power to appoint a "judicial trustee" either jointly with any other person or as a sole trustee, and, if sufficient cause is shown, in place of all or any existing trustees of any trust. The administration of a deceased person's estate is a trust, and the executor or administrator a trustee within the meaning of the Act. A judicial trustee will only be appointed on the. application of a settlor, a trustee; or a beneficiary and upon a proper case being made out. It appears that circumstances such as breach or in pending breach of trust by existing trustees, incompetent trustees, continual instigation to breach by beneficiaries, and inability to find any person willing to act as an ordinary trustee, will be the kind of case upon which the Court will act. Rules may be made under the Act for the purpose of carrying it into effect.

Liability of a Trustee for Breach of Trust.

A breach of trust has already been defined as any act or default on the part of the trustee which is unauthorised by or contrary to the provisions of the trust instrument or the general law applicable thereto.

The rule is that a trustee is liable for the consequences of every breach of trust which he commits, or is a party to, to the extent by which the trust property is depreciated by the breach. He will also be liable to pay interest on the amount lost if he has actually received interest, or if, but for his default, he ought to have received interest, or where he has used trust money as capital in a business in which he was pecuniarily interested. In the latter case he is liable to pay all the profits earned.

The liability of trustees is joint and several, that is to say, all the trustees are equally liable for the whole of the loss caused to the estate by the act or default (to which, they were parties) of even one of their number. They cannot as between themselves and the beneficiaries shift the responsibility on to the guilty one alone, except under circumstances, which will be discussed later on, showing that they could not have known of or prevented the breach of trust. They can, however, claim an indemnity or contribution from him for any amount they may have been made liable for.

Thus, suppose there are three trustees, A, B, and C, and C commits a breach of trust, whereby trust funds are lost, the beneficiaries, finding perhaps that C is not worth suing, may compel A or B to replace the whole of the loss, although they have not been equally guilty. They are liable for their default in allowing C the opportunity of committing a breach of trust, and they can only recoup themselves by suing C for contribution - a remedy which generally turns out in such cases to be worthless.

If a trustee has committed more than one breach of trust by way of unauthorised investment, and one of them is a source of profit to the trust estate, by bringing in a larger income, while others cause a loss, he will not be allowed to set off the profit arising from the one against the loss from the other, but will nevertheless be liable for the whole extent of the latter, unless indeed the profit and loss arise from two transactions so closely connected that they may be regarded as one.

If a trustee wrongfully parts with trust property, the beneficiaries can follow it and claim it from third persons, so long as they can trace it, and the third parties will, except under special circumstances, which will be considered later on, be obliged to hand it over. Where it cannot be traced, as, for example, where the trustee has spent it on himself, it is gone, and the beneficiaries can only sue the trustee ; but where it can be traced, as, where the trustee has paid it into his private account at the bank, or has otherwise mixed it with his own moneys, the beneficiaries will be entitled to a charge on the mixed fund for the amount of trust funds so dealt with.

The usual remedy of the beneficiaries against a trustee who has committed breach of trust is to bring an action against him, and if he is not likely to turn out worth suing, against his co-trustees, for an amount, and for the repayment of the trust funds, to the extent to which loss has been incurred.

It maybe found, however, that a trustee is contemplating the commission of a breach of trust, and if this is the case any beneficiary or any of his co-trustees may at once apply to the Court and obtain an injunction restraining the trustee from attempting to commit such breach of trust, and the appointment of a receiver to take charge of the trust property for a time. Prevention is here a very much better remedy than cure.

Where a trustee commits a breach of trust not merely through ignorance or carelessness, but fraudulently, with the object of enriching himself at the expense of the beneficiaries, and of defrauding them of their just rights, he may be prosecuted and sent to prison. Fraudulent breach of trust is a misdemeanour punishable upon conviction by imprisonment ranging up to seven years' penal servitude.

Extent of a Trustee's Liability for the acts of his co-Trustee.- A trustee will not in general be liable for every breach of trust committed by his co-trustee, but only for those to which he was party ; that is to say, he will not be liable, unless he has actually helped to commit the breach of trust ; or unless he has by his own act or neglect enabled the guilty trustee to commit the breach by allowing him to get the trust property, or part of it, under his sole control ; or unless he has become aware that a breach of trust is contemplated, and has taken no active steps to prevent it, or, after it has occurred, done nothing to compel a restitution of the trust property.

A trustee who resigns the trust in order to give place to another who is more likely to yield to the instigation of a beneficiary to commit a breach of trust, for example, the lending of trust funds to a tenant for life upon insufficient security, or in order to evade responsibility for a contemplated breach, will be equally liable with the trustee who commits it. But this will not apply, unless a particular breach of trust is being contemplated, with the knowledge of the retiring trustee.

If a breach of trust has been committed at the instigation or with the consent of a beneficiary, that beneficiary cannot afterwards turn round and sue the trustee for any loss occasioned by such breach of trust, nor can he do so if he has confirmed and approved of the breach after it has taken place. This rule, however, only applies to beneficiaries of full age who knew what they were doing when they consented to or confirmed the breach of trust, and were not under any undue influence. And in any case the rule will not apply to a married woman who is restrained from anticipating her settled property.

But it will be noticed that this rule does not prevent other beneficiaries who have not been, or, because they were infants, could not have been, parties to the breach of trust, from making a trustee liable for any loss incurred, although the beneficiary may have been by far the most to blame, and the trustee has simply yielded to his or her solicitations to commit the breach. Consequently the law has of recent years granted further protection to a trustee so placed, and by the Trustee Act, 1893, it is enacted that where a trustee commits a breach of trust at the instigation, or request, or with the consent in writing of a beneficiary, the Court may, if it thinks fit, and notwithstanding that the beneficiary may be a married woman entitled for her separate use and restrained from anticipation, make an order impounding all or part of that beneficiary's interest by way of indemnity to the trustee.

This is a most valuable protection to the honest trustee against the " instigating beneficiary," especially from the fact that married women, who are among the greatest offenders in this respect, are not exempt, even though restrained from anticipation. It will he noticed that a mere " consent" must be in writing, but it has been decided that a " request " need only be verbal. The modern tendency of the law is undoubtedly in the direction of making the position of an honest trustee easier, by giving him more protection, especially from scheming beneficiaries. Before this tendency set in, some ten or fifteen years ago, the law had been gradually getting so stringent, that it was difficult to get responsible men to act as trustees. The new judicial Trustees Act, before alluded to, goes further towards protecting the honest trustee than any previous Act, for it gives the Court a discretionary power to relieve him in certain cases from the consequences of a breach of trust, where the trustee has " acted honestly, and reasonably, and ought fairly to be excused. " Quite properly, too, the law has been made much harder for those beneficiaries who instigate their trustees to commit breaches of trust. Formerly the trustee had an indemnity, but it was restricted to the amount by which the beneficiary profited by the breach of trust. Now, however, the Court may order the whole interest of the beneficiary to be impounded by way of indemnity. The trustee will have to show, however, that the beneficiary knew he was consenting to or instigating a breach of trust.

Contribution between co-Trustees..- We have seen that, as a general rule, all the trustees who have been party or privy to a breach of trust are equally liable, although they may not have been equally guilty, and any one of them may be ordered to replace the whole amount lost. In such a case, the trustee or trustees so made liable can exact contribution from the others who have not been sued. Thus, supposing A, B, and C are trustees, and A commits a breach of trust which B and C connive at, or, by their neglect, facilitate, and the sum of �600 is thereby lost to the trust estate. Thereupon the beneficiaries, believing B to be the most substantial of the trustees, from a financial point of view, bring an action against him for breach of trust, in which he is made liable to replace the �600 In the same action A and C would be ordered by the Court to indemnify B to the extent of �200 each. If they have no money, then the entire loss will fall on B alone.

But where one trustee has been guilty of fraud, or has profited by the breach of trust which he has committed, he may be ordered to indemnify the others, assuming they have been sued and made liable, not merely to the extent of his share of the loss, but against the whole loss, which he will have to bear himself. This, however, does not often happen, except where the guilty trustee is in some position, such as that of solicitor to the trust estate, in which he has special opportunities of making a profit out of the trust, unknown to and uncontrolled by his co-trustees. But the mere fact that a defaulting trustee is in such a position is not of itself sufficient to make him so liable for the total amount.

Liability of Beneficiaries and other Persons for Breach of Trust.- Any person, whether a beneficiary or not, who is a party with my trustee to a breach of trust, or enables him in any way to commit such a breach, will be equally liable with the trustee for any loss thereby incurred. For the law holds that where any person comes into possession or obtains control of money, and has notice that it is trust money, that person becomes a " constructive " trustee for the persons who are entitled to it, and can only discharge himself from liability to the beneficiaries by showing that the money was properly applied in accordance with the trust.

It frequently happens that a trustee is also a partial beneficiary ; and where this is so, and he commits a breach of trust, he is not only liable as trustee to the trust estate, but as beneficiary he will be prevented from sharing until he has made good the loss caused by his act or neglect.

Purchasers for Value without Notice.- If any person becomes wrongfully possessed of trust property, through the breach of trust of any trustee or beneficiary, he holds it still subject to the trust, and becomes in fact a constructive trustee for the persons entitled to the property under the trust, and cannot make any use of it himself, except in the following case. If he has bonâ fide purchased the property for value - in other words, if he has bought and paid for it - without notice that any trust attached to it and without fraud, and has the legal estate, i.e., has had the property legally conveyed to and vested in him, then his claim is recognised as superior to that of the beneficiaries, and he will be he will be entitled as against them to keep the property, without being liable to them for the loss they have sustained. If he has only an equitable claim, as for example, if he is in the position of a second mortgagee, the first mortgagee having the legal estate, then his claim, even supposing he has had no notice of the trust, is merely equal to that of the beneficiaries, and, being later in date, will be postponed to theirs.

The expression " without notice," as applied to a bonâ fide purchaser, requires some explanation. It means " without notice of the trust before he paid the purchase money and had the legal estate conveyed to him." A purchaser cannot take steps to cure his defective title by " getting in " the legal estate after he has received notice. If he attempts to do so he is guilty of a breach of trust.

The law relating to Notice as regards trusts is exceedingly complicated and difficult, and some very fine distinctions have been drawn, which it would be out of place to discuss here. But this much may be said. Notice is of two kinds, actual and constructive. A purchaser is said to receive actual notice of a fact if it comes to his knowledge, or that of his solicitor or agent, and constructive notice of it, if it ought to have come to his knowledge or that of his solicitor or agent, if he or they had made the usual and proper searches and inquiries before completing the purchase. There is no difference whatever in their effect between actual and constructive notice.

Trustees and the Statutes of Limitations:- Under the various Statutes of Limitation, all actions must be brought within a certain time from the date when the cause of action accrued, or from the last acknowledgment of the debt or liability, after which they are barred. This period varies according to the cause of action ; thus, a simple contract debt must be sued for within six years, and a mortgage debt, secured on land, within twelve years, while the holder of a bond is allowed twenty years in which to prosecute his remedy, the time being reckoned in each case from the date when payment first became due, or from the last acknowledgment of liability (if any). But until recently these statutes were of no avail to a trustee as such, for the Courts held that they did not apply to express trusts at all, and therefore a trustee could not plead lapse of time as a defence to an action for breach of trust. Still, the Court used to refuse to grant relief, after long-continued delay and evidence of acquiescence on the part of the plaintiff in such an action. Now, however, under the Trustee Act, 1888, in any case where any existing Statute of Limitations would before the Act have been a defence to the action, had the trustee not been a trustee, it is a good defence to the trustee or person claiming through him ; and if an action is brought against a trustee to which no existing Statute of Limitations applies (e.g., an action for breach of trust), six years' lapse of time, the same as for a simple contract debt, will be a good defence. In any case, the time will be calculated from the date when the beneficiary against whom it runs first became entitled in possession, that is to say, time will not begin to run against a person entitled in remainder during the life of the tenant for life. And, of course, if any part payment or acknowledgment of liability is made by the trustee, time will begin to run afresh from that event.

There are certain cases expressly excepted from the Act, where a trustee is still unable to plead the Statutes of Limitation as a defence. These are :

Where the claim is founded on fraud, or on fraudulent breach of trust to which the trustee was party or privy.
Where the claim is to recover trust property, or the proceeds thereof, still retained by the trustee.
Where the claim is to recover trust property, or the proceeds thereof, previously received by the trustee and converted to his use.

Most cases likely to arise under (b) or (c) would practically amount to fraudulent breach of trust.

The expression " trustee " in the Act applies to joint trustees, and includes an executor or administrator and a constructive or implied trustee, as well as an express trustee, but not the official trustee of charitable funds.

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