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GAZETTE
NOVEMBER 1996
once the trustee exercises due care
and diligence in choosing the
custodian, the liability of the trustee
will not be affected by the fact that
the trustee entrusts the trust assets to
that third party.
SUB-CUSTODIAN
In many cases there will be
additional agreements between the
custodian and one or more sub-
custodians (sub-custodian facilities
are usually required for the holding
of overseas stocks and shares) where
the sub-custodian is, say, a local bank
in Singapore.
NOMINEE
In some cases, trustees may decide to
hold all the securities in a "nominee
account." The responsibility and the
risk stay with the trustee and the
trustee should ensure that they have
the power to hold the trust assets in
nominee accounts.
CO-TRUSTEES
The last relationship that has to be
managed in the context of trusts and
against the background of risk is of
course the trustee's relationship with
its co-trustees. Both in commercial
and private client trusts there is an
obligation on trustees to act in
harmony and when this harmony
breaks down, the alternative (if
retirement is not available) is to
apply to the court for directions
which of course is a financial cost on
the trust assets and may result in a
delay and loss of opportunity to
the trust fund.
3. ADMINISTRATION OF
TRUSTS: ACTIVITIES THAT
ATTRACT RISK
Trustees have many duties and
obligations and amongst them is a
duty not to profit from the trust funds
or to tolerate a conflict of interest.
Trustees are also personally liable for
the payment of some taxes and
secondarily liable in respect of
other taxes.
In my opinion when acting as a
trustee, three duties of a trustee are
paramount. Failure to fully
appreciate the extent of the trustee's
role in these three areas can lead to
serious
risk,
for the trustee.
• Duty to collect and control the trust
assets
• Duty to invest
• Duty to keep accounts and provide
information to beneficiaries.
DUTY TO COLLECT AND
CONTROL THE TRUST
PROPERTY
The trustee has a duty to ensure that
all trust property is in
his possession
or under his control.
What does "control" mean in
practical terms for the trustee of
real property and related assets,
and private company shares which
are assets frequently found in
will trusts?
REAL PROPERTY
It is very difficult to satisfactorily
administer trust property without
first having arranged to inspect the
property and obtain a detailed
rep;rot as to the nature of same. It is
therefore critical that a full record
of all properties in trust be
maintained and that the record
be fully reviewed and the properties
inspected at regular intervals.
The extent of the duty imposed on
a trustee in relation to real property
has recently been considered in
this jurisdiction by Murphy J
in
Stacey
v
Branch (1995) 2L
ILRM
The plaintiff beneficiary brought a
claim against the defendant trustee
alleging a breach of trust on the
grounds that the latter had not
managed a trust property with the
necessary degree of care, and
claimed specifically that, if this
house had been let over a period of
14 years rather than being
maintained by a caretaker, it would
have yielded a substantial rental
income. The trust deed conferred
on the defendant the power to deal
with the property.
"As he in his absolute discretion
shall think fit"
Murphy J made it clear that words
such as "his absolute discretion"
would not necessarily relieve a
trustee from his duty to exercise
reasonable care and prudence;
however, he was satisfied that the
defendant's decision to place the
caretaker in occupation of the
premises was one made
bona fide
in the exercise of his discretion and
he dismissed the plaintiffs claim.
PRIVATE COMPANY SHARES
Questions of board representation
and directorships immediately
come to mind when one considers a
holding of private company shares
in trust (depending on the size or
nature of the share holding
involved). The responsibilities of
board representations/directorships
bring their own separate legal
liabilities and when accepted, a
dual liability is accepted by the
trustee.
The liability of a
trustee as trustee
is limited to the value of the trust
assets unless negligent or in breach
of trust.
The liability of a
trustee acting as
director
is the same as any other
director in the exercise of his duties
and the trustee should be made
aware of same.
TRUSTEES' DUTY TO INVEST
Trustees have a general duty to invest
and face ever increasing risks in
handling the
investment
of the trust
assets. Generally wide investment
powers are given to trustees and
often the range of investment choices
on offer can make decision making
and control difficult. (In many ways a
restrictive investment clause would
actually make investment decisions
easier.)
Where the trust deed is silent as to an
express investment clause the
trustees may invest the trust property
in accordance with the statutory
scheme laid down in Part 1 of the
Trustee Act, 1893
as amended by the
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