Understanding Constructive Trusts, Trustees, and Duties
What is a Constructive Trust?
A constructive trust is an equitable remedy that a court imposes against a person who has obtained property by wrongdoing. It is imposed to prevent unjust enrichment.
Who Can Be a Trustee?
The trustee is the person responsible for managing and administering your trust. Any person of full age, sound mind, and legal capacity may be a trustee under an expressed trust. Also, a trust corporation is empowered to act as a trustee. Because this is not a human trustee, there is never any problem of the trustee dying or retiring (banks or insurance companies).
Appointment of Trustees
The initial trustees are usually appointed by the settlor in the trust instrument. It is one of the maxims of equity that a trust shall never fail for want of a trustee. Thus, if a testator creates a trust by will but does not name trustees, or if those named refuse to act, then the testator’s personal representatives must act as trustees until others are appointed.
Subsequent trustees are appointed by the person given power to appoint in the trust instrument. Failing that, the existing trustees or the personal representatives of the last surviving trustee can appoint. As a last resort, the court can appoint under section 41 of the Trustee Act (UK).
Under section 36 of the Trustee Act, a new trustee can be appointed by writing. This can be either an additional trustee or a replacement trustee for one who is (i) dead, or (ii) remains outside the UK for more than 12 months, or (iii) wishes to retire, or (iv) refuses to act, or (v) is unfit or incapable of acting, or is an infant, or (vi) is a corporation which is dissolved.
A person may decline to accept the office of trustee, but unless this is done promptly they may be presumed to have accepted.
Trustees’ Duties and Powers
Administration
Take the same care of the trust property as an ordinary business person would take care of their own property. If a trustee is careless or fails to comply strictly with the terms of the trust, they may be personally liable for losses. They will not be liable for mere accidental losses or errors of judgment.
Investment
Trustees may invest up to one half of the trust fund in the ordinary shares of companies. The remainder must be invested in safer items. Trustees must not profit from their trust. If a trustee makes an unentitled profit it must be accounted for.
Delegation of Duties
A trustee can employ and pay an agent provided the agent is employed in their professional area. However, a trustee cannot delegate their discretion: decisions must be made by the trustee.
Keeping Accounts
Trustees may keep proper accounts and must produce them for inspection by a beneficiary. Variation of trusts: if all beneficiaries are of full age and capacity and are entitled to the whole beneficial interest in the trust, they may together authorize the trustees to deal with the trust in any manner desired. Apart from this, the trustees have no power to vary the trust.
Remuneration of Trustees
A trustee is not permitted to charge for services unless authorized (i) by the trust instrument, (ii) by all beneficiaries if of full age and capacity, or (iii) by the court. Trustees are entitled to be reimbursed out of the trust funds for any expenses incurred properly in the performance of their duties.