Chapter 11 Multiple choice questions

. Colin is a trustee of a family trust which includes Bramblebriars, an old cottage which has fallen into disrepair. Colin had lived in the cottage as a child and wishes to purchase the property in order to renovate it as a holiday home for him and his family.

The trust already provides the beneficiaries with an excellent income and Bramblebriars is in such a dilapidated state that it would be wasteful for the trust to spend the money necessary to repair the property. Neither of the beneficiaries has expressed any interest in the cottage.

Which fiduciary obligation is relevant to Colin's plan?

The fair-dealing rule.

Fiduciaries must not make a secret profit.

Fiduciaries may not compete with the trust.

The self-dealing rule.

. Lawrence is trustee of a trust benefitting the widow and children of his old friend, Robert. Robert had dedicated his life to the promotion of organic farming and Lawrence believes that he should only choose investments which either support organic farming or which do not conflict with Robert's beliefs.

Which of the following cases is most relevant to deciding the validity of Lawrence's proposed investment strategy?

Cowan v Scargill [1984]

Nestlé v National Westminster Bank plc (1996)

Harries v Church Commissioners [1992]

Speight v Gaunt (1881)

. Fred and Daphne are trustees. Unknown to Daphne, Fred takes £10,000 from the trust accounts to purchase a vintage bandana belonging to a famous Hollywood star known for his extensive collection of accessories. Just weeks after his purchase, the star who owned the scarf dies in mysterious circumstances, bringing fresh attention to him and his career. The scarf, which he wore in one of his most famous roles, is now worth £25,000. When Daphne and the beneficiaries discover Fred's action they seek advice from you on what they can claim.

Nothing

£10,000 (the money taken from the trust accounts)

£15,000 (the profit made on the money taken)

£25,000 (the current value of the scarf)

. Timothy and Vanessa have agreed to act as trustees. Under the trust, which contains a range of property, including land, Lisa is to be entitled to the income for 20 years, after which time the remainder will pass to her children, Tyler and Kyle.

Timothy and Vanessa have no experience in administering and managing a trust and wish to delegate as many functions as they can to more experienced individuals.

Which of the following cannot be delegated?

Powers of investment.

Powers of advancement.

Management and maintenance of the land held on trust.

Powers to insure trust property.

. Timothy and Vanessa have agreed to act as trustees. Under the trust, which contains a range of property, including land, Lisa is to be entitled to the income for 20 years, after which time the remainder will pass to her children, Tyler and Kyle.

Timothy and Vanessa are particularly keen to delegate the selection and management of trust investments.

Which of the following choices is the most appropriate?

Lisa's brother, Gareth, who is a bank manager.

Robin, a former accountant who was asked to leave his previous job due to the discovery of some financial irregularities.

Tanya, a stockbroker.

Charles, a trusted friend who runs a successful Internet auction site.

. Timothy and Vanessa have agreed to act as trustees of a trust, which contains a range of property, including land. Under the trust, Lisa is to be entitled to the income for 20 years, after which time the remainder will pass to her children, Tyler and Kyle.

Tyler is 25 years old and Kyle is 17.

After much consideration and despite their lack of experience in investment matters, Timothy and Vanessa decide to manage the investment of the trust's property themselves.

They make the following decisions:
1- £100,000 is invested in a bed and breakfast in Tuscany
2 - £300,000 is invested in shares in Amazon.co.uk.
3- Timothy and Vanessa agree that being a trustee is much harder work than they had anticipated, so after discussing the matter with Lisa, Tyler and Kyle, they agree that they shall be paid an annual sum of £2000 each in respect of their work as trustees.

Which of the following options correctly identify the issues relevant to the trustees' decisions?

i - Section 8 Trustee Act 2000 confirms that the trustees may invest in the bed and breakfast.
ii - Have the trustees complied with section 5 Trustee Act 2000?
iii - Have the trustees complied with section 11 Trustee Act 2000?
iv - Under s.1, as the trustees are investing in land, they owe a higher duty of care.
v - Having secured the agreement of all the beneficiaries, the trustees are entitled to be remunerated for their services.
vi - The acquisition of shares in a successful company like Amazon satisfies section 4(3)(a) Trustee Act 2000.
vii - Section 31 Trustee Act 2000 states that the trustees are entitled to be paid for the work they do for the trust.
viii - Have the trustees complied with section 4(3)(b) Trustee Act 2000?

i, iv, and viii

ii, vi, and viii

iii, iv, v, and vi

i, ii, iii, and vii

. Timothy and Vanessa have agreed to act as trustees. Under the trust, which contains a range of property, including land, Lisa is to be entitled to the income for 20 years, after which time the remainder will pass to her children, Tyler and Kyle.

Tyler is 25 years old and is keen to start his own business, designing websites. He approaches Timothy and Vanessa to ask for an advancement on his entitlement.

Which statutory provision is most relevant to his request?

Section 31(1)(ii) Trustee Act 1925

Section 31(3) Trustee Act 1925

Section 32(1)(a) Trustee Act 1925

Section 32(1)(c) Trustee Act 1925

. Which principle does the decision in Keech v Sandford (1726) illustrate?

A minor cannot be the beneficiary of a trust.

A trustee is entitled to take a personal benefit if the trust cannot take advantage of the opportunity.

A beneficiary can only claim profits made by a fiduciary from his position if he has acted fraudulently.

A trustee will hold all profits made from his connection to the trust for the beneficiaries.

. Tom and Steven decide to revise their investment policy to include land. As Tom is the owner of an estate agent's business specializing in commercial lettings, he uses professional expertise and contacts to find a portfolio of commercial properties at an excellent price that is significantly less than the regular market price. Tom believes that it is his skill, time and effort that has afforded the trust this opportunity so he adds £10,000 to the asking price for the final property and takes the money for himself as a "performance related bonus". Steven discovers this bonus when reviewing the accounts and asks you for advice. What advice would you give?

Tom is entitled to retain the money as he has exercised his professional skills for the benefit of the trust.

Tom cannot retain the money as he did not receive the written consent of the other trustee before acting.

Tom is entitled to retain the money as expenses incurred in finding the property under s.31 Trustee Act 2000.

Tom cannot retain the money. A trustee cannot be paid for his work as this would conflict with the fiduciary duty owed to the beneficiaries.

. Which of the following statements most accurately reflects the decision in Boardman v Phipps [1967]?

Trustees are not permitted to make a profit in connection with their work for the trust.

Fiduciaries must obtain the consent of their principals before making a profit from their position.

Fiduciaries are not permitted to profit from their position.

Fiduciaries are entitled to a quantum meruit sum in respect of profitable work conducted for their principal.

. Tara is an artist. From the beginning of her career, she has worked closely with Amie, the owner of a fashionable art gallery in London. In exchange for a 10% commission, Amie promotes the sale of Tara's work through her gallery and has worked closely with Tara on the pricing of her work. In 2019, Tara wins a prominent art prize and her profile (as well as the value of her work) greatly increases. In 2020, Tara delivers a new collection of 15 paintings to be sold by Amie through her gallery. Amie is flooded with inquiries, and soon all but one of the paintings is sold. Amie receives many requests to purchase the final painting but one particular collector, Paul, offers to double the value of her commission if Amie agrees to sell him the painting. She agrees and receives an extra 10% on the purchase price from Paul, which she deposits in her personal account. She does not inform Tara.

One month later, Amie spots a small bronze sculpture by a new young artist, Gloria, and uses the money she received from Paul to purchase it for herself. The next week, she learns that Gloria has died. Following her death, Gloria's sculptures triple in value. Unable to contain her excitement, Amie opens several bottles of champagne in celebration. Unfortunately, when she is drunk, she tells her assistant about how she acquired the money to purchase Gloria's art. Her assistant is horrified and informs Tara who demands that Amie hands over the sculpture to her.

How would you advise Amie?

As the money received did not belong to Tara, you may keep the sculpture.

You have made a secret profit and therefore, you must pay Tara the extra 10% commission you received from Paul.

Tara must sue Paul for the extra money paid to you, but you must make up the difference between that and the current value of the sculpture.

As a fiduciary, you hold any secret profit, including any increase in its value, on constructive trust for Tara.

. Which of the following statements about ethical investment policies is incorrect?

Trustees must avoid ethical investments as they are not in the best interests of beneficiaries.

Charitable trusts should invest ethically as this is for the benefit of the public.

The trustees may take into account the strong ethical views of their beneficiaries.

The trustees' own ethical viewpoints can be taken into account as part of their assessment of the suitability of an investment.

. Which of the following statements about the duty of care in s 1 Trustee Act 2000 is correct?

All trustees' actions will be judged to the same standard under the s 1 duty of care.

The s 1 duty of care is subjective.

The s 1 duty of care can be excluded by the terms of the trust.

The s 1 duty of care requires trustees to act honestly and reasonably in the discharge of their duties.

. Which of the following statements about s 5 Trustee Act 2000 is correct?

Trustees must seek advice when considering whether to change their investments.

Trustees must consider whether to diversify the trust's investments.

Trustees must only seek advice from professionally qualified financial advisers.

Trustees are only required to seek advice when considering whether to make a risky investment.

. What is the significance of the decision in Schmidt v Rosewood Trust?

It establishes that members of a class in a discretionary trust are not entitled to information about the trust.

It establishes that the court will ultimately determine what information beneficiaries are able to demand of trustees.

It establishes that trustees do not need to provide reasons for the use of their discretion.

It establishes that beneficiaries are entitled to access information contained in 'trust documents'.

Chapter 11 Multiple choice questions

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