Chapter 13 Self-Test Questions

What is the common law duty of care?

Trustees are expected to exercise the same standard of diligence and care as an ordinary prudent person of business would exercise in the management of their own affairs.

Trustees are expected to act reasonably based on their subjective knowledge and expertise.

Trustees are expected to exercise the same standard of diligence and care as an ordinary prudent person of business, but subject to their own subject knowledge and experience.

Trustees are expected to act reasonably based on what would be considered reasonable by an amateur trustee with limited experience.

If a trustee delegates administrative functions to an agent, when does the common law duty of care apply?

The duty of care applies to the need to delegate to an agent.

The duty of care applies to the selection of the agent.

The duty of care applies to the supervision of the agent.

Trustees cannot delegate administrative functions to an agent.

Which of the following are true?

The common law duty of care pays regard to the skills and experience of all trustees.

The common law duty of care does not hold amateurs to the high standard of an ordinary prudent business person.

The common law duty of care requires a higher standard from paid professional trustees.

The common law duty of care requires the same standard for all trustees.

'The statutory duty of care applies in all of the same circumstances as the common law duty of care.'

True.

False.

If money is owed to the trust, how will the trustee have fulfilled their duty to ensure that the debt is discharged?

The trustee took some steps to ensure the debt is discharged.

The trustee made inquiries to ensure the debt is discharged.

The trustee has personally met the value of the debt.

The trustee has taken all reasonable steps to ensure that the debt is discharged.

'It is clear from the decision in Re Brogden that trustees must sue for money that is owed to the trust in all circumstances.'

True.

False.

If money is owed to a trust, which of the following circumstances may justify the trustee concluding that it was not reasonable to sue for payment?

The costs of litigation were an unacceptable risk.

The trustee wanted to wait and see if the money would come in the next few years.

The trustee had a moral objection to litigation.

Suing for the money owed would result in the bankruptcy of the beneficiary.

How must trustees exercise their investment powers?

Trustees must exercise their investment powers in the best interests of future beneficiaries.

Trustees must exercise their investment powers in the best interests of present beneficiaries.

Trustees must exercise their investment powers in the light of the ethical values of present beneficiaries.

Trustees must exercise their investment powers in the best interests of all beneficiaries.

What is portfolio theory?

Trustees should consider the investments as a whole to ensure that they are a balanced mixture of different types of investment.

Trustees should consider investments individually to ensure that each one is sound and reasonable.

Trustees should maintain good records of all investments and ensure the documents are readily available.

Trustees should seek the advice of investment experts and pay for their services in managing the trust's portfolio of investments.

Where do trustees derive their investment powers and duties?

The Trustee Act 2000.

The Law of Property Act 1925.

The Common Law.

Trustees have a discretion and can elect to exercise investment powers.

How do ethical considerations factor into trust investment decisions?

Trustees can consider their own ethical considerations when making investment decisions.

All trusts can consider ethical values when making investment decisions.

Charitable trusts can consider ethical values when making investment decisions.

The beneficiaries can use the rule in Saunders v Vautier to oblige the trustees to consider the beneficiaries' ethical values when making investment decisions.

'If trustees have a controlling interest in a company and the trustees are aware that the company's affairs are not being conducted as they should be, the trustees must take appropriate action.'

True.

False.

What happens when there is a conflict between a life tenant entitled to receive income and an individual with an interest in remainder?

The trustee must prioritize the beneficiary with the life interest.

The trustee must prioritize the beneficiary with an interest in remainder.

The trustee has a discretion as to who to prioritize, depending on the nature of the property.

The trustee must maintain a fair balance between both.

In the analogy of the tree and its fruit, what does the growth of the tree and its fruit represent?

The growth of the tree represents the capital growth.

The growth of the tree represents the number of investments made by a trustee.

The fruit represents the income of the trust.

The fruit represents the taxation of the trust.

'In relation to shares, dividends are treated as income and the transfer of shares would be capital.'

True.

False.

In the absence of a provision in the trust instrument clarifying the classification of trust expenses, how are taxes and expenses charged?

Taxes are charged to capital and expenses incurred for the benefit of the trust estate are income.

Taxes are charged to income and expenses incurred for the benefit of the trust estate are capital.

There is no default rule.

It is for the trustee to determine the classification of taxes and expenses.

What is the purpose of adopting a 'total return' investment policy?

It allows trustees to disregard the duty to maintain a fair balance and invest solely on the basis of income.

It allows trustees to select investments on the basis of returns, and to later determine whether to allocate the returns as income or capital.

It allows trustees to alter the classification of beneficiaries so that they can be treated as either income or capital beneficiaries.

It requires trustees to attempt to maximize the financial return of each individual investment.

What is a trust for sale?

There is a duty to sell the trust property.

There is a duty to sell the trust property and either reinvest the proceeds or distribute them to the beneficiaries.

There is an option to sell the trust property.

As a trust is a legal person it is possible for the legal entity of the trust to be sold in its entirety.

What are the powers of a trustee of land?

Trustees of land have limited powers of ownership.

Trustees of land have fewer powers of ownership over the land than the beneficiary with an equitable interest in the land.

Trustees of land have all of the powers of an absolute owner and these powers are unfettered.

Trustees of land have all of the powers of an absolute owner, but they remain subject to duties over the land.

'Trustees cannot sell land without the written consent of the beneficiaries.'

True.

False.

Insurance money that is paid in respect of loss or damage to trust property is treated as what?

The money is given to the beneficiaries outright as the sufferers of the loss.

The money is treated as income as it is a one-off payment into the fund.

The money is treated as capital money as it can be used to reinstate the property.

The trustee is entitled to keep the insurance money as the trustee is the one who would have insured the property.

Which trust functions are delegable?

All functions are delegable.

It is not possible to delegate functions relating to the distribution of assets.

It is not possible to delegate the power to appoint a trustee.

Only the trust instrument can determine which powers and functions are delegable.

Which of the following roles can a beneficiary perform?

A beneficiary can also be a trustee.

A beneficiary can also have been the settlor.

A beneficiary can be appointed as an agent for the trust.

A beneficiary can have no role other than as the beneficiary.

What is a nominee of trust assets?

Someone who acquires the legal title to specific trust assets.

Someone who supervises the trustees' exercise of powers.

Someone who assists an agent in the exercise of their delegated powers.

Someone who can veto trustee decisions as to delegation to an agent.

'If the trustee has complied with the statutory duty of care in delegating to an agent, then the trustee is not liable for any acts or omissions of the agent.'

True.

False.

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