Trustee-beneficiaries: Can They Have The Cake And Eat It Too?

Published date19 August 2021
Subject MatterCorporate/Commercial Law, Corporate and Company Law, Trusts
Law FirmWilberforce Chambers
AuthorMr Simon Atkinson

The time of cakeism is at hand, and not just in the field of UK trade negotiations. Many trustees of modern trusts find themselves both owning the trust assets and objects of the powers of appointment; legally holding the cake and with a beneficial interest in its enjoyment too.

While the prospects for trustee-beneficiaries may sound tempting, serious indigestion awaits the unwary. As trustees they are subject to fiduciary duties, including to avoid conflicts between their interests and their duties; yet as beneficiaries they are personally invested in how powers of appointment are exercised. The twin risks of scrutiny and criticism from disgruntled non-trustee beneficiaries are ever present. What is a trustee-beneficiary to do? What steps can a trustee take properly to appoint to himself or herself a slice of the trust assets? Conversely, how can a non-trustee beneficiary impugn dubious decisions of the trustees? This eBriefing suggests some answers.

The principles

The starting point is the well-known equitable rule that a fiduciary is not entitled to put himself or herself in a position where interest and duty conflict, unless authorised under the trust instrument. This is a prophylactic rule; it exists to discourage fiduciaries from preferring their own interests over those of their beneficiaries: Bray v Ford [1896] AC 44. Where trustees have acted in breach of this rule, their purported decision may be voidable at the instance of the prejudiced beneficiary (or possibly void ab initio): Lewin on Trusts (20th ed.), '46-073.

Authorisation of a conflict between interest and duty may of course be given expressly by the terms of the trust (see, e.g., Step Standard Provisions (2nd ed.), clause 9); alternatively the rule may be impliedly excluded for certain trustee-beneficiaries (e.g. where the settlor has in the trust instrument appointed a beneficiary as one of the original trustees: Lewin, '46-079 et seq).

Many private trusts will, however, not give such authorisation or provide for such exclusion. Indeed, many older private trusts will contain an express prohibition against a trustee exercising any power in such a way as would result in any of the income or capital being applied for his or her benefit.

Where there is no express or implied authorisation or exclusion of the rule, acute difficulties (or, at the very least, uncertainty) can arise for trustees. This is particularly so when they are proposing to exercise a dispositive power. While a trustee is entitled (subject to his or her usual duty to act in good faith, to consider all relevant but no irrelevant factors, etc.) to be partial in the exercise of powers of appointment and to prefer some beneficiaries over others, this does not necessarily mean that a fiduciary dispositive power can properly be exercised in favour of a person who is...

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