Session 8_DN

Mrs. Green establishes a trust in her will, leaving $100,000 to be managed by her appointed trustee, Mr. Johnson. The terms of the trust stipulate that the $100,000 is to be held in trust for Mrs. Green’s granddaughter, Emily, with the income from the fund paid to Emily annually. Emily is to receive the entire $100,000 principal when she turns 30. However, at age 25, Emily faces financial difficulties and requests Mr. Johnson to terminate the trust and transfer the funds to her immediately. Would Emily be entitled to terminate the trust and receive the $100,000?

• Yes

• No

Answer explanation

Saunders v Vautier (1841) 41 ER 482 

Mr. Pasan established a trust, appointing Mr. Aamir and Ms. Sara as trustees, to hold property until specific conditions are met. The beneficiaries are Mr. Pasan’s children: Danny (35), Dev (32), and Deepti (28), with each receiving different shares. The trust deed mandates holding the property in trust until Deepti, the youngest, turns 30. Currently, Danny is 35, Dev is 32, and Deepti is 28. Danny and Dev believe the trust should be terminated immediately to maximize benefits and convince Deepti to agree. They argue that their unanimous agreement as beneficiaries justifies dissolving the trust and distributing the assets immediately. Would the unanimous agreement as beneficiaries justify the dissolution of the trust and the immediate distribution of its assets among them?

• Yes, as they are all of full age and capacity and entitled to the entire beneficial interest

• No, since the trust expressly provides that Deepti has to turn 30yrs

• Yes, since the intended benefits will not be maximized if the property remains in the trust

• No, as the three beneficiaries don’t have equal shares in the trust

Answer explanation

Quinton v Proctor [1998] 4 VR 469

Allan Cox, a wealthy farmer, established a trust in his will, with the principal asset being a 200-acre farming estate called “Springbanks.” The trust deed stipulates that his daughter, Sofia, will receive the proceeds from the sale of “Springbanks” under certain conditions, including offering the property to Mr. Cox’s friend, Mr. Richard, at a predetermined price of $1 million before any sale. Currently, Sofia, now 27, seeks to terminate the trust and sell “Springbanks” at its current market value of $1.5 million to maximize her inheritance. However, the property has not yet been offered to Mr. Richard as required by the trust. Would Sofia be entitled to terminate the trust?

• Sofia, as the sole beneficiary and of legal age, can terminate the trust and claim the sales proceeds.

• Sofia can terminate the trust as the condition giving Mr. Richard the option to purchase is void against public policy.

• Sofia needs Mr. Richard's agreement to terminate the trust, as her beneficial interest is restricted by the condition in the trust.

Answer explanation

Cox v Archer (1964) 110 CLR 1

Three trustees, Elena, Diego, and Isabella, are in charge of a charitable trust fund dedicated to supporting local educational programs. Over the last year, Elena and Diego have engaged in several risky investments with the trust's assets, resulting in significant financial losses. Isabella was aware of these actions but chose not to intervene or voice her concerns. You are tasked with determining whether Isabella, will be liable for the breach of trust committed by Elena and Diego. Will Isabella be liable for the breach of trust caused by Elena and Diego's risky investments?

• Yes, Isabella will be liable because she had a duty to actively monitor the trust's activities and intervene when necessary

• No, Isabella will not be liable because she did not personally participate in the risky investments

• Yes, Isabella will be liable only if she personally benefited from the risky investments

• No, Isabella will not be liable because she was not the one who made the investment decisions

Jane Scott created The Scott Heritage Trust to preserve her family’s estate, including a mansion, woodland, and antiques, for the beneft of her grandchildren: Elizabeth, Charles, and Diana. She appointed her trusted friend Bryant as the sole trustee. Bryant, however, recently decided to sell part of the woodland and several antiques to finance a personal business venture, despite the explicit terms of the trust which prohibit the sale of any trust property. Elizabeth, Charles, and Diana discover these plans just before any contracts are signed and are deeply concerned about the irreparable harm to the estate and the violation of their grandmother's wishes. Given the circumstances, what is the most appropriate remedy for Elizabeth, Charles, and Diana to pursue for the breach of trust?

• Appointment of a receiver

• Equitable compensation

• Injunction

• Account of profits

Hana, an elderly widow, entrusted her estate, including real estate, an art collection, and investments, to her advisor Nathan as trustee for her grandchildren, Asahi and Ren. After Hana’s death, Nathan secretly invested the trust funds in a high-risk venture that failed, resulting in significant losses. To cover these losses, he sold several art pieces below market value to his acquaintances. Asahi and Ren, noticing the trust’s decline and Nathan’s secrecy, reviewed the records and discovered the unauthorized investments and underpriced sales. They confronted Nathan, who admitted his mistakes but claimed he intended to grow the trust’s value. Given the circumstances, what is the most appropriate remedy for Asahi and Ren to pursue for the breach of trust?

• Appointment of a receiver

• Equitable compensation

• Injunction

• Account of profits

Dr. Budi, a neurosurgeon, set up a trust for his daughter Amelia, with his lawyer friend Mr. Samuel as trustee. The trust's assets include real estate, stocks, bonds, and rare books, to be managed for Amelia's benefit. Two years later, Mr. Samuel sold a rare book for $500,000 to a friend, depositing the amount into the trust account. However, in a secret arrangement, the friend later auctioned the book for $900,000 and gave Samuel the $400,000 difference. Amelia, who cherished the rare books, discovered the discrepancy and uncovered the transaction, realizing that Mr. Samuel had sold it for below market value and retained the excess sum. Given the circumstances, what is the most appropriate remedy for Amelia to pursue for the breach of trust?

• Appointment of a receiver

• Equitable compensation

• Injunction

• Account of profits

John is the sole trustee of a private family trust. Recently, he invested a significant portion of the trust's funds into a new business venture without consulting a financial advisor or notifying the beneficiaries. Unfortunately, the business venture failed, and the trust suffered considerable losses. The beneficiaries have now taken legal action against John for breaching his fiduciary duties. John seeks to raise the defence that he acted honestly under s75 Trustees Act 1962 (WA). Can John successfully defend himself using the principle of acting honestly and reasonably?

• Yes, because the trustee’s belief in the investment's benefit suffices for the defence

• No, failing to consult a financial advisor and not notifying the beneficiaries constitutes unreasonableness

• Yes, because the trustee’s actions were made with genuine intentions and without malice

• No, because any loss to the trust disqualifies the trustee from raising a defence of acting honestly and reasonably

Answer explanation

Hagan v Waterhouse (1991) 34 NSWLR 308

Anita, the trustee of a family trust, is responsible for managing and investing the trust funds. Due to her inexperience in financial matters, she relies on the advice of an external financial advisor, Mr. Payton. Following his advice, Anita invests a significant portion of the trust’s assets in a promising technology company, which unfortunately goes bankrupt within a year, causing substantial financial losses. The beneficiaries are now suing Anita for breaching her duties as a trustee. Anita contends that she acted honestly and reasonably by relying on Mr. Payton’s professional advice. Can Anita successfully raise the defence of acting honestly and reasonably?

• Yes, because she trusted an experienced financial advisor's advice, which demonstrates her honest approach

• No, because trustees are ultimately responsible for investment decisions and cannot rely solely on external advice

• Yes, if it is proven that Anita confirmed that Mr. Payton had a clean and reliable professional record prior to giving the advice

• No, unless there is absolute evidence that she conducted her own thorough assessment of Mr. Payton's advice and the investment decision

Answer explanation

Re Investa Properties Ltd (2001) 187 ALR 462

Tom a trustee holds shares valued at $1million on trust for Mary. Tom breaches the trust by selling the shares and uses the proceeds to buy a house which he puts under his name. Based on the principle in Re Hallett’s Estate (1889) 13 Ch D 696 advise Mary on the potential remedial actions she can take to recoup her loss from the trust?

• Mary would be able trace her $1 million to the house and only be able to assert ownership over the house

• Mary would not be able to trace her $1 million due to its considerable transformation from shares to real property

• Mary would be able to trace her $1 million to the house and may either assert ownership or hold it as security until full payment is received

• Mary would be able to trace her $1million to the house but cannot assert ownership since it is registered in Tom’s name