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Termination of Trust

Termination of trusts can occur through failure or lapse of interests, by beneficiaries, by the court, or due to breach of trust. Failure or lapse of interests includes expiration of the trust or events specified in the trust deed. Beneficiaries can unanimously agree to terminate if they are alive and have full legal capacity. The court has power to terminate and distribute property under certain conditions. Breach of trust involves failure to follow trust terms. Beneficiaries can seek injunctions, pursue personal actions against trustees, or trace property through constructive trusts. Defences for trustees include relief from beneficiaries or the court if trustees acted honestly and reasonably.

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569 views

Termination of Trust

Termination of trusts can occur through failure or lapse of interests, by beneficiaries, by the court, or due to breach of trust. Failure or lapse of interests includes expiration of the trust or events specified in the trust deed. Beneficiaries can unanimously agree to terminate if they are alive and have full legal capacity. The court has power to terminate and distribute property under certain conditions. Breach of trust involves failure to follow trust terms. Beneficiaries can seek injunctions, pursue personal actions against trustees, or trace property through constructive trusts. Defences for trustees include relief from beneficiaries or the court if trustees acted honestly and reasonably.

Uploaded by

nikhil jkc
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Termination of trust

Termination of trusts might occur due to Failure or Lapse of interests, by beneficiaries, by the
court and by breach of trust.

1) Failure or Lapse of interest (Section 55 of the Trust Act 2001)


It can occur:
• If the trust expires
• If there is a clause or event mentioned in the trust deed; the trust is terminated
• If there are no beneficiaries and no person who can be the beneficiary in accordance of the
trust (Ex: The beneficiary is dead and has no other close relatives to benefit from his real
estates.)
If the trust is expired or terminated by any clause in accordance of the trust deed, the trust property
will be held to the beneficiaries (Section 56(1) of TA 01)).
2) Termination by Beneficiaries (Section 57 (1) of the Trust Act 2001)
Beneficiaries can terminate a trust under certain conditions:
• The beneficiary/ beneficiaries is/ are alive and identifiable
• They have the full age with no legal incapability.
• They are in unanimous agreement to do so. (Written notice and mutual agreement from all
beneficiaries to end the trust.)
Consequence of termination of trust by beneficiaries: Section 57 (2) suggests that where all
the conditions in subsection one to terminate the trust is met, the trustees shall distribute the
trust property as the beneficiaries may direct.

Refer to the case of Saunders v Vautiers (1841):


The common rule of law in the case of Saunders v Vautiers, suggested that the beneficiaries of
trust are allowed to be departed by the settlors 'original intentions, provided that they are of full
legal capacity and are entitled to all the rights of the beneficial ownership of the trust property.

3) Termination by court (section 58 of the Trust Act 2001)


The court has the power to terminate a trust.
On the application of any person having an interest in the trust, the Court may—
(a) direct the trustees to distribute, or not to distribute, the trust property; or
(b) make such other order in respect of the termination of the trust and the distribution of the
property as it thinks fit.
''Any person having interest in the trust'' is defined under the section 2 of the Trust Act.
"Person having an interest" means, in relation to a power to apply to the
Court, the Attorney-General, a trustee, a settlor, an enforcer, a protector, a
beneficiary of the relevant trust, any person empowered by the terms of the
trust to make such application, or any other person with leave of the Court;

Termination or variation of Charitable Trust (Section 59 of the Trust Act)


Charitable purpose trust is usually privileged by the court. To ensure the operational purpose of
the charitable purpose trust, the Court will see if it can be re-classified.
The doctrine of cy- près is applied. It means that the court may rewrite the charitable gift or trust
so that it is no longer impossible or impractical to carry out. (Section 59 (1))

Section 59(2): The power of court in *variation of trust*.

* Means changing the terms of the trust

Section 59 of TA 2001: (2) Where trust property is held for a charitable purpose, the Court, on the
application of the Attorney-General, the trustee or the enforcer, may approve any arrangement
which varies or revokes the purposes or terms of the trust or enlarges or modifies the powers of
management or administration of the trustee, if it is satisfied that the arrangement—

(a) is now suitable or expedient; and

(b) is consistent with the original intention of the settlor.

4) Breach of Trust

• Failure to follow the terms of the trust


• Failure to invest or wrong investment (Trustees investing trust fund when they do not
hold statutory powers of investing)
• Failure to protect interests of beneficiaries
Steps to be taken:

➢ Apply for an injunction


➢ Intend an action against the trustee in personam
➢ Action in rem –Tracing; to recover the trust property

*Action in personam- concerns legal interests arising from obligations and actions between
people. It is based on the authority of the Court, or jurisdiction, over a person as an individual
rather than jurisdiction over specific property owned by a person.

*Action in rem- a proprietary action brought against the object that is the subject of
a dispute.

Application for injunction

*A court's order to perform a particular action or refrain from doing something.

 The applicant should have a valid underlying claim/ valid reason.


 Injunctions are discretionary remedies- The court is not obliged to provide for an
injunction but may grant an injunction where it finds it to be fair and just to do so.
 Damages should not be an adequate remedy. (There should be a breach of the law)

Cases where injunctions have been granted:

Fox v Fox (1870)

Ludlow Corporation v. Greenhouse (1827)

Action against trustees in personam

Section 50(3) 0f the TA 2001 (The parameters)

A trustee shall not be liable for a breach of trust committed by another person prior to his
appointment or for a breach of trust committed by his co-trustee unless -

a) he becomes or ought to become aware of the breach; and

b) he actively conceals the breach, or fails within a reasonable time to take


proper steps to protect or restore the trust property or to prevent the

breach.

Section 50(4) TA 01: Joint Liability in case of more than 1 trustee

Where trustees commit a breach of trust, they shall be liable jointly and severally.

Case of National Trustee Company of Australasia v. Finance Company of

Australasia (1905)

Limitations:

• Limitation of Actions – Section 68(1) TA 01

A period of limitation and prescription of 30 years shall apply to an

action brought by a person having an interest against a trustee.

• For Minors Beneficiaries – Section 68(2) TA 01

The period within which an action founded on breach of trust may be

brought against a trustee by a beneficiary is -

a) 2 years from delivery of the final accounts of the trust to the

beneficiary; or

b) 2 years from the date on which the beneficiary first has

knowledge of the breach of trust, whichever period first begins to run.

Tracing (Action in rem)

Section 53 of TA 2001- Constructive trust

(1) A person holding any fiduciary obligations who— (a) derives a profit from a breach of his
fiduciary duties; or (b) obtains property as a result of such a breach, shall be deemed to be a
trustee of the profit or property for the person to whom the duties are owed.

(2) A trustee who— (a) derives a profit from a breach of trust; or


(b) obtains property as a result of such a breach, shall be deemed to be a trustee of the profit or
property for the beneficiary of the trust

(3) Without prejudice to any other remedy provided by law, the person referred to in subsection
(1) to whom fiduciary duty is owed, or the beneficiary referred to in subsection (2), may apply
to the Court for an order that the profit or property obtained from the breach of fiduciary
duties or of trust be traced and recovered to him.

Section 54 of TA 2001-Tracing

2 conditions should be met:

▪ Initial fiduciary relationship


▪ Property in a traceable form

Case of Re Hallett Estate (1880) and Foskett v. McKeown (1998)

Measure of compensation claims- Section50(1) TA 01

A trustee who commits or concurs in a breach of trust shall be liable for -

a) any loss or depreciation in value of the trust property resulting from the breach; and

b) any profit which would have accrued to the trust had there been no breach.

Case of Bartlett v. Barclays Bank Trust Co (1980)

Defences for breach of trust

Section 50 (6) states a general where:

♦ Nothing in the terms of a trust shall relieve a trustee of liability for a breach of trust arising
from his own fraud, wilful misconduct or gross negligence.

However, the TA 01 provides for provisions for relief of trustees.

▫ Section 51-Relief by beneficiary (1) Subject to subsection (2), a beneficiary may—

(a) relieve a trustee of liability to him for a breach of trust;


(b) indemnify a trustee against liability for a breach of trust.

(2) Subsection (1) shall not apply if the beneficiary—

(a) is a minor or a person under legal disability;

(b) does not have full knowledge of all material facts; or

(c) is improperly induced by the trustee to act under subsection (1).

▫ Section 52- Relief by Court- The Court may relieve a trustee wholly or partly of liability
for a breach of trust.

(Trustees can ask Court to relief them through an apology to the Court. The Court would act on its
own and would see if the trustees have acted *honestly and reasonably- *Trustees should prove to
the court)

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