By Amaka Ezeno, MCLArb
Keeton defined a trust as a relationship where a person called the trustee is compelled in equity to hold property whether real, personal and whether by legal or equitable title for the use of some persons of whom he may be one or for some object permitted by law, in such a way that the real benefit of the property accrues not to the trustee but to the beneficiaries or other objects of trust.
The circumstances giving rise to a trust abound. A pilgrim could convey his property to another to hold on behalf of his wife and children. Also, a landowner standing trial who wants to avoid the risk of losing his property if he is convicted can convey it to another person to hold for him. A trust can be private or charitable/public. A charitable trust gives rise to tax rebate as it is usually for public benefits.
Any person of full age and legal capacity can be appointed as a trustee. A trust corporation like a bank can also be appointed as a trustee. Generally, there is no limit to the number of trustees who can be appointed. However, in the states of the old western region, there can only be a maximum of four trustees where it is a trust for sale of land.
The trust property must be vested in the trustees for the benefit of the beneficiaries. Thus, a trust created with respect to land (realty) requires the execution of a deed of conveyance by the settlor to properly vest the property in the trustees. In the same way, a deed of gift is required in the case of personal property. A trust relationship can come to an end by publishing a disclaimer, retirement/discharge, or removal by the court through an application by the beneficiary.
Trustees have a positive duty not to deviate from the express terms of the trust instrument. Any departure from the terms amounts to breach of trust of which they will be personally liable. Even the court does not have the jurisdiction to vary a trust or power to authorize a departure from its terms, except in the case of emergency in the administration of the trust. For instance, carrying out essential repairs to salvage the trust property.
Upon accepting the appointment as a trustee whether by word or conduct and having been vested with the trust property for the benefit of the beneficiary, the trustee is immediately put under an obligation to ensure that he or she collects by lawful means, the trust property and reduce same to possession.
The trustee has the duty to where necessary sue to recover and reduce the into possession any debt forming part of the trust. The duty to reduce into possession extends to where there are more than one trustees, whereby the trust property must not be negligently left in the possession of one. Otherwise, the trustees may be liable for breach for loss or misappropriation caused by the trustee in whose sole possession the property was left.
It is also the duty of a trustee to invest the trust property. This may be expressly spelt out, otherwise the trustee is expected to invest in securities authorized by the Trustee Investment Act. In any case, the duty of care expected of a trustee during investment is that of a prudent man of business. In the same vein, the trustee must keep account of his dealings with trust property and be ready to make same available for inspection upon demand by the beneficiary.
Apart from public trustees, a trustee, due to his fiduciary relationship with the beneficiary, is not expected to make any profit from the trust unless it is expressly stated in the trust instrument. A trustee should not also allow his personal interest conflict with his duty as a trustee. This duty includes not to engage in speculation such as gambling.
Thus, where the trustee uses the trust fund in commercial enterprise, the gains go to the beneficiary, but the trustee will be liable for any loss arising from the speculation. Also, a trustee is not allowed to sell trust property to himself. A trustee may purchase a trust property from a third party but must be in good fate and without prior agreement to purchase. As exceptions, a trustee may be fully reimbursed by the trust estate for his legitimate out-of-pocket expenses in respect of insurance premiums, fees for the employment and services of professionals such as solicitors, accountants, etc.
Whereas, the duties of a trustee are imperative, his powers are discretionary. This means that the powers of a trustee are usually exercised based on their preference and judgements. Firstly, a trustee usually has the power of sale but on the best possible terms/price. Since trustees are expected to take adequate care of the property, he has the power to insure same against risks and the premium paid from the income of the insured property.
Also, trustees are empowered to consider and if satisfied with any evidence they believe to be adequate, allow or pay any debt or claim made by a third party against the trust estate. They also enjoy the discretion to delegate their duty but only and if where a job requires special or professional skills or knowledge in the ordinary course of business of trust.
A trustee also has the power to pay trust fund into court but only in serious difficulty in relation to the doubtful claims of beneficiaries. Thus, he or she is firstly, expected to appropriately manage the trust business and accordingly distribute the income or capital to those beneficiaries properly entitled according to the terms of the trust. Lastly, trustees have the power to advertise their intention to distribute trust property before the actual distribution.
There are remedies available to the beneficiary for breach by the trustee. In fact, a trustee may be criminally guilty of a breach of trust for conveyance of trust property to uses not authorized by the trust instrument or for fraudulent misappropriation. The remedies available to a beneficiary include injunction to restrain an anticipatory breach, personal remedy against defaulting trustees, and tracing the trust property against third parties who have received the property wrongly with notice of its encumbrance.