The Trustee's Discretion and the Beneficiary's Demand
A wealthy settlor creates a trust for his three grandchildren: Alice, Ben, and Cara. The trust deed gives the trustee, a bank, discretion to distribute income and capital among the grandchildren 'as the trustee thinks fit'. The settlor also leaves a letter of wishes stating that Alice should receive enough to buy a house, Ben should be supported through university, and Cara should receive the remainder at age 25. The trustee distributes $200,000 to Alice to buy a house, pays Ben's university fees directly, and accumulates the rest for Cara. Cara, now 23, demands her share immediately, arguing that the letter of wishes is binding and that the trustee has breached its duty by favouring Alice and Ben. The trustee seeks advice.
1. Advise the trustee on whether the letter of wishes is binding and whether the trustee has properly exercised its discretion.
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The letter of wishes is not binding. It is merely a statement of the settlor's desires and does not create a trust or impose enforceable obligations. The trustee's discretion is conferred by the trust deed, and the trustee must exercise it in good faith and for the benefit of the beneficiaries. The trustee must consider the letter of wishes but is not bound by it. Here, the trustee has distributed funds to Alice and Ben in accordance with the settlor's wishes, which is permissible. However, the trustee must act impartially among beneficiaries. By giving Alice a large sum and Ben support, the trustee may have favoured them over Cara. The trustee must consider Cara's interests and the accumulation of income for her. The fact that Cara is 23 and the letter says she should receive the remainder at 25 does not give her an immediate right to the capital. The trustee has discretion to accumulate income until she reaches 25. However, if the trustee has been influenced by irrelevant considerations or has acted dishonestly, the court can intervene. The trustee should ensure that its decision is made after considering all relevant matters, including Cara's needs. If the trustee has not considered Cara's circumstances, it may have breached its duty. The trustee should review its decision and perhaps make a distribution to Cara if appropriate. The trustee is not obliged to follow the letter of wishes, but it should not act capriciously.
2. Discuss whether Cara has any remedy if she believes the trustee has breached its fiduciary duty.
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Cara may have a remedy if she can show the trustee breached its fiduciary duty. As a beneficiary, she can sue the trustee for breach of trust. The trustee must act in the best interests of all beneficiaries and not favour one over another without justification. If the trustee distributed a disproportionate amount to Alice and Ben without considering Cara, that could be a breach of the duty of impartiality. Cara can apply to the court for an order that the trustee reconsider its decision or for compensation. The court will not usually interfere with a trustee's discretion unless it can be shown that the trustee acted in bad faith, for an improper purpose, or failed to consider relevant factors. Cara would need evidence that the trustee ignored her interests. The letter of wishes, while not binding, is a relevant factor; the trustee was entitled to give it weight. However, if the trustee treated the letter as binding and therefore did not exercise its own discretion, that would be a breach. Cara could also argue that the trustee's accumulation of income for her is not in her best interests if she has immediate needs. The court may remove the trustee if there is misconduct. Cara's remedy is likely to be an order for the trustee to properly exercise its discretion, rather than a direct payment. If the trustee has already distributed the funds, Cara may claim against the trustee personally for any loss. The trustee should seek court directions if unsure.