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NZ CFS L5 Trustee Services study materials
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NZ CFS L5 Trustee Services practice questions

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Question 1Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Trusts Act 2019, which document must a trustee generally provide to a beneficiary who requests it, subject to the Act's exceptions?

  1. The trustee's personal tax returns
  2. The settlor's will
  3. The terms of the trust Correct answer.
  4. The trust's bank statements for the past decade

Explanation

The Trusts Act 2019 gives beneficiaries a presumptive right to be given the terms of the trust and information about the trust, subject to specified exceptions and withholding grounds. The other items are not mandated disclosures under that provision.

Question 2Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

What is the default maximum duration of a trust under the Trusts Act 2019?

  1. 150 years
  2. 125 years Correct answer.
  3. 80 years
  4. 21 years

Explanation

The Trusts Act 2019 sets the default maximum trust duration at 125 years, replacing the earlier 80-year rule. Parties can specify a shorter duration in the trust deed.

Question 3Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Trusts Act 2019, what is the default rule regarding a trustee's power to delegate their functions?

  1. Delegation requires court approval in every case
  2. Trustees may never delegate any function
  3. Trustees may delegate unless the trust deed prohibits it, but certain powers cannot be delegated Correct answer.
  4. Trustees may delegate all functions without restriction

Explanation

The Act permits delegation of most trustee functions unless the trust deed restricts it, but reserves certain core powers (such as powers of appointment and distribution) that cannot be delegated. This preserves trustee accountability for key decisions.

Question 4Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee is considering investing trust funds. Under the Trusts Act 2019, which standard applies to a professional trustee's investment duties?

  1. The trustee need only act honestly
  2. The trustee may invest only in government bonds
  3. The trustee must follow the settlor's verbal wishes over the trust deed
  4. The trustee must exercise the care and skill of a person with special knowledge or experience in the relevant matter Correct answer.

Explanation

The Act sets a higher standard for trustees with special knowledge or professional experience, requiring the care and skill of a person in that profession. Lay trustees are held to the ordinary prudent person standard.

Question 5Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which statement best describes the core anti-money laundering obligation of a reporting entity under the AML/CFT Act 2009?

  1. File annual tax returns for clients
  2. Guarantee that no client is ever a criminal
  3. Conduct customer due diligence and report suspicious activities Correct answer.
  4. Disclose all client information to the public register

Explanation

Reporting entities must conduct customer due diligence, monitor transactions, and report suspicious activities to the Financial Intelligence Unit. These are the central obligations of the AML/CFT regime.

Question 6Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the AML/CFT Act 2009, which body receives suspicious activity reports in New Zealand?

  1. The Financial Markets Authority
  2. The New Zealand Police Financial Intelligence Unit Correct answer.
  3. The Reserve Bank of New Zealand
  4. The Commerce Commission

Explanation

Suspicious activity reports are submitted to the Financial Intelligence Unit, which is part of the New Zealand Police. The FMA and Reserve Bank are supervisors, not the receiving body for SARs.

Question 7Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee services firm is a reporting entity under the AML/CFT Act. When must it complete customer due diligence?

  1. Once every five years regardless of activity
  2. Only after a suspicious transaction is detected
  3. Before establishing a business relationship or carrying out an occasional transaction above the threshold Correct answer.
  4. Only when the client requests it

Explanation

Customer due diligence must generally be completed before establishing a business relationship or conducting an occasional transaction over the prescribed threshold. Ongoing CDD is also required as risk dictates.

Question 8Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which of the following is a key purpose of the Financial Markets Conduct Act 2013?

  1. Administering the criminal justice system
  2. Setting income tax rates
  3. Regulating employment relations
  4. Promoting confident and informed participation in financial markets Correct answer.

Explanation

The FMCA's purpose is to promote confident and informed participation in financial markets through fair, efficient, and transparent markets and strong investor protections. It does not set tax rates or govern employment.

Question 9Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Financial Markets Conduct Act 2013, which conduct is prohibited in relation to financial products?

  1. Providing balanced risk disclosures
  2. Making misleading or deceptive statements in connection with a financial product Correct answer.
  3. Maintaining proper records
  4. Seeking independent legal advice

Explanation

The FMCA prohibits misleading or deceptive conduct in connection with financial products and services. Accurate disclosure and prudent record-keeping are encouraged, not prohibited.

Question 10Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee company holds a client's funds in trust. Under the Trusts Act 2019, how must trust property generally be kept?

  1. Commingled with the trustee's own funds for convenience
  2. In cash at the trustee's office
  3. In the personal bank account of a director
  4. Separate from the trustee's own property and clearly identified as trust property Correct answer.

Explanation

Trust property must be kept separate from the trustee's personal property and clearly identified, so it can be traced and protected. Commingling breaches the duty to keep trust assets distinct.

Question 11Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

What is the primary role of the Trusts Act 2019 in relation to trust deeds?

  1. It provides default rules that apply unless the trust deed provides otherwise Correct answer.
  2. It replaces all trust deeds with statutory terms
  3. It requires every trust to be registered with a government agency
  4. It abolishes the office of trustee

Explanation

Much of the Trusts Act 2019 is default law, meaning the trust deed can modify or exclude many provisions. The Act supplies rules where the deed is silent.

Question 12Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A beneficiary asks a trustee for information about the trust. Under the Trusts Act 2019, which of the following is a recognised ground on which a trustee may withhold information?

  1. The trustee simply prefers not to share
  2. The beneficiary lives overseas
  3. The information would disclose the trustee's confidential reasons for a discretionary decision Correct answer.
  4. The beneficiary has not paid a fee

Explanation

The Act recognises withholding grounds including where disclosure would reveal the trustee's reasons for a discretionary decision, or breach confidentiality or the privacy of a person. These are limited, defined grounds.

Question 13Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which duty requires a trustee to avoid placing themselves in a position where their personal interest conflicts with the trust's interest?

  1. Duty to keep accounts
  2. Duty of impartiality
  3. Duty to invest prudently
  4. Duty to avoid conflicts of interest Correct answer.

Explanation

The duty to avoid conflicts of interest requires a trustee not to put themselves in a position where personal interest and trust duty conflict. This is a fiduciary duty central to trustee conduct.

Question 14Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the AML/CFT Act, what is enhanced customer due diligence (EDD) and when is it typically required?

  1. A one-time identity check at account closure
  2. An optional service offered to premium clients
  3. More extensive due diligence applied to higher-risk situations such as politically exposed persons Correct answer.
  4. A simplified check applied to all low-risk clients

Explanation

EDD involves additional scrutiny and is required for higher-risk customers, including politically exposed persons and complex or high-risk structures. It goes beyond standard CDD.

Question 15Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which of the following best describes a politically exposed person (PEP) under the AML/CFT framework?

  1. A person who has declared bankruptcy
  2. A person entrusted with prominent public functions, and their family members and close associates Correct answer.
  3. Any person who has ever voted in an election
  4. A person who works for a bank

Explanation

A PEP is someone entrusted with prominent public functions, along with their family members and close associates, who present higher corruption risk. PEP status triggers enhanced due diligence.

Question 16Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee makes a decision to distribute trust income. Which duty requires the trustee to consider the interests of all beneficiaries, including those not currently receiving distributions?

  1. Duty to maximise profit
  2. Duty to act impartially between beneficiaries Correct answer.
  3. Duty to publish accounts
  4. Duty to avoid delegation

Explanation

The duty of impartiality requires trustees to act fairly between beneficiaries and not favour one class over another without proper basis. It applies even when discretionary decisions favour some beneficiaries.

Question 17Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Trusts Act 2019, what must a trustee do if they wish to be indemnified from trust assets for liabilities properly incurred?

  1. Transfer the trust to another trustee
  2. Obtain the settlor's written permission each time
  3. Nothing, indemnity is automatic for all liabilities including personal breaches
  4. Ensure the liability was properly incurred in the course of administering the trust Correct answer.

Explanation

A trustee is entitled to indemnity from trust assets for expenses and liabilities properly incurred in administering the trust, but not for losses caused by breach of trust. The key is that the liability was properly incurred.

Question 18Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which legislation primarily governs the licensing and supervision of managers of managed investment schemes in New Zealand?

  1. The Companies Act 1993
  2. The Financial Markets Conduct Act 2013 Correct answer.
  3. The AML/CFT Act 2009
  4. The Trusts Act 2019

Explanation

The FMCA 2013 establishes the licensing regime for managers of managed investment schemes and related supervision by the FMA. The Trusts Act and AML/CFT Act serve different purposes.

Question 19Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the AML/CFT Act, how long must a reporting entity generally retain customer due diligence records?

  1. At least five years after the business relationship ends Correct answer.
  2. Until the client requests deletion
  3. Indefinitely with no minimum
  4. At least one year

Explanation

Reporting entities must generally retain CDD and transaction records for at least five years after the business relationship ends or the transaction is completed. This supports audit and investigation.

Question 20Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee is offered a personal benefit from a third party in connection with a trust transaction. What is the trustee's primary obligation?

  1. Accept the benefit if it is small
  2. Disclose the benefit and avoid or account for any unauthorised profit Correct answer.
  3. Donate the benefit to charity without disclosure
  4. Keep the benefit secret

Explanation

A trustee must not make an unauthorised profit from their position and must disclose and account for any benefit obtained through the trust. Secret profits are recoverable by the trust.

Question 21Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which of the following is a trustee's duty regarding record-keeping under the Trusts Act 2019?

  1. Keep accurate records of trust property and administration Correct answer.
  2. Record only cash transactions
  3. Destroy records after one year
  4. Keep records only if a beneficiary demands them

Explanation

Trustees must keep accurate records of the trust's administration and property so the trust can be properly administered and accounted for. Record-keeping supports transparency and the beneficiaries' information rights.

Question 22Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the FMCA 2013, what is the role of a licensed supervisor in a managed investment scheme?

  1. To independently supervise the manager and act in the interests of scheme participants Correct answer.
  2. To audit the manager's personal tax affairs
  3. To set the scheme's investment returns
  4. To market the scheme to investors

Explanation

A supervisor independently monitors the manager and safeguards the interests of scheme participants under the FMCA. The supervisor does not market the scheme or guarantee returns.

Question 23Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Which of the following situations most likely requires a trustee services firm to file a suspicious activity report?

  1. A client appoints a new lawyer
  2. A client requests a routine statement
  3. A client's transactions are inconsistent with their known business and there is no reasonable explanation Correct answer.
  4. A client provides complete identification documents promptly

Explanation

Inconsistencies with a client's known profile and lack of reasonable explanation are indicators of potential money laundering and should prompt a suspicious activity report. Routine administrative events do not.

Question 24Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Trusts Act 2019, what is the effect of an exclusion clause in a trust deed that attempts to exclude a trustee's liability for dishonesty?

  1. It cannot exclude liability for dishonesty Correct answer.
  2. It is fully effective
  3. It requires court registration to be valid
  4. It converts the trustee into a beneficiary

Explanation

The Trusts Act 2019 limits the extent to which trustee liability can be excluded, and a trustee cannot rely on an exclusion for dishonesty or bad faith. Such clauses are ineffective to that extent.

Question 25Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

What does the term 'know your customer' (KYC) most closely align with under the AML/CFT Act 2009?

  1. Customer due diligence obligations Correct answer.
  2. Employment screening
  3. Tax residency determination
  4. Marketing segmentation

Explanation

KYC corresponds to the customer due diligence obligations under the AML/CFT Act, including identifying and verifying customers and understanding their risk profile. It is a core compliance concept.

Question 26Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

Under the Trusts Act 2019, what is the maximum duration of a trust that was created on or after 30 January 2021, unless the trust deed specifies a shorter period?

  1. 21 years
  2. 80 years
  3. 150 years
  4. 125 years Correct answer.

Explanation

The Trusts Act 2019 replaced the old perpetuities rule with a default maximum trust duration of 125 years for trusts created on or after 30 January 2021. A trust deed may set a shorter period, but cannot extend beyond the statutory maximum.

Question 27Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee services firm is a reporting entity under the AML/CFT Act 2009. Which of the following best describes the role of a compliance officer appointed under that Act?

  1. To act as the firm's external auditor for annual AML/CFT returns
  2. To approve every transaction the firm conducts for clients
  3. To personally certify each client's source of wealth to the FMA
  4. To administer, maintain, and keep the firm's AML/CFT programme operating Correct answer.

Explanation

The AML/CFT Act requires reporting entities to appoint a compliance officer responsible for administering and maintaining the AML/CFT programme and its procedures. The role is internal and operational, not an audit or certification function.

Question 28Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee wishes to retire from a trust. Under the Trusts Act 2019, which statement best reflects the position where the trust deed is silent on retirement?

  1. A trustee may retire only with the unanimous written consent of every beneficiary
  2. A trustee may retire at will without any continuing trustee, leaving the trust without trustees
  3. A trustee may retire by giving notice to the other trustees and the settlor, provided at least two trustees or a trustee company remain Correct answer.
  4. A trustee may never retire unless the High Court makes an order

Explanation

The Trusts Act 2019 allows a trustee to retire by giving written notice to the other trustees and the settlor, but only if at least two trustees or a trustee company will remain. This preserves proper administration of the trust.

Question 29Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee company is considering investing trust funds. Under the Trusts Act 2019, which statement best describes the default investment power and duty of a trustee?

  1. A trustee has the power to invest trust property as a prudent person would, having regard to the trust's objectives and the interests of beneficiaries Correct answer.
  2. A trustee may invest only in bank deposits unless the deed expressly authorises other investments
  3. A trustee must invest exclusively in government securities to avoid any risk of loss
  4. A trustee may invest in any asset personally chosen without documenting the reasons for the decision

Explanation

The Trusts Act 2019 gives trustees a default power to invest as a prudent person would, considering the trust's objectives and the beneficiaries' interests. Trustees must exercise care and skill and keep appropriate records of investment decisions.

Question 30Trustee Services regulatory and legislative framework (Trustee Act, Trusts Act, Financial Markets Conduct Act, AML/CFT obligations)

A trustee services firm acts as a licensed manager of a managed investment scheme under the Financial Markets Conduct Act 2013. Which governance requirement applies to the firm in that capacity?

  1. It must appoint a licensed supervisor independent of the manager to supervise the scheme Correct answer.
  2. It must list the scheme on the NZX main board within twelve months
  3. It must transfer legal ownership of scheme assets to investors individually
  4. It must obtain a separate banking licence from the Reserve Bank before accepting investor funds

Explanation

Under the FMCA 2013, a managed investment scheme must have a licensed supervisor who is independent of the manager and supervises the manager's compliance with the governing document and the Act. This provides investor protection through independent oversight.

Question 31Trust law fundamentals and the nature of fiduciary relationships

Which statement best describes the core obligation of a trustee under a bare trust?

  1. The trustee must actively manage the property to generate income for the beneficiary
  2. The trustee holds legal title and must transfer the property to the beneficiary on demand Correct answer.
  3. The trustee has discretion to choose who receives the trust property
  4. The trustee may use the trust property for personal benefit until the beneficiary turns 18

Explanation

In a bare trust the beneficiary is absolutely entitled and the trustee's only duty is to hold and transfer legal title as directed. There is no active management obligation or discretion over beneficiaries.

Question 32Trust law fundamentals and the nature of fiduciary relationships

A fiduciary relationship is best characterised by which feature?

  1. The fiduciary owes duties only where a written contract specifies them
  2. The fiduciary owes a duty of utmost good faith and loyalty to the principal Correct answer.
  3. The fiduciary relationship arises only where money is held on deposit
  4. The fiduciary is entitled to place personal interests ahead of the principal when convenient

Explanation

Fiduciary relationships are defined by duties of loyalty and good faith, requiring the fiduciary to act in the principal's interests. These duties arise from the nature of the relationship, not merely from contract or deposit arrangements.

Question 33Trust law fundamentals and the nature of fiduciary relationships

Which of the following is a recognised duty of a trustee when investing trust funds?

  1. To delegate all investment decisions to the beneficiaries
  2. To invest only in government stock regardless of the trust terms
  3. To guarantee a fixed rate of return to the beneficiaries
  4. To exercise the care and skill of a prudent person of business in managing investments Correct answer.

Explanation

A trustee must exercise the care and skill expected of a prudent person of business when investing. There is no requirement to restrict investment to government stock or to guarantee returns.

Question 34Trust law fundamentals and the nature of fiduciary relationships

What is the key distinction between a trust and a debt?

  1. A trust can only arise between family members, whereas a debt is commercial
  2. A trust involves a fiduciary holding property for another, whereas a debt is a personal obligation to pay Correct answer.
  3. A trust must always be in writing, whereas a debt never needs to be
  4. A debt creates proprietary rights in specific property, whereas a trust creates only personal rights

Explanation

A trust involves a fiduciary holding identifiable property for beneficiaries, giving proprietary rights. A debt is a personal obligation to pay a sum of money, giving only contractual or personal rights.

Question 35Trust law fundamentals and the nature of fiduciary relationships

A trustee mixes trust money with personal funds in a single bank account. What is the primary consequence?

  1. The trustee must account for and restore the trust property, bearing any uncertainty Correct answer.
  2. The trust is automatically terminated
  3. The beneficiaries lose all claim to the mixed funds
  4. The bank becomes the new trustee

Explanation

Mixing trust and personal funds is a breach of the duty not to mix, and the trustee bears the burden of disentangling and restoring the trust property. The trust is not terminated and beneficiaries do not lose their claims.

Question 36Trust law fundamentals and the nature of fiduciary relationships

Which of the following best describes an express trust?

  1. A trust created by a court order to remedy a wrong
  2. A trust implied from the conduct of parties without intention
  3. A trust arising by operation of law from unjust enrichment
  4. A trust intentionally created by a settlor with defined terms Correct answer.

Explanation

An express trust is deliberately created by a settlor who sets out its terms. Resulting and constructive trusts arise by operation of law rather than from express intention.

Question 37Trust law fundamentals and the nature of fiduciary relationships

A trustee who receives a secret commission from a third party in connection with trust business must generally do what?

  1. Keep the commission as a personal reward for effort
  2. Account to the trust for the commission Correct answer.
  3. Share the commission only with the beneficiaries who consent
  4. Donate the commission to charity of the trustee's choice

Explanation

A trustee cannot profit from the fiduciary position and must account for secret commissions received in connection with trust business. The profit belongs to the trust.

Question 38Trust law fundamentals and the nature of fiduciary relationships

Which of the following is the correct description of the 'three certainties' required for a valid express trust?

  1. Certainty of intention, subject matter, and objects Correct answer.
  2. Certainty of writing, signature, and witness
  3. Certainty of trustee, settlor, and beneficiary
  4. Certainty of income, capital, and duration

Explanation

A valid express trust requires certainty of intention to create a trust, certainty of the trust property (subject matter), and certainty of the beneficiaries (objects). Formalities such as writing are separate from the three certainties.

Question 39Trust law fundamentals and the nature of fiduciary relationships

A trustee is considering a transaction that would benefit the trustee personally but is permitted by the trust deed. What is the trustee's best course of action?

  1. Ask the bank to approve the transaction on the trustee's behalf
  2. Resign only after completing the transaction
  3. Disclose the conflict to the beneficiaries and obtain informed consent or court approval where appropriate Correct answer.
  4. Proceed immediately without disclosure because the deed permits it

Explanation

Even where a deed permits a transaction, the trustee must manage conflicts transparently, disclosing and obtaining informed consent or approval where appropriate. Proceeding silently risks breach of the no-conflict rule.

Question 40Trust law fundamentals and the nature of fiduciary relationships

A settlor transfers property to a trustee 'on trust for such of my children as the trustee shall select'. What type of trust is this?

  1. A fixed trust
  2. A resulting trust
  3. A bare trust
  4. A discretionary trust Correct answer.

Explanation

Because the trustee has discretion to select which children benefit, this is a discretionary trust. A fixed trust would specify the beneficiaries' interests precisely.

Question 41Trust law fundamentals and the nature of fiduciary relationships

A trustee holds shares and is also a director of the company whose shares are held. The trustee wishes to vote on a matter affecting the trust. What principle applies?

  1. The trustee must consider the trust's interests and manage any conflict between roles Correct answer.
  2. The trustee must always abstain from voting
  3. The trustee may vote however is best for the trustee's directorship
  4. The trustee must transfer the shares to the beneficiaries before voting

Explanation

A trustee who occupies another role must consider the trust's interests and address any conflict between the roles. Total abstention is not automatically required, nor may the trustee simply prefer personal interests.

Question 42Trust law fundamentals and the nature of fiduciary relationships

A trustee uses trust funds to pay a personal tax bill, intending to repay the money next month. What is the trustee's position?

  1. No breach occurs because repayment is intended
  2. The beneficiaries must reimburse the trustee
  3. The trust is void from the outset
  4. A breach of trust has occurred and the trustee must restore the funds with interest Correct answer.

Explanation

Using trust funds for personal purposes is a breach of trust regardless of intent to repay; the trustee must restore the funds and account for any benefit. Good intentions do not excuse the breach.

Question 43Trust law fundamentals and the nature of fiduciary relationships

Which of the following best explains why a trustee cannot delegate all of their dispositive duties to an agent?

  1. Delegation is prohibited because agents cannot be paid
  2. Delegation is only prohibited for charitable trusts
  3. Dispositive duties involve personal judgment and fiduciary accountability that the trustee must retain Correct answer.
  4. Delegation is allowed only with beneficiary consent

Explanation

Dispositive duties involve personal fiduciary judgment, and a trustee cannot simply hand over accountability to an agent. Limited delegation of administrative functions may be permitted, but the trustee remains accountable.

Question 44Trust law fundamentals and the nature of fiduciary relationships

A beneficiary discovers that a trustee has made an unauthorised profit from the trust. Which remedy is most consistent with fiduciary principles?

  1. The beneficiary may require the trustee to account for and disgorge the profit Correct answer.
  2. The beneficiary may seize the trustee's personal home automatically
  3. The beneficiary may only claim damages for distress
  4. The beneficiary has no remedy unless loss is proven

Explanation

Fiduciary principles allow beneficiaries to require the trustee to account for and disgorge unauthorised profits, even without proof of loss. This protects the integrity of the fiduciary relationship.

Question 45Trust law fundamentals and the nature of fiduciary relationships

A person receives trust property knowing it was transferred in breach of trust. Under what principle may they be liable?

  1. Specific performance
  2. Adverse possession
  3. Knowing receipt Correct answer.
  4. Proprietary estoppel

Explanation

Knowing receipt imposes liability on a person who receives trust property with knowledge of a breach of trust. The other doctrines concern different areas of law.

Question 46Trust law fundamentals and the nature of fiduciary relationships

A trustee is unsure whether a proposed distribution is permitted by the trust deed. What is the most prudent approach?

  1. Seek directions from the court or obtain proper advice before distributing Correct answer.
  2. Delay all distributions indefinitely without explanation
  3. Distribute to the trustee personally as a placeholder
  4. Make the distribution and correct any error later

Explanation

Where the scope of a power is uncertain, a trustee should seek court directions or proper advice before acting. Distributing and correcting later risks breach of trust.

Question 47Trust law fundamentals and the nature of fiduciary relationships

Which statement best captures the 'no conflict' rule for fiduciaries?

  1. A fiduciary may act in conflict if the conflict is small
  2. A fiduciary may act in conflict if the principal is a company
  3. A fiduciary may act in conflict if no loss results
  4. A fiduciary must avoid situations where personal interest and duty may conflict Correct answer.

Explanation

The no conflict rule requires a fiduciary to avoid situations where personal interest and duty may conflict, regardless of whether loss results. The rule is prophylactic.

Question 48Trust law fundamentals and the nature of fiduciary relationships

A trustee holds property for a beneficiary absolutely. The beneficiary demands transfer. What must the trustee generally do?

  1. Sell the property and keep the proceeds
  2. Convert the trust into a discretionary trust
  3. Transfer the property as demanded, subject to proper accounting Correct answer.
  4. Refuse until the beneficiary reaches age 65

Explanation

Where a beneficiary is absolutely entitled, the trustee must generally transfer the property on demand, subject to proper accounting. The trustee has no discretion to refuse arbitrarily.

Question 49Trust law fundamentals and the nature of fiduciary relationships

Which of the following distinguishes a fiduciary duty from a mere contractual duty?

  1. Fiduciary duty demands loyalty and selflessness, whereas contractual duty is defined by the bargain Correct answer.
  2. Fiduciary duty cannot be enforced in court
  3. Fiduciary duty applies only to companies
  4. Fiduciary duty is always written, whereas contractual duty is oral

Explanation

Fiduciary duty is characterised by loyalty and selflessness, going beyond the terms of a bargain. Contractual duties are defined by the agreement between the parties.

Question 50Trust law fundamentals and the nature of fiduciary relationships

A trustee mixes trust money with personal money, and the mixed fund later falls in value. Who bears the loss?

  1. The loss is shared equally between trustee and beneficiaries
  2. The bank, because it held the account
  3. The beneficiaries, because they took the risk
  4. The trustee, because the trustee caused the uncertainty Correct answer.

Explanation

A trustee who mixes funds bears the burden of any uncertainty and loss, because the trustee created the inability to identify the trust property. Beneficiaries should not bear the consequences of the trustee's breach.