​SQE – Equity and Trust – Limitation Periods and the Doctrine of Laches


Introduction


Even where a beneficiary has a strong claim for breach of trust, tracing, equitable compensation, or recovery of trust property, the claim may fail if it is brought too late. The law therefore imposes time limits within which legal proceedings must be commenced.


In trust law, limitation rules are primarily governed by the Limitation Act 1980, particularly section 21. Alongside the statutory rules, equity has developed the separate doctrine of laches, which prevents claimants from enforcing rights after unreasonable delay where it would be unfair or unconscionable to allow the claim to proceed.


The combined effect of statutory limitation and laches seeks to balance:

• the interests of beneficiaries;

• fairness to trustees and defendants;

• legal certainty;

• and the proper administration of justice.

⸻


General Limitation Rule


The principal provision is section 21(3) of the Limitation Act 1980.


The general rule is that:


actions by beneficiaries for breach of trust must normally be brought within six years from the date on which the cause of action accrued.


The cause of action accrues when the breach occurs and the beneficiary first acquires the right to sue.


⸻


Example


Daniel, a trustee, improperly transfers:


£500,000


from the trust on:


1 January 2020.


The beneficiaries discover the breach immediately.


⸻


Limitation Period


The beneficiaries generally have until:


1 January 2026


to commence proceedings.


⸻


Disability Exception – Section 28


The law recognises that some beneficiaries may be unable to protect their rights.


Section 28 therefore postpones limitation periods where the claimant is under a legal disability.


⸻


Disability Includes

• being under the age of 18;

• lacking mental capacity;

• being of unsound mind.

⸻


Effect


Time does not begin running until the disability ends.


⸻


Example


Lucy is a beneficiary aged:


12 years old.


A trustee commits breach of trust in:


Lucy reaches 18 in:


⸻


Result


The six-year limitation period begins in:


2031,


not 2025.


Lucy therefore generally has until:


2037


to bring proceedings.


⸻


Deliberate Concealment – Section 32


A trustee should not benefit from hiding wrongdoing.


Section 32(1) therefore postpones limitation periods where relevant facts have been deliberately concealed.


⸻


Rule


Time begins running only when:


✅ the beneficiary discovers the concealment;


or


✅ could reasonably have discovered it.


⸻


Example


Daniel secretly transfers:


£800,000


from a trust in 2015.


He falsifies accounts to conceal the transaction.


The beneficiaries discover the fraud in 2028.


⸻


Result


The limitation period begins in:


2028,


not 2015.


⸻


No Limitation Period for Fraud


Section 21(1) creates important exceptions.


No limitation period applies where:

• the trustee acted fraudulently;

• or trust property remains in the trustee’s possession.

⸻


Why?


Equity refuses to allow fraudulent trustees to escape liability merely because time has passed.


⸻


Example


Daniel fraudulently transfers:


£1 million


to his personal investment account in 2010.


The money remains under his control in 2040.


⸻


Result


The beneficiaries may still sue.


There is:


✅ no limitation period.


⸻


Trust Property Still in Trustee’s Possession


The same principle applies where the trustee continues to possess trust property.


⸻


Example


A trustee improperly transfers trust land into his own name.


The property remains registered in the trustee’s ownership for decades.


⸻


Result


The beneficiaries may seek recovery regardless of the passage of time.


⸻


Wassell v Leggatt


The principle that fraud and retained trust property fall outside ordinary limitation periods was recognised in:


Wassell v Leggatt.


⸻


First Subsea v Balltec


The Court of Appeal considered section 21(1)(a) in:


First Subsea Ltd v Balltec Ltd.


The case examined fraudulent transactions and confirmed the continuing importance of the statutory fraud exception.


⸻


Burnden Holdings v Fielding


The Supreme Court clarified section 21(1)(b) in:


Burnden Holdings (UK) Ltd v Fielding.


The Court confirmed that actions involving trust property retained by trustees fall outside ordinary limitation rules.


⸻


The Equitable Doctrine of Laches


Separate from statutory limitation periods is the equitable doctrine of:


laches.


The word derives from old French and refers to:


unreasonable delay combined with neglect.


⸻


Purpose of Laches


The doctrine prevents claimants from:

• sleeping on their rights;

• delaying unnecessarily;

• and then seeking equitable relief when circumstances have significantly changed.

⸻


Re Sharpe


The classic formulation appears in:


Re Sharpe.


The court held that a claimant may be barred where delay renders the claim unconscionable.


⸻


Requirements for Laches


The defendant must generally show:


1. Significant Delay


The claimant delayed bringing proceedings.


⸻


2. Unfairness


The delay has caused prejudice or hardship.


⸻


3. Unconscionability


It would be unjust to permit the claim to proceed.


⸻


Case Scenario 1 – Laches Applies


Facts


Daniel commits fraud in:


The beneficiary discovers the fraud in:


The beneficiary waits until:


2022


to commence proceedings.


During that period:

• witnesses die;

• documents disappear;

• records are lost.

⸻


Solution


The court may apply:


✅ laches.


The delay combined with prejudice to the defendant may make the claim unconscionable.


⸻


Whatley v Lougher


A modern example is:


Whatley v Lougher.


⸻


Facts


The claimant knew about fraudulent conduct but waited:


12 years


before issuing proceedings.


⸻


Decision


The court applied:


✅ laches


and struck out the claim.


⸻


Importance


The case illustrates that knowledge combined with lengthy inaction can be fatal.


⸻


Case Scenario 2 – Laches Does Not Apply


Facts


A beneficiary discovers a breach of trust in:


Proceedings are issued in:


⸻


Solution


There is no substantial delay.


Laches would almost certainly fail.


⸻


Patel v Shah


The modern approach was explained in:


Patel v Shah.


The court adopted a broad unconscionability analysis rather than applying rigid rules.


⸻


Relationship Between Limitation and Laches


This distinction is extremely important.


⸻


Statutory Limitation


Created by legislation.


Applies fixed periods.


⸻


Laches


Created by equity.


Depends upon fairness and unconscionability.


⸻


Can Both Apply?


Usually:


❌ No.


Where Parliament has prescribed a limitation period, the doctrine of laches generally does not apply.


⸻


Re Pauling’s Settlement Trusts (No 1)


In:


Re Pauling’s Settlement Trusts (No 1),


the court confirmed that laches does not override statutory limitation provisions.


⸻


Green v Gaul


The same principle was reinforced in:


Green v Gaul.


⸻


Comprehensive Case Study


Facts


Daniel is trustee of a family trust.


In 2015 he secretly transfers:


£2 million


into a company he controls.


The beneficiaries are:

• Emma (age 35);

• Lucy (age 14).

Daniel falsifies trust accounts.


The fraud is discovered in:


⸻


Analysis


Emma


Because Daniel deliberately concealed the breach:


✅ section 32 applies.


Time begins running in:


⸻


Lucy


Lucy was under a disability.


Section 28 postpones limitation until she reaches:


18 years old.


⸻


Fraud


Daniel acted fraudulently.


Under section 21(1):


✅ no limitation period applies.


⸻


Result


Both beneficiaries may still sue successfully.


⸻


Key SQE Principles


Six-Year Rule


Section 21(3) normally imposes:


✅ six years.


⸻


Disability


Section 28 postpones time where claimants:


✅ are minors or lack capacity.


⸻


Concealment


Section 32 postpones time where facts are:


✅ deliberately concealed.


⸻


Fraud


Section 21(1) removes limitation periods for:


✅ fraudulent trustees.


⸻


Trust Property Retained


No limitation period where:


✅ trust property remains in the trustee’s possession.


⸻


Laches


Requires:


✅ substantial delay;


✅ prejudice;


✅ unconscionability.


⸻


Conclusion


Limitation periods and the doctrine of laches play an important role in balancing the rights of beneficiaries against the need for certainty and fairness in trust administration. While section 21 of the Limitation Act 1980 generally imposes a six-year limitation period for breach of trust claims, important exceptions exist for fraud, retained trust property, concealment, and beneficiaries under disability. Alongside these statutory protections, the equitable doctrine of laches prevents stale claims where delay has rendered proceedings unfair or unconscionable. Together, these rules ensure that trustees remain accountable while protecting defendants from prejudice caused by excessive delay.


Sources of Reference


Limitation Act 1980, ss 21, 28 and 32.


Wassell v Leggatt [1896] 1 Ch 554.


First Subsea Ltd v Balltec Ltd [2017] EWCA Civ 186.


Burnden Holdings (UK) Ltd v Fielding [2018] UKSC 14.


Re Sharpe [1892] 1 Ch 154.


Whatley v Lougher [2020] 4 WLUK 87.


Patel v Shah [2005] EWCA Civ 157.


Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.


Green v Gaul [2005] 1 WLR 1890.

SQE – Equity and Trust – Consent of the Beneficiaries as a Defence to Breach of Trust
Introduction
A trustee who commits a breach of trust will normally be personally liable to compensate the beneficiaries for any loss caused to the trust. However, one important defence available to trustees is the consent, acquiescence, or release of the beneficiaries.
The principle is based on fairness. If beneficiaries, knowing all the relevant facts, freely agree to a trustee’s conduct, it would generally be unjust to allow them later to complain about that same conduct and sue the trustee for breach of trust.
This defence may arise:

• before the breach occurs (prior consent);
• during the transaction;
• or after the breach through a release or ratification.

The General Rule
Where beneficiaries:
✅ have full legal capacity;
✅ possess full knowledge of the material facts;
✅ act freely and voluntarily;
then they may:
consent to, approve, release, or ratify a breach of trust.
If these requirements are satisfied, the trustee may be relieved from liability.


Re Pauling’s Settlement Trusts (No 1)
The leading authority is Re Pauling’s Settlement Trusts (No 1).
The case confirms that beneficiaries may consent to or release trustees from liability for breaches of trust.
Importantly, no special formalities are generally required.


Formal Requirements
Unlike some legal transactions, consent does not necessarily have to be:
❌ in writing;
❌ executed by deed;
❌ formally documented.
The court examines:

• the conduct of the beneficiaries;
• surrounding circumstances;
• and available evidence.

The crucial issue is whether genuine and informed consent existed.


Requirement 1 – Full Legal Capacity
A beneficiary must have full legal capacity.
This means the beneficiary must:
✅ be an adult;
✅ possess sufficient mental capacity.


Overton v Banister
In Overton v Banister, the court confirmed that valid consent requires beneficiaries to possess legal capacity.


Example
Suppose a trustee proposes selling trust land below market value.
Two beneficiaries agree.
However:

• one beneficiary is 14 years old;
• another lacks mental capacity.

Result
Their consent is ineffective.
The trustee remains exposed to liability for breach of trust.


Requirement 2 – Full Knowledge
The beneficiaries must possess:
✅ full knowledge of all material facts.
Consent obtained through incomplete disclosure will not protect the trustee.


Example
Daniel is trustee of a family trust.
He asks beneficiaries to approve the sale of trust shares.
Daniel tells them the shares are worth:
£100,000.
In reality they are worth:
£500,000.
The beneficiaries approve the sale.


Result
The consent is invalid.
The beneficiaries were not fully informed.
Daniel remains liable.


Requirement 3 – Free and Voluntary Consent
Consent must be given:
✅ freely;
✅ voluntarily;
✅ without coercion;
✅ without undue influence.


Boardman v Phipps
The importance of informed and voluntary consent was emphasised in:
Boardman v Phipps.
The court stressed that beneficiaries must act independently and with full understanding of the relevant circumstances.


Example
Suppose a trustee tells beneficiaries:
“If you do not approve this transaction, I will stop making distributions from the trust.”
The beneficiaries reluctantly agree.


Result
The consent may be invalid because it was not freely given.


Forms of Beneficiary Approval
Beneficiary approval may take several forms.


Prior Consent
Approval given before the trustee acts.


Example
The beneficiaries approve a risky investment strategy before the investment occurs.
If losses later arise, the trustee may rely upon that consent.


Acquiescence
The beneficiaries know about the breach but do nothing.
Over time, their conduct may amount to acceptance.


Example
The beneficiaries know for several years that trust property has been leased improperly but take no action.
Their prolonged silence may support a defence of acquiescence.


Release
A release occurs after the breach.
The beneficiaries expressly agree not to pursue the trustee.


Example
Daniel improperly distributes:
£100,000
from a trust.
After receiving full disclosure, the beneficiaries sign an agreement releasing him from liability.


Result
The trustee may rely on the release as a complete defence.


Case Scenario 1 – Valid Consent
Facts
Sarah is trustee of the Carter Family Trust.
The trust owns shares worth:
£500,000.
Sarah believes the shares are risky and recommends selling them.
She provides:

• valuation reports;
• financial advice;
• market analysis.

All adult beneficiaries agree in writing.
The shares are sold.
Six months later, the shares double in value.
The beneficiaries regret their decision and sue Sarah.


Solution
Sarah is likely protected.
The beneficiaries:
✅ had capacity;
✅ had full knowledge;
✅ acted voluntarily.
Their informed consent prevents them from complaining later.


Case Scenario 2 – Lack of Full Disclosure
Facts
Daniel wishes to sell trust land.
Actual value:
£1.2 million.
Daniel tells beneficiaries it is worth:
£700,000.
They approve the sale.


Solution
The consent is ineffective.
The beneficiaries lacked full knowledge of the facts.
Daniel may be liable for:

• breach of trust;
• equitable compensation;
• or proprietary remedies.

Case Scenario 3 – Undue Influence
Facts
Emma is trustee and sole source of financial support for beneficiaries.
She pressures beneficiaries into approving a transaction benefiting her personally.
The beneficiaries reluctantly agree.


Solution
The consent is unlikely to be valid.
The approval was not freely given.
Emma remains liable.


Case Scenario 4 – Beneficiary Release After Breach
Facts
A trustee mistakenly distributes:
£300,000
to the wrong beneficiary.
The trustee later explains the error fully and offers corrective measures.
The beneficiaries agree to release the trustee from liability.


Solution
The court will likely uphold the release.
The trustee may be fully protected.


Case Scenario 5 – Minor Beneficiary
Facts
A trust has three beneficiaries:

• Anna (35);
• Michael (40);
• Lucy (16).

All approve a speculative investment.
The investment loses:
£500,000.


Solution
Lucy lacks legal capacity.
Her consent is ineffective.
The trustee may still face liability in respect of Lucy’s beneficial interest.


Relationship With Section 61 Trustee Act 1925
Consent differs from statutory relief under section 61.


Consent Defence
Focuses on:
✅ the conduct of beneficiaries.


Section 61 Relief
Focuses on:
✅ the conduct of the trustee.
A trustee may rely on either defence depending on the circumstances.


Relationship With Exclusion Clauses
Consent also differs from exclusion clauses.


Exclusion Clause
Protection comes from:
✅ the trust instrument.


Consent Defence
Protection comes from:
✅ beneficiary approval.


Practical Importance
Consent is particularly useful where trustees must make:

• difficult investment decisions;
• commercial decisions;
• compromises;
• or distributions involving uncertainty.

Obtaining informed consent can significantly reduce litigation risk.


Key SQE Principles
For valid beneficiary consent, the trustee must show:
✅ full legal capacity;
✅ full knowledge of material facts;
✅ voluntary agreement;
✅ absence of undue influence.
Consent may occur:

• before the breach;
• during the transaction;
• or after the breach through release or ratification.

Conclusion
Consent of the beneficiaries is an important defence to breach of trust because it reflects the equitable principle that informed beneficiaries should be bound by decisions they freely approve. For consent to be effective, beneficiaries must possess legal capacity, full knowledge of the relevant facts, and act voluntarily without undue influence. Cases such as Re Pauling’s Settlement Trusts, Overton v Banister, and Boardman v Phipps demonstrate that courts carefully scrutinise whether consent was truly informed and freely given. Where these requirements are satisfied, trustees may be relieved from liability even though a technical breach of trust has occurred.
Sources of Reference
Re Pauling’s Settlement Trusts (No 1) [1962] 1 WLR 86.
Overton v Banister (1844) 67 ER 479.
Boardman v Phipps [1967] 2 AC 46.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

​

SQE – Equity and Trust – Relief Granted by the Court Under Section 61 Trustee Act 1925
Introduction
Trustees who commit a breach of trust are normally personally liable for any loss caused to the trust. However, equity recognises that not every breach results from dishonesty, fraud, or deliberate misconduct. Trustees are often laypersons acting in good faith, faced with difficult decisions in complex circumstances.
To address this, Parliament enacted section 61 of the Trustee Act 1925, which gives courts a discretionary power to relieve trustees from personal liability where fairness requires it.
Section 61 provides an important safeguard for trustees who have acted honestly and reasonably but nevertheless find themselves technically in breach of trust.


Statutory Provision
Section 61 of the Trustee Act 1925 provides that:
the court may relieve a trustee from personal liability wholly or partly if the trustee has acted honestly and reasonably and ought fairly to be excused.
This means that even where a breach of trust has occurred, the court may decide that it would be unjust to impose full liability.


Requirements for Relief
The court generally considers three questions:
1. Did the Trustee Act Honestly?
The trustee must have acted in good faith.
Relief will not be available where the trustee acted:

• fraudulently;
• dishonestly;
• recklessly;
• or for personal gain.

2. Did the Trustee Act Reasonably?
The trustee’s conduct must be objectively reasonable.
The court considers:

• the information available at the time;
• professional advice obtained;
• steps taken to protect beneficiaries;
• and the trustee’s level of experience.

3. Is It Fair to Excuse the Trustee?
Even where honesty and reasonableness are established, the court retains discretion.
The court asks whether:
it would be fair and equitable to excuse the trustee from liability.


Nature of the Relief
The court may grant:
Complete Relief
The trustee bears no personal liability.


Partial Relief
The trustee remains liable for part of the loss only.


No Relief
The trustee remains fully liable.


Re Evans (Deceased), Evans v Westcombe
The leading illustration is Re Evans (Deceased), Evans v Westcombe.


Facts
A woman acted as executor of her father’s estate.
The will directed that the estate should be divided equally between:

• herself;
• and her brother.

However, the brother had been missing for more than:
30 years.
Most people believed him to be dead.


Actions Taken by the Executor
Before distributing the estate, she:

• obtained legal advice;
• purchased an insurance policy;
• ensured the policy covered half of the estate value.

Believing her brother was dead, she distributed the estate to herself.


The Problem
Several years later:
✅ the brother reappeared.
He demanded his half share of the estate.
Unfortunately, the insurance policy did not cover the entire amount owed.


Court Decision
The court held that the executor had technically breached her duties.
However, she had:
✅ acted honestly;
✅ sought professional legal advice;
✅ attempted to protect her brother’s interests through insurance;
✅ acted reasonably throughout.


Result
The court granted:
✅ partial relief under section 61.
She was required to pay only some interest rather than the full amount claimed.


Importance of Re Evans
The case demonstrates that:
a trustee may make a mistake and still obtain relief.
The crucial issue is whether the trustee acted responsibly and conscientiously.


Daniel v Tee
A more recent example is Daniel v Tee.


Facts
The case involved trustees who made poor investment decisions.
The investments performed badly and losses occurred.


Issue
Should trustees be personally liable for the losses?


Court Decision
The court accepted that:

• the trustees acted honestly;
• they relied on professional advice;
• they believed the adviser was competent.

The court recognised that trustees are not investment experts and may reasonably depend on professional guidance.


Result
The court held that:
✅ section 61 relief could apply.


Importance
Daniel v Tee demonstrates that poor investment outcomes do not automatically create trustee liability.
A distinction exists between:

• negligent conduct;
  and
• reasonable decisions that later prove unsuccessful.

Relationship with Trustee Act 2000
Section 61 often operates alongside:
Trustee Act 2000.
The Trustee Act 2000 encourages trustees to seek professional advice under section 5 when dealing with investments.
If trustees:

• obtain proper advice;
• act in accordance with it;
• and honestly believe it to be competent,

courts are more likely to grant relief.


Example 1 – Full Relief
Sarah is trustee of a trust worth:
£2 million.
Before investing, she obtains advice from a qualified investment manager.
The investment unexpectedly collapses due to a global financial crisis.
Loss:
£500,000.


Outcome
Sarah:

• acted honestly;
• sought expert advice;
• acted reasonably.

The court may grant:
✅ full relief under section 61.


Example 2 – Partial Relief
Thomas distributes trust funds based on legal advice.
Later it emerges that the advice was incomplete.
Loss:
£100,000.
The court concludes Thomas should have made further enquiries.


Outcome
The court may grant:
✅ partial relief,
requiring Thomas to contribute only part of the loss.


Example 3 – No Relief
Daniel transfers trust money into his personal account because he believes he will repay it later.
Loss:
£300,000.


Outcome
Although Daniel claims he intended no harm:
❌ he acted improperly;
❌ he acted in conflict with beneficiaries’ interests.
Section 61 relief would almost certainly be refused.


Relationship with Exclusion Clauses
Section 61 differs from exclusion clauses.


Exclusion Clause
Protects trustees because the trust instrument says so.


Section 61 Relief
Protects trustees because the:
✅ court exercises discretion.
The court independently assesses fairness.


Policy Considerations
Section 61 reflects an important policy balance.
Without protection:

• many individuals would refuse to act as trustees;
• trustees might become excessively cautious.

However, beneficiaries also require protection against:

• incompetence;
• negligence;
• and mismanagement.

Section 61 allows courts to strike a fair balance.


Key SQE Principles
To obtain relief under section 61 Trustee Act 1925, trustees must show:
✅ honesty;
✅ reasonableness;
✅ and that they ought fairly to be excused.
Relief may be:

• complete;
• partial;
• or refused entirely.

Seeking professional advice significantly strengthens a trustee’s position.


Conclusion
Section 61 of the Trustee Act 1925 provides an important equitable safeguard for trustees who commit breaches of trust despite acting honestly and reasonably. The provision reflects the courts’ recognition that trustees often face difficult decisions and should not automatically be punished for every mistake. Cases such as Re Evans and Daniel v Tee demonstrate that trustees who seek professional advice, act conscientiously, and genuinely attempt to fulfil their duties may receive complete or partial relief from liability. The provision therefore balances accountability to beneficiaries with fairness toward trustees who act in good faith.
Sources of Reference
Trustee Act 1925, s 61.
Re Evans (Deceased), Evans v Westcombe [1999] 2 All ER 777.
Daniel v Tee [2016] EWHC 1538 (Ch).
Trustee Act 2000.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, OUP 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, OUP 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

​

SQE – Equity and Trust – Assessing the Extent of Trustee Liability
Introduction
Once a trustee has been found liable for a breach of trust, the next question is:
How much must the trustee pay?
The courts assess liability by reference to two principal measures:

1. Loss caused to the trust fund (compensatory liability); and
2. Unauthorised gain made by the trustee (gain-based liability).

The purpose of equity is not merely to compensate beneficiaries but also to ensure that trustees do not profit from wrongdoing. Consequently, equitable liability differs from common law damages because equity places strong emphasis upon fiduciary accountability and the protection of beneficiaries.


The Two Main Measures of Liability
1. Loss to the Trust Fund
The first measure focuses on:
✅ restoring the trust fund.
The court asks:
What position would the trust have been in if the breach had never occurred?
If the trustee’s actions caused loss, the trustee must compensate the trust accordingly.


2. Unauthorised Gain
The second measure focuses on:
✅ stripping profits from the trustee.
The court asks:
What benefit did the trustee obtain through the breach?
The trustee may be ordered to surrender those profits even if the trust itself suffered little or no loss.


Compensatory Liability
Where a breach causes financial loss, the trustee must restore the trust fund.
This principle was applied in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).
The objective is to put the trust in the position it would have occupied had the breach not occurred.


Equity vs Common Law Damages
Although equitable compensation resembles damages, important differences exist.


Common Law
Focuses primarily on:
✅ the claimant’s loss.


Equity
Focuses on:
✅ restoring the trust fund;
✅ protecting beneficiaries;
✅ preventing trustees from benefiting from wrongdoing.
Equity therefore tends to favour beneficiaries where uncertainty exists.


Assessment Date
One of the most important differences is the timing of assessment.


Common Law
Loss is usually assessed at the:
❌ date of breach.


Equity
Loss is generally assessed at the:
✅ date of judgment,
using the full benefit of hindsight.


Target Holdings v Redferns
This principle was considered in:
Target Holdings Ltd v Redferns.
The court recognised that equitable compensation seeks to restore the trust fund rather than simply measure loss at the moment of breach.


Hulbert v Avens
The principle was subsequently applied in:
Hulbert v Avens.


Example 1 – Compensatory Liability
Facts
Daniel is trustee of a trust.
He should have sold trust shares in:
2020
when they were worth:
£500,000.
Instead, he improperly retains them.
By trial in:
2025
the shares are worth:
£150,000.


Loss
£500,000 − £150,000
= £350,000


Remedy
Daniel must compensate the trust:
£350,000.


Fry v Fry
The principle is illustrated by:
Fry v Fry.
A trustee who improperly retained investments was liable for the difference between:

• the value when they should have been sold;
  and
• their value at judgment.

Gain-Based Liability
Sometimes the trustee personally profits from the breach.
In these cases, equity may focus on:
✅ the trustee’s gain rather than the trust’s loss.


Purpose
The objective is to ensure:
fiduciaries must not profit from their position.


Example 2 – Unauthorised Profit
Facts
Daniel uses trust information to purchase land personally.
Purchase price:
£200,000.
Land later worth:
£1.5 million.


Profit
£1.3 million.


Remedy
The court may order:

• an account of profits;
  or
• a constructive trust over the land.

Daniel cannot retain the gain.


Highest Value Rule
Historically, courts sometimes calculated profit liability by reference to:
✅ the highest value achieved before judgment.
This approach appeared in:
Nant-y-glo and Blaina Ironworks Co v Grave.
However, this authority has not been consistently followed.


Election Between Loss and Gain
A crucial rule is that beneficiaries cannot usually recover:
❌ both compensation for loss and the trustee’s profit.
These remedies are generally:
alternative rather than cumulative.


Tang Man Sit v Capacious Investments
The leading authority is:
Tang Man Sit v Capacious Investments Ltd.


Facts
Tang agreed to transfer certain properties to the claimant.
Instead, he rented them out and retained the rental income.


Consequences
His conduct caused:

• loss to the claimant;
  and
• profit to Tang.

Claim
The claimant sought:

• compensation for loss;
  and
• surrender of profits.

Decision
The Privy Council refused.
The claimant had to choose.


Principle
A claimant may elect either:
✅ compensatory relief;
or
✅ gain-based relief.
But generally not both.


Example 3 – Election
Facts
Trust property should have produced:
£300,000
for beneficiaries.
Instead, Daniel generates:
£600,000
personal profit.


Choice
Option A
Compensation:
£300,000


Option B
Account of profits:
£600,000


Sensible Election
The claimant chooses:
✅ £600,000.


Ramzan v Brookwide
The election principle was reaffirmed in:
Ramzan v Brookwide Ltd.
The court described loss-based and gain-based remedies as:
alternative and inconsistent remedies.
The court may treat the claimant as having elected the larger award.


Interest on Trustee Liability
Interest is generally payable.


Honest Trustee
Usually:
✅ simple interest.


Fraudulent Trustee
Usually:
✅ compound interest.


Why?
Fraudulent trustees should not benefit from retaining trust money over time.


Example 4 – Interest
Facts
Daniel misappropriates:
£500,000
for ten years.


Result
The court may order:

• repayment of £500,000;
  plus
• compound interest.

The total liability may significantly exceed the original sum.


Set-Off of Gains Against Losses
A further issue arises where trustees have produced:

• gains in some transactions;
  and
• losses in others.

General Rule
A trustee cannot usually say:
“I lost £500,000 here, but made £500,000 elsewhere.”
The gains and losses remain separate.


Dimes v Scott
The traditional rule appears in:
Dimes v Scott.


Facts
A trustee generated profits through one investment but losses through another.


Decision
The trustee could not offset gains against losses.
Each breach was assessed independently.


Bartlett v Barclays Bank
A more flexible approach emerged in:
Bartlett v Barclays Bank Trust Co Ltd (No 2).


Principle
Set-off may be permitted where:
✅ gain and loss arise from the same transaction;
or
✅ form part of the same wrongful course of conduct.


Example 5 – Same Transaction
Facts
Daniel improperly manages one property development project.
Part A generates:
£200,000 profit.
Part B causes:
£150,000 loss.


Result
The court may permit set-off.
Net gain:
£50,000.


Criticism
The Bartlett approach has been criticised because:
“same transaction”
is difficult to define.
The resulting uncertainty makes outcomes less predictable.


Comprehensive Case Study
Facts
Daniel is trustee of the Carter Family Trust.
He improperly uses:
£1 million
to purchase commercial property.


Outcome 1
Property rises to:
£3 million.


Outcome 2
Daniel earns:
£500,000
rental income.


Outcome 3
Trust would otherwise have earned:
£700,000
through authorised investments.


Beneficiary’s Options
Proprietary Remedy
Constructive trust over property worth:
£3 million.


Account of Profits
Claim:
£500,000 rental income.


Equitable Compensation
Claim:
£700,000 lost investment return.


Election
The beneficiary cannot usually recover all three.
They must choose the most advantageous remedy.
In practice:
✅ the £3 million proprietary claim is likely preferable.


Key SQE Principles
Trustee liability is assessed by reference to:
✅ loss to the trust;
or
✅ gain to the trustee.


Loss-based remedies include:

• equitable compensation;
• restoration of trust property;
• interest.

Gain-based remedies include:

• account of profits;
• constructive trusts;
• proprietary claims.

Generally:
❌ no double recovery.
The claimant must elect between inconsistent remedies.


Conclusion
The assessment of trustee liability reflects equity’s dual objectives of restoring trust property and preventing fiduciaries from profiting from wrongdoing. Where a breach causes loss, trustees must compensate the trust so that it is restored to the position it would have occupied had the breach not occurred. Where trustees obtain unauthorised gains, equity may require those gains to be surrendered through an account of profits or proprietary remedies. Cases such as Bartlett v Barclays Bank, Target Holdings, Tang Man Sit, and Ramzan demonstrate that beneficiaries must generally choose between compensatory and gain-based remedies, with the court seeking to prevent both trustee enrichment and unjust double recovery.
Sources of Reference
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Target Holdings Ltd v Redferns [1996] AC 421.
Hulbert v Avens [2003] EWHC 76 (Ch).
Fry v Fry (1859) 54 ER 56.
Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738.
Tang Man Sit v Capacious Investments Ltd [1996] AC 514.
Ramzan v Brookwide Ltd [2011] 2 P & CR 32.
Dimes v Scott (1828) 38 ER 778.

​

SQE – Equity and Trust – Individual Delegation by Trustees
Introduction
While the Trustee Act 2000 introduced extensive powers of collective delegation, trustees may also delegate their functions individually under a separate statutory mechanism. Individual delegation is governed by section 25 of the Trustee Act 1925, as amended by the Trustee Delegation Act 1999. Unlike collective delegation, which involves all trustees acting together to appoint an agent, individual delegation allows a single trustee to appoint another person to act on their behalf through a power of attorney.
This form of delegation is intended to address temporary situations where a trustee is unable to perform their duties personally. However, despite its practical utility, individual delegation carries a significant disadvantage because the trustee remains strictly liable for the acts and defaults of the appointed attorney. Consequently, it is generally used only where absolutely necessary.


Statutory Basis
Section 25 of the Trustee Act 1925 permits an individual trustee to delegate all of their trustee functions to another person by executing a power of attorney.
The provision was substantially modernised by the Trustee Delegation Act 1999, although it was not amended by the Trustee Act 2000.
The delegation operates by granting legal authority to another person, known as the attorney, to perform trustee functions on behalf of the delegating trustee.
The arrangement allows trust administration to continue uninterrupted during periods when the trustee is temporarily unavailable.


Duration of Delegation
A delegation under section 25 is temporary.
The maximum period for which the power of attorney may operate is 12 months.
After this period expires, the delegation automatically ceases unless a new power of attorney is executed in accordance with the statutory requirements.
The temporary nature of the power reflects Parliament’s intention that trustees should ordinarily perform their duties personally rather than permanently transferring responsibility to others.


Purpose of Individual Delegation
Individual delegation is designed to accommodate situations where a trustee is temporarily unable to participate in trust administration.
Common examples include:

• serious illness;
• hospitalisation;
• temporary incapacity;
• extended holidays;
• short-term overseas travel;
• family emergencies.

In these circumstances, the power of attorney allows trust business to continue without requiring the trustee to resign.


Example – Trustee Hospitalisation
Suppose a trust is engaged in the sale of a valuable property requiring the signatures of all trustees.
One trustee is unexpectedly admitted to hospital and is unable to participate in the transaction for several months.
The trustee may execute a power of attorney under section 25 appointing another individual to act on their behalf.
The attorney can then sign documents and carry out trustee functions during the trustee’s absence.
This enables the transaction to proceed without delay.


Example – Temporary Overseas Travel
A trustee plans to spend six months abroad undertaking a work assignment.
During this period, the trust is expected to make several investment decisions and complete a property transaction.
Rather than disrupting trust administration, the trustee may delegate their functions through a power of attorney.
The attorney can then participate in trustee decision-making while the trustee remains overseas.


The Major Disadvantage – Strict Liability
The principal disadvantage of individual delegation is that the delegating trustee remains strictly liable for the acts and defaults of the attorney.
This is a much harsher rule than the position under collective delegation in the Trustee Act 2000.
Under section 25, liability arises regardless of whether the trustee acted reasonably when selecting the attorney.
The trustee cannot avoid responsibility simply by demonstrating that they exercised care in making the appointment.
Consequently, the trustee effectively bears the risk of any mistakes, negligence, or misconduct committed by the attorney.


Comparison with Collective Delegation
The distinction between individual and collective delegation is significant.
Under collective delegation governed by sections 11–23 of the Trustee Act 2000, trustees are not automatically liable for the acts of agents.
Instead, liability generally arises only if trustees fail to:

• exercise reasonable care in selecting the agent;
• prepare appropriate policy statements;
• monitor the agent adequately.

By contrast, section 25 imposes strict liability regardless of the care taken by the trustee.
This makes individual delegation considerably less attractive.


Why Strict Liability Exists
The rationale for strict liability is that the delegation is made solely for the personal convenience or circumstances of the individual trustee.
Since the trustee voluntarily chooses to appoint an attorney to act in their place, it is considered appropriate that they bear the consequences of the attorney’s actions.
The beneficiaries should not suffer losses because a trustee chose to delegate responsibilities due to personal circumstances.
This approach reinforces the fundamental principle that trustees remain personally responsible for the administration of the trust.


Practical Consequences
Because of the strict liability imposed by section 25, trustees are generally reluctant to rely upon individual delegation.
A prudent trustee will carefully consider:

• the reliability of the proposed attorney;
• the complexity of the trust administration;
• the duration of the delegation;
• alternative options available.

In practice, section 25 is used only where genuinely necessary.


Long-Term Absence and Retirement
Where a trustee intends to be absent for an extended period, the use of a power of attorney may be inappropriate.
For example, if a trustee intends to:

• emigrate permanently;
• work abroad indefinitely;
• cease active involvement in trust administration;

the preferred solution is usually retirement from the trusteeship.
This ensures that the trust is administered by individuals who are available to fulfil their responsibilities directly.
Continued reliance upon a temporary power of attorney in such circumstances may expose both the trust and the trustee to unnecessary risks.


Trustee Retirement as an Alternative
Retirement is often the preferred option where a trustee’s absence is likely to be prolonged.
Retirement allows a replacement trustee to be appointed and ensures that the trust benefits from active supervision and participation.
It also eliminates the strict liability risks associated with section 25 delegation.
For this reason, professional advisers frequently recommend retirement rather than long-term delegation where a trustee is unlikely to return to active administration.


Case Study
Facts
A trust owns several investment properties and is in the process of purchasing additional commercial premises.
One of the trustees is required to undergo major surgery and is expected to spend nine months recovering.
The trustee executes a power of attorney under section 25 appointing a trusted solicitor to act on their behalf.
During the recovery period, the solicitor negligently fails to complete essential due diligence, causing the trust to suffer substantial financial losses.
Analysis
The solicitor acted as the trustee’s attorney under section 25.
Although the trustee selected the solicitor carefully and acted reasonably, section 25 imposes strict liability for the attorney’s defaults.
The trustee remains responsible for the losses caused by the attorney.
Outcome
The beneficiaries may pursue the trustee for compensation arising from the attorney’s negligence. The trustee may then seek recovery from the attorney separately, but liability to the beneficiaries remains.


Practical Guidance for Trustees
Before using a section 25 power of attorney, trustees should:

• consider whether delegation is genuinely necessary;
• appoint a trustworthy and competent attorney;
• limit the duration of the delegation where possible;
• monitor the attorney’s activities;
• obtain professional advice regarding the risks involved.

Given the strict liability imposed by the statute, careful consideration should always be given to alternative arrangements.


Conclusion
Individual delegation under section 25 of the Trustee Act 1925 provides a useful mechanism for trustees who are temporarily unable to perform their duties. Through a power of attorney, a trustee may delegate all trustee functions for a period of up to 12 months. However, unlike collective delegation under the Trustee Act 2000, individual delegation carries the significant disadvantage of strict liability. The delegating trustee remains responsible for the acts and defaults of the attorney regardless of the care exercised in making the appointment. As a result, section 25 is generally regarded as a measure of last resort, appropriate only for temporary absences or emergencies. Where a trustee’s absence is likely to be long-term or permanent, retirement from the trusteeship is usually the preferable course of action.


References
Trustee Act 1925, s 25.
Trustee Delegation Act 1999.
Trustee Act 2000, ss 11–23.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

​

​SQE – Equity and Trust – The Power of Maintenance


Introduction


The power of maintenance is an important statutory power that enables trustees to use trust income for the benefit of beneficiaries before they become fully entitled to receive it. The power is particularly relevant where the beneficiary is a child and requires financial support for living expenses, education, healthcare, or general welfare.


The purpose of the power is to ensure that trust property can be used to support beneficiaries during their minority rather than requiring them to wait until they become absolutely entitled to the trust fund. In modern trust administration, the power provides trustees with flexibility to respond to the changing needs of young beneficiaries while preserving the long-term purpose of the trust.


The power is governed by section 31 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.


⸻


Nature of the Power


The power of maintenance is a discretionary power rather than a legal entitlement.


This means that trustees are permitted, but not obliged, to apply trust income for the benefit of an infant beneficiary.


The trustees must consider the circumstances of the beneficiary and determine whether maintenance payments are appropriate. Beneficiaries cannot compel trustees to exercise the power while they remain minors unless the trust instrument provides otherwise.


The discretion allows trustees to balance the immediate needs of beneficiaries against the long-term preservation of trust assets.


⸻


Statutory Basis


Section 31 of the Trustee Act 1925 authorises trustees to apply trust income for the maintenance, education, or benefit of a beneficiary who has not yet become absolutely entitled.


The power operates automatically unless expressly excluded or modified by the trust instrument.


The provision reflects Parliament’s recognition that young beneficiaries often require financial support before they become entitled to receive trust capital.


⸻


Use of Trust Income


The maintenance power applies only to income generated by the trust fund.


Examples of trust income include:

• interest earned on investments;

• rental income from trust property;

• dividends from shares;

• distributions from investment funds.

Trustees may use this income to support eligible beneficiaries while preserving the capital of the trust.


The distinction between income and capital is important because the power of maintenance concerns income, whereas the power of advancement concerns capital.


⸻


Maintenance, Education and Benefit


Section 31 permits trustees to apply income for the maintenance, education, or benefit of the beneficiary.


The courts have interpreted these terms broadly.


Maintenance extends beyond basic necessities such as food, clothing, and shelter. It may include expenditure that improves the beneficiary’s welfare and overall standard of living.


Education includes school fees, university tuition, books, accommodation, training courses, and professional qualifications.


Benefit is interpreted most widely and may encompass almost any expenditure that improves the beneficiary’s personal, educational, social, or financial circumstances.


This flexible interpretation enables trustees to respond to the individual needs of beneficiaries.


⸻


Examples of Permitted Maintenance Payments


Trustees may properly use the maintenance power to pay for:

• school fees;

• university tuition;

• textbooks and educational materials;

• medical treatment;

• accommodation costs;

• living expenses;

• extracurricular activities;

• professional training.

The key consideration is whether the expenditure benefits the beneficiary.


⸻


Who Receives the Payment?


Maintenance payments are not always paid directly to the beneficiary.


In practice, trustees commonly make payments to:

• parents;

• guardians;

• schools;

• universities;

• healthcare providers;

• other third parties providing services to the beneficiary.

Trustees should maintain accurate records and obtain receipts wherever possible.


Proper documentation protects trustees if their decisions are later questioned.


⸻


Age Requirement


Under section 31, the power generally applies while the beneficiary is under the age of 18.


During this period, the trustees retain discretion over whether income should be distributed and how much should be paid.


However, the trust instrument may alter this age limit by expressly extending or restricting the operation of the power.


The terms of the trust deed therefore remain highly significant.


⸻


Position at Age 18


Once the beneficiary reaches the age of 18, the position changes substantially.


At that point, the beneficiary becomes entitled to the income arising from their share of the trust fund.


The trustees’ discretion under the maintenance power ceases in relation to that income.


The beneficiary can therefore demand payment of income generated by their share of the trust property.


This reflects the general principle that adults are entitled to control their own financial affairs.


⸻


The Original Requirement of Reasonableness


Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 31 required trustees to distribute only such amounts as were reasonable in the circumstances.


This limitation meant that trustee decisions could potentially be challenged by beneficiaries on the basis that payments were excessive or insufficient.


The reasonableness requirement therefore imposed a significant restriction upon trustee discretion.


⸻


Trustee Responses to the Reasonableness Requirement


Because of concerns about potential challenges, it became common drafting practice to modify section 31 within trust instruments.


Trust deeds frequently removed the requirement of reasonableness and instead granted trustees broader discretion regarding:

• whether to make maintenance payments;

• the amount to be paid;

• the manner in which payments should be made.

This drafting practice was so widespread that Parliament ultimately reformed the statutory provision itself.


⸻


Reform Under the Inheritance and Trustees’ Powers Act 2014


The Inheritance and Trustees’ Powers Act 2014 significantly amended section 31.


For trusts created or interests arising on or after 1 October 2014, trustees now enjoy an unfettered discretion regarding the exercise of the maintenance power.


The statutory requirement of reasonableness was removed.


Consequently, trustees have greater flexibility when deciding whether to distribute income and in determining the amount to be paid.


The reform reflects the reality that most professionally drafted trust instruments had already removed the reasonableness restriction.


⸻


Older Trusts


The reforms introduced in 2014 do not apply retrospectively.


Trusts created before 1 October 2014 remain subject to the original statutory provisions unless the trust instrument expressly modifies them.


Consequently, practitioners must always determine:

• when the trust was created;

• whether any amendments have been made;

• whether the trust deed modifies section 31.

Failure to do so may result in the incorrect application of the maintenance power.


⸻


Accumulation of Undistributed Income


Where trustees choose not to distribute income under the maintenance power, the income must generally be accumulated within the trust.


Accumulated income becomes part of the trust fund and is preserved for future distribution.


Once the beneficiary becomes entitled to the trust capital, the accumulated income is ordinarily paid to them together with their share of the trust property.


This ensures that beneficiaries do not permanently lose the benefit of undistributed income.


⸻


Relationship with the Power of Advancement


The power of maintenance should be distinguished from the power of advancement.


The maintenance power concerns the use of trust income.


The advancement power concerns the use of trust capital.


Both powers are designed to benefit beneficiaries before they become fully entitled, but they operate in different ways and are governed by separate statutory provisions.


Trustees often consider both powers together when deciding how best to assist beneficiaries.


⸻


Case Study


Facts


A trust fund worth £2 million is held for Olivia, who will become entitled to the capital at age 25.


The trust generates annual income of £40,000.


Olivia is currently 16 years old and attends a private school. Her parents request assistance with tuition fees and educational expenses.


The trustees decide to apply £25,000 of trust income towards her school fees and retain the remaining income within the trust.


Analysis


The payment falls squarely within section 31 because it is applied for Olivia’s education and benefit.


The trustees are entitled to use trust income for this purpose while Olivia remains under 18.


The undistributed income may be accumulated within the trust for future benefit.


Outcome


The maintenance payment is valid and represents a proper exercise of the trustees’ discretion.


The accumulated income will remain within the trust and may ultimately be distributed when Olivia becomes entitled to the trust capital.


⸻


Practical Importance


The maintenance power is one of the most frequently exercised trustee powers in family trusts.


It enables trustees to:

• fund education;

• support children financially;

• meet unexpected expenses;

• improve beneficiaries’ welfare;

• preserve trust capital for future distribution.

The flexibility introduced by the 2014 reforms has further enhanced the usefulness of the power in modern trust administration.


⸻


Conclusion


The power of maintenance under section 31 of the Trustee Act 1925 enables trustees to use trust income for the maintenance, education, and benefit of infant beneficiaries. The courts have interpreted these concepts broadly, allowing trustees considerable flexibility in supporting beneficiaries during their minority. Historically, trustee discretion was constrained by a statutory requirement of reasonableness, but the Inheritance and Trustees’ Powers Act 2014 removed this restriction for newer trusts and granted trustees a largely unfettered discretion. Where income is not distributed, it must generally be accumulated for future benefit. Together with the power of advancement, the maintenance power forms an essential part of modern trust administration by allowing trustees to balance the immediate needs of beneficiaries with the long-term preservation of trust assets.


⸻


References


Trustee Act 1925, s 31.


Inheritance and Trustees’ Powers Act 2014.


Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.


Speight v Gaunt (1883) 9 App Cas 1.


Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).


James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).


Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).


John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

SQE – Equity and Trust – Causation in Breach of Trust Claims
Introduction
Once a breach of trust has been established, the court must determine whether that breach actually caused a loss to the trust fund or enabled the trustee to obtain an unauthorised profit. This requirement is known as causation. A trustee will not automatically be liable simply because a breach of trust has occurred. There must be a sufficient causal connection between the breach and the loss suffered by the beneficiaries. Without such a connection, liability will generally not arise.
The law of trusts therefore requires beneficiaries to demonstrate not only that a trustee acted improperly, but also that the breach caused the loss complained of. This principle ensures that trustees are held responsible only for the consequences of their own wrongdoing and not for losses that would have occurred regardless of the breach.


The “But For” Test
The principal test used to establish causation in breach of trust claims is the “but for” test.
The court asks the following question:
Would the loss have occurred but for the trustee’s breach of trust?
If the answer is no, the trustee’s breach caused the loss and liability will generally follow.
If the answer is yes, the loss would have occurred even if the trustee had performed their duties properly, and therefore the trustee will not be liable for that loss.
This approach is familiar from other areas of private law, particularly tort law, but it has been firmly incorporated into equitable compensation claims involving breaches of trust.


Target Holdings Ltd v Redferns [1996] AC 421
The leading authority on causation in breach of trust cases is Target Holdings Ltd v Redferns.
The claimant company agreed to lend approximately £1.5 million to finance the purchase of two properties. The properties were represented as having a value of approximately £2 million. In reality, however, they were worth only around £775,000, meaning that the lender’s security was substantially inadequate.
The defendants were solicitors who acted for both the lender and the purchasers. The lender transferred the mortgage funds to the solicitors before completion of the transaction. Under the terms of the arrangement, the money was not to be released until completion occurred.
The solicitors nevertheless released the money prematurely, thereby committing a breach of trust.
The property transaction later completed as planned. Subsequently, the purchasers defaulted on the mortgage repayments. When the lender enforced its security and sold the properties, it discovered the true value of the properties and suffered a substantial shortfall.
The lender therefore sued the solicitors for breach of trust and sought compensation equal to the loss suffered.


Decision in Target Holdings
The House of Lords accepted that the solicitors had committed a breach of trust by releasing the funds prematurely. However, the court held that the solicitors were not liable for the lender’s loss.
The crucial issue was causation.
The evidence demonstrated that even if the solicitors had complied with their instructions and released the funds only upon completion, the transaction would still have proceeded exactly as it did. The lender would still have received inadequate security and would still have suffered the same loss when the borrowers defaulted.
Consequently, the breach of trust did not cause the loss.
Applying the “but for” test, the court concluded that the loss would have occurred regardless of the breach. Therefore, although a breach had occurred, there was no causal connection between the breach and the claimant’s loss.


Significance of Target Holdings
Target Holdings established that equitable compensation is not automatically available whenever a trustee commits a breach of trust.
Instead, beneficiaries must demonstrate that the breach actually caused the loss suffered by the trust.
The case rejected the notion that trustees should be liable for every loss associated with trust property simply because a breach occurred at some stage during the transaction.
Rather, equitable compensation should restore losses that flow from the breach itself and not losses that would have arisen in any event.
This approach aligns equitable compensation with principles of causation while preserving the distinctive objectives of trust law.


Example Applying the “But For” Test
Suppose a trustee is instructed not to release £500,000 from a trust account until certain legal documents have been signed.
The trustee ignores the instructions and releases the money immediately. The recipient absconds with the funds and disappears.
Had the trustee waited until the documents were signed, the money would have remained protected and the loss would not have occurred.
Applying the “but for” test, the trustee’s breach clearly caused the loss. The beneficiaries would therefore be entitled to equitable compensation.


Example Where Causation Is Absent
Suppose a trustee releases funds one day earlier than authorised, thereby committing a technical breach of trust.
The transaction subsequently completes successfully exactly as intended. Several years later, an economic downturn causes the investment to fail.
The beneficiaries argue that the trustee should compensate them because a breach of trust occurred.
Although the trustee acted improperly, the loss was caused by market conditions rather than the premature release of funds. The same loss would have occurred even if the trustee had complied fully with their obligations.
Applying the “but for” test, causation is not established and compensation would not be awarded.


AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503
The Supreme Court reaffirmed the principles established in Target Holdings in AIB Group (UK) Plc v Mark Redler & Co Solicitors.
The case involved solicitors acting as trustees who improperly distributed mortgage funds during a refinancing transaction. The claimant argued that the solicitors should be responsible for all losses associated with the transaction.
The Supreme Court rejected this argument and confirmed that equitable compensation must be linked to losses actually caused by the breach.
Lord Toulson stated that, absent fraud, it would be wrong to impose liability for losses that would have been suffered even if the trustee had performed their duties correctly.
He emphasised that it would be a backward step to depart from Lord Browne-Wilkinson’s analysis in Target Holdings.
The decision therefore confirmed that the “but for” test remains the governing principle in modern breach of trust claims.


The Position in Cases Involving Fraud
The courts have indicated that different considerations may arise where fraud is involved.
Fraudulent trustees are treated particularly harshly by equity because of the fundamental fiduciary obligations owed to beneficiaries.
However, even in cases involving dishonesty, the courts still require a connection between the wrongful conduct and the loss claimed. The primary difference is that equitable remedies are often interpreted more strictly against fraudulent trustees.


Relationship with Equitable Compensation
Causation is central to the assessment of equitable compensation.
The purpose of equitable compensation is to restore the trust fund to the position it would have occupied had the breach not occurred.
The court therefore compares:

1. The actual position of the trust after the breach; and
2. The position the trust would have occupied if the trustee had acted properly.

Only losses attributable to the breach are recoverable.
Accordingly, even where a trustee has clearly acted improperly, compensation will not be awarded if the claimant cannot demonstrate that the breach caused the loss.


Comprehensive Case Study
Facts
Daniel acts as trustee of a family trust.
The trust deed requires him to hold £1 million until all conditions of a property transaction have been satisfied. Instead, Daniel releases the funds one week early.
The transaction later completes exactly as anticipated. Two years afterwards, the property market collapses and the investment loses £600,000.
The beneficiaries bring proceedings against Daniel for breach of trust.
Analysis
Daniel clearly committed a breach of trust by releasing the money prematurely.
However, the court must determine whether the breach caused the £600,000 loss.
The evidence shows that the transaction would have completed regardless of the timing of the payment and that the subsequent loss resulted from a downturn in the property market.
Applying the “but for” test established in Target Holdings and reaffirmed in AIB Group, the beneficiaries cannot show that the loss would have been avoided had Daniel complied with his duties.
Outcome
Although Daniel committed a breach of trust, he will not be liable for the £600,000 loss because the breach did not cause the loss suffered by the trust.


Conclusion
Causation is an essential element of trustee liability. Beneficiaries must establish not only that a breach of trust occurred but also that the breach caused the loss for which compensation is sought. The leading decisions in Target Holdings Ltd v Redferns and AIB Group (UK) Plc v Mark Redler & Co Solicitors confirm that the appropriate approach is the “but for” test. A trustee will generally be liable only where the loss would not have occurred but for the breach. Consequently, equitable compensation seeks to restore losses actually caused by the trustee’s misconduct rather than providing recovery for losses that would have arisen regardless of the breach.


References
Target Holdings Ltd v Redferns [1996] AC 421.
AIB Group (UK) Plc v Mark Redler & Co Solicitors [2015] AC 1503.
Nestle v National Westminster Bank Plc [1993] 1 WLR 1260.
Bartlett v Barclays Bank Trust Co Ltd (No 2) [1980] Ch 515.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

​

SQE – Equity and Trust – The Power of Advancement
Introduction
The power of advancement is one of the most important statutory powers available to trustees. It allows trustees to distribute trust capital to a beneficiary before the date on which that beneficiary becomes absolutely entitled under the trust. The purpose of the power is to provide flexibility in trust administration and to enable trustees to respond to the changing needs and circumstances of beneficiaries.
For example, a trust may provide that beneficiaries receive their inheritance at the age of 25. However, a beneficiary may require financial assistance at age 20 to fund university education, purchase a home, or establish a business. Rather than requiring the beneficiary to wait until the vesting date, trustees may exercise the power of advancement to release part or all of the beneficiary’s future entitlement in advance.
The power is principally governed by section 32 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.


Nature of the Power
The power of advancement is a discretionary power rather than a right belonging to the beneficiary.
This means that beneficiaries cannot demand an advancement simply because they would like early access to trust capital. The decision remains entirely within the discretion of the trustees, who must consider whether exercising the power would be appropriate in the circumstances.
When exercising the power, trustees must act in good faith, consider relevant factors, disregard irrelevant considerations, and act in the best interests of the beneficiaries and the trust as a whole.


Statutory Basis
Section 32 of the Trustee Act 1925 authorises trustees to apply capital belonging to a beneficiary before the beneficiary becomes absolutely entitled to receive it.
The power allows trustees to:

• pay trust capital directly to the beneficiary;
• transfer trust assets to the beneficiary;
• apply trust capital for the beneficiary’s benefit indirectly.

The power therefore provides considerable flexibility in assisting beneficiaries before their entitlement becomes fully vested in possession.


Advancement Must Be for the Beneficiary’s Benefit
A fundamental requirement of section 32 is that any advancement must be made for the advancement or benefit of the beneficiary.
The courts have adopted a broad interpretation of this requirement.
Advancement does not merely refer to financial gain. It encompasses any arrangement that improves the beneficiary’s overall material, social, educational, professional, or personal circumstances.
Consequently, trustees enjoy considerable flexibility when determining whether a proposed advancement satisfies the statutory requirement.


Re Pilkington’s Will Trusts [1964] AC 612
The leading authority on the meaning of “advancement or benefit” is Re Pilkington’s Will Trusts.
In this case, the House of Lords adopted a broad interpretation of the concept of benefit. The court held that advancement is not limited to situations involving immediate financial improvement.
Instead, the term includes arrangements that improve the beneficiary’s overall situation or future prospects.
The decision reflects the courts’ willingness to recognise a wide range of benefits capable of justifying an advancement.


Example – Educational Advancement
Suppose trustees hold a trust fund for a beneficiary who will become entitled at age 25.
At age 19, the beneficiary wishes to study medicine overseas and requires £100,000 to cover tuition fees and living expenses.
The trustees conclude that the education will improve the beneficiary’s future prospects and career opportunities.
Applying Re Pilkington, the advancement would almost certainly be regarded as beneficial and therefore fall within section 32.


Moral Obligations and Advancement
The courts have recognised that benefit may include the discharge of moral obligations.
This principle was demonstrated in Re Clore’s Settlement Trusts [1966] 1 WLR 955.
The trustees sought to advance trust funds to charities established by the settlor. The court accepted that satisfying the settlor’s moral wishes could constitute a benefit to the beneficiaries and approved the advancement.
The decision illustrates the broad and flexible approach adopted by the courts.


Limits to the Concept of Benefit
Despite the broad interpretation of benefit, there are limits.
In X v A [2005] EWHC 2706 (Ch), trustees sought to advance trust funds to a beneficiary who intended to donate the money to charity.
The court refused to authorise the advancement.
Unlike Re Clore’s Settlement Trusts, the proposed transaction offered no genuine benefit to the beneficiary herself. The advancement would simply transfer value away from the trust without improving the beneficiary’s circumstances.
The case demonstrates that the beneficiary must receive a real benefit from the advancement.


Bringing Advancements into Account
A beneficiary who receives an advancement is generally required to bring that advancement into account when the trust is finally distributed.
This means that the value of the advancement is deducted from the beneficiary’s eventual entitlement.
The purpose of this rule is to ensure fairness among beneficiaries and prevent double recovery.


Example
Assume Sarah is entitled to £400,000 from a trust when she reaches age 25.
At age 20, trustees advance £100,000 to assist her in purchasing a home.
When Sarah reaches age 25, the advancement will ordinarily be deducted from her entitlement.
Instead of receiving £400,000, she will receive £300,000, reflecting the earlier distribution.


Consent of Prior Interest Holders
Where another person holds a prior interest in possession, trustees must obtain consent before exercising the power of advancement.
This requirement protects individuals whose existing rights could be adversely affected by an advancement of trust capital.
Failure to obtain the necessary consent may render the advancement invalid and expose trustees to liability for breach of trust.


Historical Limits on Advancements
Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 32 limited trustees to advancing no more than one-half of the beneficiary’s vested or presumptive share.
This restriction often created practical difficulties because trustees were unable to advance sufficient capital to achieve the desired objective.
Consequently, trust instruments frequently included express provisions removing or modifying the statutory limitation.


Reform Under the Inheritance and Trustees’ Powers Act 2014
The Inheritance and Trustees’ Powers Act 2014 substantially reformed section 32.
The most significant change was the removal of the one-half restriction.
For trusts created, or interests arising, on or after 1 October 2014, trustees may now advance the entire share of a beneficiary if appropriate.
This reform greatly increased trustee flexibility and reflected modern approaches to trust administration.


Advancement of Assets
The 2014 reforms also clarified that trustees may advance assets as well as cash.
Consequently, trustees may transfer:

• shares;
• land;
• investment portfolios;
• business interests;
• other trust property.

This avoids the need to liquidate assets unnecessarily and allows trustees to structure advancements in a way that best serves the beneficiary’s interests.


Bringing Trusts to an End Early
The removal of the one-half restriction has practical significance where all parties wish to terminate a trust before the vesting date.
Historically, trustees could not generally bring a trust to an end through the advancement power alone because only half of the beneficiary’s share could be distributed.
Following the 2014 reforms, trustees may be able to advance the entirety of a beneficiary’s entitlement, thereby effectively terminating the trust before the original vesting date.
This can be particularly useful where the trust has become uneconomic to administer.


Relationship with the Rule in Saunders v Vautier
Before the 2014 reforms, early termination often depended upon the rule in Saunders v Vautier (1841) 49 ER 282.
Under that rule, beneficiaries could collectively terminate a trust if they:

• were all adults;
• possessed full capacity;
• were absolutely entitled to the beneficial interest.

The expanded advancement power now provides an alternative mechanism for achieving early distribution without necessarily relying on Saunders v Vautier.


Case Study
Facts
A trust provides that Emma will receive £600,000 at age 25.
At age 21, Emma wishes to establish a professional architectural practice and requests financial assistance from the trustees.
The trustees investigate her business proposal and conclude that it is realistic and likely to improve her future financial position.
They decide to advance £250,000 from the trust fund.
Analysis
The advancement is for Emma’s benefit because it improves her professional and financial prospects.
Applying Re Pilkington’s Will Trusts, the proposed business venture constitutes a sufficient benefit.
The trustees have exercised their discretion appropriately and have made reasonable enquiries regarding the proposed use of the funds.
Outcome
The advancement would likely be valid under section 32 of the Trustee Act 1925.
When Emma ultimately receives her remaining entitlement, the value of the advancement will ordinarily be brought into account and deducted from her final share.


Conclusion
The power of advancement provides trustees with valuable flexibility in responding to beneficiaries’ changing needs. Section 32 of the Trustee Act 1925 permits trustees to distribute trust capital before the vesting date where doing so advances or benefits the beneficiary. The courts have interpreted benefit broadly, encompassing educational, professional, social, and personal advantages, as demonstrated in Re Pilkington’s Will Trusts and Re Clore’s Settlement Trusts. The Inheritance and Trustees’ Powers Act 2014 significantly expanded the usefulness of the power by removing the former one-half limitation and permitting the advancement of assets as well as cash. As a result, the power of advancement has become an increasingly important tool in modern trust administration, allowing trustees to balance flexibility with the protection of beneficiaries’ long-term interests.


References
Re Pilkington’s Will Trusts [1964] AC 612.
Re Clore’s Settlement Trusts [1966] 1 WLR 955.
X v A [2005] EWHC 2706 (Ch).
Saunders v Vautier (1841) 49 ER 282.
Trustee Act 1925, s 32.
Inheritance and Trustees’ Powers Act 2014.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

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SQE – Equity and Trust – The Duty of Care in Relation to the Powers of Maintenance and Advancement
Introduction
Trustees possess important statutory powers that enable them to apply trust income and capital for the benefit of beneficiaries before they become absolutely entitled to the trust property. These powers are known as the powers of maintenance and advancement and are principally governed by sections 31 and 32 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.
Although trustees enjoy broad discretion when exercising these powers, they must still comply with an appropriate standard of care. Unlike many other trustee functions that are governed by the statutory duty of care under section 1 of the Trustee Act 2000, the powers of maintenance and advancement remain subject to the traditional common law standard established in Speight v Gaunt.
The law therefore requires trustees to exercise these powers prudently, honestly, and in the best interests of the beneficiaries concerned.


The Applicable Standard of Care
When deciding whether to exercise the powers of maintenance or advancement, trustees are not subject to the statutory duty of care contained in section 1 of the Trustee Act 2000.
Instead, the applicable standard is derived from the common law decision in Speight v Gaunt (1883) 9 App Cas 1.
Under this principle, trustees must act as:
“A prudent man of business managing his own affairs.”
This objective standard requires trustees to act carefully and responsibly when deciding whether trust income or capital should be distributed before the beneficiary becomes absolutely entitled.
The court does not expect perfection, but it does expect trustees to act reasonably and prudently in the circumstances.


The Duty of Care in Relation to Maintenance
The power of maintenance allows trustees to apply trust income for the benefit of a beneficiary who has not yet become absolutely entitled to the trust property.
When exercising this power, trustees must consider:

• the beneficiary’s financial needs;
• the beneficiary’s age and circumstances;
• the size of the trust fund;
• the interests of other beneficiaries;
• the overall purpose of the trust.

Trustees must make a genuine assessment of whether maintenance payments are appropriate and reasonable in the circumstances.
However, trustees are not obliged to make maintenance payments merely because a beneficiary requests them.


The Duty of Care in Relation to Advancement
The power of advancement allows trustees to apply trust capital for the benefit of a beneficiary before the beneficiary becomes fully entitled to receive it.
Because capital distributions may permanently reduce the trust fund, trustees must exercise particular caution.
The central question is whether the advancement will genuinely benefit the beneficiary.
This does not necessarily require an immediate financial gain. The courts have adopted a broad interpretation of “benefit” and recognise educational, professional, personal, and social advantages as capable of satisfying the requirement.


Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303
An important authority on the exercise of the advancement power is Re Pauling’s Settlement Trusts (No 1).
In this case, trustees advanced substantial sums of trust capital to the father of infant beneficiaries. The father subsequently used much of the money for his own purposes rather than for the benefit of the children.
The court held that although trustees are not required to supervise every penny after an advancement has been made, they must make reasonable enquiries before approving the payment.
Trustees should therefore satisfy themselves that the proposed advancement is genuinely intended to benefit the beneficiary.
The case illustrates that trustees cannot simply distribute trust capital without making appropriate enquiries into its proposed use.


The Requirement to Make Enquiries
Trustees are not expected to investigate exhaustively how every advancement is ultimately spent.
However, prudent trustees should obtain sufficient information to satisfy themselves that:

• the beneficiary will benefit;
• the purpose of the advancement is legitimate;
• the transaction is consistent with the objectives of the trust.

Failure to make such enquiries may constitute a breach of trust if the advancement later proves detrimental to the beneficiary.


Example – Proper Exercise of the Advancement Power
Suppose trustees manage a trust for a 20-year-old beneficiary who wishes to attend medical school.
The beneficiary requests £50,000 from the trust fund to cover tuition fees and living expenses.
The trustees investigate the proposal, obtain details of the educational programme, and conclude that the expenditure will enhance the beneficiary’s future prospects.
The advancement is likely to be regarded as beneficial and a proper exercise of the trustees’ discretion.


Example – Improper Exercise of the Advancement Power
Assume a beneficiary requests £200,000 from the trust fund to invest in a highly speculative cryptocurrency venture.
The trustees make no enquiries regarding the proposal and approve the payment immediately.
The investment subsequently fails and the money is lost.
The trustees may be liable for breach of trust because they failed to exercise the degree of prudence required by Speight v Gaunt and Re Pauling’s Settlement Trusts.


The Discretionary Nature of the Powers
A crucial feature of both maintenance and advancement is that they are discretionary powers rather than rights.
Beneficiaries cannot compel trustees to exercise these powers in their favour.
Similarly, beneficiaries cannot insist upon receiving maintenance payments or capital advancements simply because they would prefer to receive trust property earlier.
The trustees must exercise their own judgment and decide whether exercising the power would be appropriate.


Judicial Reluctance to Interfere
The courts are generally reluctant to interfere with trustees’ discretionary decisions concerning maintenance and advancement.
This reflects the principle that trustees, rather than judges, are entrusted with administering the trust and exercising discretionary powers.
Provided trustees act honestly, reasonably, and within the scope of their powers, courts will rarely substitute their own judgment for that of the trustees.


Grounds for Judicial Intervention
Although judicial intervention is rare, the courts may intervene where trustees:

• act in bad faith;
• fail to consider relevant factors;
• take account of irrelevant considerations;
• misunderstand their powers;
• act irrationally;
• breach their fiduciary duties.

The courts may also review whether maintenance payments are reasonable where specific statutory provisions permit such scrutiny.


Practical Difficulties in Challenging Decisions
Challenges to maintenance and advancement decisions are often expensive and difficult to pursue.
The costs of litigation may exceed the value of the disputed payment, particularly where the trust fund is modest.
Consequently, court proceedings are generally only worthwhile where:

• substantial sums are involved;
• there is evidence of trustee misconduct;
• the dispute forms part of a wider challenge to the trustees’ administration of the trust.

Removal of Trustees
Persistent refusal to exercise maintenance or advancement powers appropriately may indicate deeper problems in trust administration.
In some circumstances, unreasonable conduct regarding maintenance or advancement may support an application to remove a trustee.
The court’s primary concern in such cases is whether the trustee is acting in the best interests of the beneficiaries and the proper administration of the trust.
Where trustees repeatedly fail to exercise their powers responsibly, removal may be justified.


Case Study
Facts
A trust fund worth £3 million is held for Emma, who will become absolutely entitled at the age of 25.
At age 20, Emma wishes to undertake a law degree and requests £60,000 from the trust fund to cover tuition fees and accommodation.
The trustees investigate the proposal, review the university’s admission documents, and conclude that the expenditure will benefit Emma’s education and future career.
Analysis
The trustees have exercised the power of advancement prudently.
They made appropriate enquiries, considered Emma’s interests, and concluded that the payment would be beneficial.
Their conduct satisfies the standard established in Speight v Gaunt and reflects the approach approved in Re Pauling’s Settlement Trusts.
Outcome
The advancement would almost certainly be valid, and the courts would be unlikely to interfere with the trustees’ decision.


Conclusion
The powers of maintenance and advancement provide trustees with valuable flexibility in managing trust property for the benefit of beneficiaries. Although these powers are discretionary, trustees must exercise them with appropriate care and prudence. The applicable standard remains the traditional common law duty established in Speight v Gaunt, requiring trustees to act as prudent businesspersons managing their own affairs. In exercising the advancement power, trustees must ensure that any payment will genuinely benefit the beneficiary and should make reasonable enquiries into its proposed use, as demonstrated in Re Pauling’s Settlement Trusts (No 1). While courts generally respect trustees’ discretionary decisions, they may intervene where trustees act improperly, irrationally, or contrary to their fiduciary obligations.


References
Speight v Gaunt (1883) 9 App Cas 1.
Re Pauling’s Settlement Trusts (No 1) [1964] Ch 303.
Trustee Act 1925, ss 31–32.
Inheritance and Trustees’ Powers Act 2014.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

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SQE – Equity and Trust – Trustee Remuneration and Reimbursement of Expenses
Introduction
Traditionally, trustees were expected to act gratuitously and were generally prohibited from profiting from their position. This principle reflects the fiduciary nature of trusteeship and the fundamental rule that trustees must not place themselves in situations where personal interests conflict with their duties to beneficiaries. However, modern trust administration often requires specialist legal, financial, accounting, and investment expertise. Consequently, the law has evolved to recognise that professional trustees should ordinarily be entitled to remuneration for services properly provided to a trust.
Today, trustee remuneration may arise through express provisions contained in the trust instrument, through agreement of the beneficiaries, through court authorisation, or under statutory powers contained in the Trustee Act 2000.


Remuneration Through the Trust Instrument
The most common method of authorising payment is through a charging clause contained in the trust deed or will.
A charging clause expressly permits a trustee to receive remuneration from trust funds for services performed in administering the trust. Such clauses are particularly common where professional trustees, such as solicitors, accountants, trust corporations, or financial advisers, are appointed.
In practice, many professional trustees would be unwilling to accept appointment without an appropriate charging clause because trust administration can involve significant responsibilities, risks, and potential litigation.
Where a valid charging clause exists, its terms govern the trustee’s entitlement to payment.


Beneficiary Authorisation
Even where the trust instrument contains no charging clause, the beneficiaries may collectively authorise remuneration.
For such consent to be effective, all beneficiaries must:

• possess full legal capacity;
• be at least 18 years of age;
• have full knowledge of the relevant facts;
• freely consent to the proposed payment.

Where these requirements are satisfied, the beneficiaries may agree that a trustee should receive payment for services provided to the trust.
This reflects the principle that beneficiaries, as the equitable owners of the trust property, may collectively determine how trust assets should be administered.


Court Authorisation of Remuneration
The courts possess a limited equitable jurisdiction to award remuneration in exceptional circumstances.
The leading authority is Boardman v Phipps [1967] 2 AC 46.
Although the defendant fiduciaries technically breached their fiduciary duties by obtaining information through their position and using it for personal gain, they had acted honestly and generated substantial benefits for the trust.
Recognising the value of the services provided, the House of Lords awarded generous remuneration despite the breach of fiduciary duty.
The case demonstrates that equity may award compensation for skill, effort, and expertise where it would otherwise be unjust for beneficiaries to retain the benefit of those services without payment.


Statutory Remuneration Under the Trustee Act 2000
Prior to the Trustee Act 2000, there was no general statutory right for trustees to be paid.
Following recommendations by the Law Commission, Parliament recognised that modern trust administration often requires professional expertise and that remuneration may be necessary to attract suitably qualified trustees.
Consequently, section 29 of the Trustee Act 2000 introduced a statutory right to remuneration for professional trustees.
Under section 29, a trustee acting in a professional capacity may receive reasonable remuneration from the trust fund, provided that the other trustees agree in writing to the payment.
This provision reflects the practical realities of contemporary trust management.


Professional Capacity
Section 28(5) of the Trustee Act 2000 defines acting in a professional capacity.
A trustee acts professionally where they provide services in the course of a profession or business involving the management or administration of trusts.
Examples include:

• solicitors;
• accountants;
• trust corporations;
• financial advisers;
• professional wealth managers.

The services provided must fall within the trustee’s ordinary professional activities.


The Requirement of Reasonable Remuneration
The statutory right is limited to “reasonable remuneration.”
Section 29(3) provides that remuneration must be reasonable in the circumstances for the particular services supplied.
Determining reasonableness requires consideration of factors such as:

• the complexity of the trust;
• the size of the trust fund;
• the nature of the services performed;
• the trustee’s qualifications and expertise;
• the amount of time spent on administration.

The purpose of this limitation is to prevent trustees from charging excessive fees at the expense of beneficiaries.


Guidance from the Explanatory Notes
The Explanatory Notes to the Trustee Act 2000 provide additional guidance regarding reasonableness.
Paragraph 105 states that courts should have regard to:

• the nature of the trust;
• the trustee’s experience;
• the complexity of the work undertaken;
• the overall circumstances of administration.

This flexible approach allows remuneration to reflect the realities of individual trusts.


Administrative Tasks and Section 29(4)
Interestingly, section 29(4) permits remuneration for work that could have been performed by a lay person.
Examples include:

• photocopying;
• filing;
• record keeping;
• administrative correspondence.

This provision recognises that professional trustees often perform both complex and routine administrative functions as part of trust management.


Pullan v Wilson [2014] EWHC 126 (Ch)
An important modern authority concerning trustee remuneration is Pullan v Wilson.
The court emphasised that professional trustees are not automatically entitled to charge their standard commercial rates merely because they are professionals.
Instead, the court must retain effective supervision over trustee remuneration.
The court stated that regard must be had to:

• the value of the services provided;
• whether the work was necessary;
• the proportionality of the charges;
• whether the level of fee earner used was appropriate.

The decision reinforces the principle that trust administration should not become an opportunity for excessive profit at the expense of beneficiaries.


Effect of a Charging Clause
Where a trust instrument already contains a charging clause, section 29 generally does not apply.
Instead, remuneration is governed by the specific wording of the trust deed.
Trustees must therefore carefully examine the terms of the trust instrument before relying on statutory provisions.
This reflects the broader principle that the settlor’s intentions, as expressed in the trust deed, remain paramount.


Reimbursement of Expenses
Trustee remuneration must be distinguished from reimbursement of expenses.
Section 31 of the Trustee Act 2000 provides trustees with a statutory right to recover expenses properly incurred in administering the trust.
Examples include:

• travel expenses;
• postage costs;
• court fees;
• valuation fees;
• professional advice obtained for the benefit of the trust.

These payments are not remuneration but reimbursement for expenditure incurred on behalf of the trust.


Professional Practice and Charging Clauses
Modern professional practice strongly favours the inclusion of comprehensive charging clauses.
Both the Law Society and STEP (Society of Trust and Estate Practitioners) require practitioners to explain likely costs to clients who appoint them as executors or trustees.
Consequently, professionally drafted trust instruments frequently contain wide charging provisions covering:

• trustee remuneration;
• administrative services;
• delegation costs;
• agent fees;
• professional advice.

Some trusts may even provide honoraria for particular trustees who undertake substantial responsibilities.


Practical Considerations for Settlors
When creating a trust, settlors should carefully consider the financial implications of appointing professional trustees.
Professional expertise may significantly improve trust administration and reduce the risk of costly mistakes.
However, remuneration and expenses may substantially reduce the value of the trust fund available for distribution to beneficiaries.
The likely costs should therefore be balanced against:

• the size of the trust fund;
• the complexity of the trust;
• the nature of the trust assets;
• the needs of the beneficiaries.

Case Study
Facts
A trust worth £8 million appoints a solicitor as sole professional trustee.
The trust instrument contains no charging clause.
The solicitor spends three years managing investments, dealing with tax matters, preparing trust accounts, and administering distributions.
The beneficiaries subsequently challenge the solicitor’s fees.
Analysis
The solicitor is acting in a professional capacity within the meaning of section 28(5) of the Trustee Act 2000.
Provided the statutory requirements are satisfied and the remuneration is reasonable, section 29 permits payment from the trust fund.
The court would assess whether the fees charged were proportionate to the services provided, applying principles discussed in Pullan v Wilson.
Outcome
The solicitor would likely be entitled to reasonable remuneration and reimbursement of properly incurred expenses, but excessive or disproportionate fees could be reduced by the court.


Conclusion
The law governing trustee remuneration reflects a balance between traditional fiduciary principles and modern practical realities. While trustees were historically expected to act gratuitously, contemporary trust administration often requires professional expertise that justifies payment. Remuneration may be authorised by the trust instrument, by beneficiary consent, by the courts, or under section 29 of the Trustee Act 2000. However, trustees are entitled only to reasonable remuneration, and the courts retain supervisory jurisdiction to prevent excessive charges. Alongside remuneration, trustees may recover expenses properly incurred under section 31. Together, these rules ensure that trustees are fairly compensated while safeguarding the interests of beneficiaries.


References
Boardman v Phipps [1967] 2 AC 46.
Pullan v Wilson [2014] EWHC 126 (Ch).
Trustee Act 2000, ss 28–31.
Law Commission, Trustee Powers and Duties (Law Com No 260, 1999).
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).

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