As a venerable part-time professor, the recent decision of Head v. Gould, [1898] 2 Ch. 250, Chancery Division struck me as being as good of a lesson in 1898 as it is today.
Trustees have to act with utmost good faith. That is one of the basic tenets of trust law. Even when a Trustee ceases to act, that same standard still applies to the manner in which a Trustee may select his/her successor.
In Head v. Gould, a trust was settled for a husband and wife during their lifetime with the remainder to their children and the discretion to accelerate the children’s interest and distribute their interest during the parents’ lifetime. The husband was the first to die. Thereafter, the widow sought to pressure the Trustees in whatever way that she could to distribute the trust to her children (one of whom was an adult, and one of whom was a minor). Faced with the widow’s pressure, the Trustees wished to resign. At the widow’s recommendation, the Trustees appointed a lawyer (who was a known friend of the family) and the adult child as the succeeding Trustees. The lawyer and the adult child ends up misappropriating the minor child’s share.
The Court in 1898 commented that a Trustee’s “ultimate act” in appointing their successor must be done to the same standard as any other acts in the course of their administration, i.e. with utmost good faith. A Trustee cannot knowingly appoint a successor who is expected to commit breaches of trust, or someone who will endanger the trust. If there is clear evidence that a retiring Trustee knew that a breach of trust will be committed their successor, that Trustee can be found liable for their successor’s breach.
Thanks for tolerating the jokes in this blog’s opening sentence.