Personal Liability of Trustees: Test Your Knowledge

Question 1

Which type of personal liability may arise when a person acts as a trustee without being properly appointed?

Accepted Answer

Executor de son tort

Answer

Surcharge

Answer

Constructive trust

Answer

Imprisonment

Question 2

Under the doctrine of joint and several liability, how are trustees responsible for the trust's liabilities?

Accepted Answer

Each trustee is responsible for the entire amount of the trust's liabilities

Answer

The trustees are only liable for the breaches they personally commit

Answer

The trustees are jointly liable for a portion of the liability proportionate to their share of the trust income

Answer

The trustees are not personally liable for the trust's debts

Question 3

What is the significance of the Limitation Act 1980 in relation to personal liability claims against trustees?

Accepted Answer

It sets a time limit for bringing legal proceedings against trustees

Answer

It immunizes trustees from liability after a certain period

Answer

It extends the time limit for bringing claims against trustees who commit fraud

Answer

It has no bearing on personal liability claims against trustees

Question 4

How can a trustee effectively limit their personal liability?

Accepted Answer

By implementing all of these measures

Answer

By obtaining adequate insurance

Answer

By delegating responsibilities to competent third parties

Answer

By seeking court approval for their actions

Question 5

In what circumstances may a trustee be removed from office due to personal liability concerns?

Accepted Answer

Any of the above

Answer

Gross misconduct or negligence

Answer

Conflict of interest

Answer

Breach of trust

Question 6

Which of the following is NOT considered a breach of trust?

Accepted Answer

Breach of duty to maximize profit

Answer

Breach of duty of care

Answer

Breach of duty of loyalty

Answer

Breach of duty to invest

Question 7

What is the expected standard of care for trustees?

Accepted Answer

Standard of care expected of a prudent investor

Answer

Standard of care expected of an average person

Answer

Standard of care expected of a professional trustee

Answer

Standard of care as stated in the trust document

Question 8

What is the primary distinction between a fixed trust and a discretionary trust?

Accepted Answer

Both of the above

Answer

Fixed trusts grant beneficiaries a vested interest in the trust property, unlike discretionary trusts.

Answer

Discretionary trusts provide trustees with the authority to determine the distribution of trust property, while fixed trusts do not.

Answer

Neither of the above

Question 9

Which of the following circumstances is least likely to trigger personal liability for trustees?

Accepted Answer

Acting with due diligence

Answer

Breach of trust

Answer

Negligence

Answer

Misfeasance

Question 10

The 'two-year rule' in relation to trustee liability pertains to:

Accepted Answer

The time limit within which beneficiaries must file a lawsuit against trustees for breach of trust

Answer

The period after which trustees are no longer personally liable for breaches of trust

Answer

The maximum duration for which trustees can be held accountable for breaches of trust

Answer

The minimum duration for which trustees are personally liable for breaches of trust

Question 11

In trust law, what do 'exculpatory clauses' refer to?

Accepted Answer

Clauses in trust instruments that exempt trustees from liability for breaches of trust

Answer

Clauses in trust instruments that impose additional liability on trustees for breaches of trust

Answer

Clauses in trust instruments that limit the remedies available to beneficiaries for breaches of trust

Answer

Clauses in trust instruments that specify the standard of care owed by trustees

Question 12

Which of the following is NOT a factor considered by courts when determining the standard of care expected of trustees?

Accepted Answer

Age of the beneficiaries

Answer

Terms of the trust instrument

Answer

Nature and complexity of the trust

Answer

Skills and experience of the trustees

Question 13

Which of the following is NOT a fundamental duty owed by trustees?

Accepted Answer

Duty to maximize profit

Answer

Duty of care

Answer

Duty of loyalty

Answer

Duty of confidentiality

Question 14

Which type of liability do trustees face if they personally benefit from their position?

Accepted Answer

Personal liability

Answer

Vicarious liability

Answer

Strict liability

Answer

Joint and several liability

Question 15

What was the main purpose of the Trustee Act 1925 (UK)?

Accepted Answer

To codify and clarify the law relating to trusteeship

Answer

To create new duties and powers for trustees

Answer

To abolish the doctrine of resulting trusts

Answer

To introduce a statutory limitation period for breach of trust claims

Question 16

What is the legal principle that allows beneficiaries to pursue remedies to recover trust property that has been wrongfully disposed of?

Accepted Answer

Tracing

Answer

Subrogation

Answer

Equitable accounting

Answer

Constructive trusts

Question 17

In which situation would a trustee be most likely held responsible for a loss incurred by the trust?

Accepted Answer

Delegating duties to an unauthorized third party without proper oversight

Answer

Making an investment that subsequently resulted in a loss, despite due diligence

Answer

Relying on the advice of a reputable financial advisor

Answer

Receiving compensation for acting as trustee

Question 18

What is the primary responsibility of a trustee?

Accepted Answer

To act in accordance with the best interests of the beneficiaries

Answer

To safeguard and preserve the trust assets

Answer

To strictly adhere to the terms of the trust

Answer

To regularly report to the beneficiaries regarding the trust's status

Question 19

Explain the significance of the 'prudent person' rule in equity and trusts.

Accepted Answer

It sets the standard of care trustees must uphold

Answer

It protects trustees from losses incurred by the trust

Answer

It allows trustees to make risky investments

Answer

It only applies to trusts formed after a specific date

Question 20

If a trustee knowingly assists in another trustee's trust breach, what liability might they face?

Accepted Answer

Joint and several liability

Answer

Contributory negligence

Answer

Vicarious liability

Answer

Strict liability

Question 21

Which factor is NOT considered when determining the standard of care expected of a trustee?

Accepted Answer

Trustee's personal wealth

Answer

Complexity of the trust

Answer

Trustee's expertise and experience

Answer

Terms of the Trust

Question 22

If a trustee violates their duty to act in the best interests of the beneficiaries, they may face:

Accepted Answer

Personal liability for any losses incurred by the trust

Answer

Criminal liability for breach of trust

Answer

Contractual liability to the beneficiaries

Question 23

Which of the following is NOT a recognized type of breach of trust?

Accepted Answer

Authorized investment of the trust fund

Answer

Failure to maintain proper accounts

Answer

Negligent management of trust property

Answer

Self-dealing

Question 24

According to the Limitation Act 1980, what is the time limit for bringing a claim against a trustee for breach of trust?

Accepted Answer

Six years from the date of the breach or, if the beneficiary was unaware of the breach, from the date they became aware

Answer

Twelve years from the date of the breach

Answer

No time limit

Question 25

If a trustee invests trust funds in an unauthorized investment without seeking appropriate advice, they may be held personally liable for:

Accepted Answer

Any losses resulting from the investment, regardless of whether they acted in good faith

Answer

Reasonable expenses incurred in making the investment

Answer

Legal fees incurred in defending a claim against them

Answer

Income generated from the investment

Question 26

In which circumstance may a trustee be held jointly and severally liable with other trustees for a breach of trust?

Accepted Answer

When they participate in or fail to prevent a breach of trust committed by their co-trustees

Answer

When they are unaware of the breach

Answer

When they delegate their duties to others

Answer

When they resign from their trusteeship

Question 27

If a breach of trust results in the total loss of the trust property, the trustee may be liable for:

Accepted Answer

Full compensation to the beneficiaries for the value of the lost property

Answer

Rescission of the trust

Answer

Nominal damages only

Answer

Injunction to prevent further loss

Question 28

Which of the following statements about a trustee's duty of care is correct?

Accepted Answer

A trustee must exercise care and skill that a prudent investor would exercise in managing their own affairs

Answer

A trustee's duty of care is absolute

Answer

A trustee's duty of care cannot be modified by the terms of the trust

Answer

A trustee has no duty to prevent co-trustees from breaching their duties

Question 29

Which of the following is NOT a common law duty of trustees?

Accepted Answer

Duty to make a profit

Answer

Duty of loyalty

Answer

Duty to account

Answer

Duty of care

Question 30

What is the main difference between a breach of trust and a tort?

Accepted Answer

A breach of trust is a breach of a fiduciary duty, while a tort is a breach of a legal duty imposed on all persons

Answer

Torts are always intentional, while breaches of trust may be negligent

Answer

Breach of trust requires intent, while tort does not

Question 31

What are the potential consequences of a breach of trust?

Accepted Answer

Removal from office, surcharge, and personal liability to make good the loss suffered by the trust

Answer

Damages for pain and suffering

Answer

Imprisonment

Question 32

What is the difference between a personal liability order and a surcharge?

Accepted Answer

A personal liability order requires the trustee to pay a specific sum of money to the trust, while a surcharge reduces the trustee's entitlement to the trust fund

Answer

A surcharge can only be ordered if the trustee has made a profit from the breach of trust

Answer

A personal liability order is only available against professional trustees

Question 33

Can a trustee be reimbursed from the trust fund for expenses incurred while defending a breach of trust claim?

Accepted Answer

Yes, if the trustee acted in good faith and reasonably.

Answer

Only if the trustee successfully defends the claim.

Answer

No, trustees are never entitled to reimbursement for legal expenses.

Question 34

Which of the following is NOT a valid defense for a trustee accused of breach of trust?

Accepted Answer

Acting solely on the advice of a financial advisor, even if the advice was unreasonable.

Answer

Obtaining informed consent from all beneficiaries.

Answer

Acting in good faith and with reasonable care.

Question 35

A trustee who is also a beneficiary of the trust:

Accepted Answer

May face heightened scrutiny of their actions due to potential conflicts of interest.

Answer

Is automatically disqualified from acting as trustee.

Answer

Can claim a larger share of the trust assets than other beneficiaries.

Question 36

The principle of 'following the trust property' refers to:

Accepted Answer

The beneficiaries' right to trace misappropriated trust assets and seek their recovery.

Answer

The trustee's obligation to maintain detailed records of all trust transactions.

Answer

The requirement for trustees to invest trust funds in specific types of assets.

Question 37

A trustee who fails to properly account for trust funds is likely to be held liable for:

Accepted Answer

Breach of trust for failing to maintain transparency and accountability.

Answer

Breach of contract for failing to fulfill the terms of the trust deed.

Answer

Fraud, if the trustee intentionally misrepresented the trust's financial position.

Question 38

A trustee who receives a personal benefit from a transaction involving trust property:

Accepted Answer

May be liable for breach of trust and potentially required to return the benefit to the trust.

Answer

Has no legal obligation to disclose the benefit to the beneficiaries.

Answer

Is automatically entitled to keep the benefit as long as it was received in good faith.

Question 39

The 'no-profit' rule in relation to trustees means:

Accepted Answer

Trustees cannot personally profit from their position as trustee.

Answer

Trustees must reinvest all trust profits back into the trust.

Answer

Trustees are not allowed to receive any compensation for their services.

Question 40

A trustee who is sued for breach of trust by a beneficiary may seek to recover their losses from:

Accepted Answer

Co-trustees who contributed to the breach.

Answer

The beneficiaries who initiated the lawsuit.

Answer

The settlor who established the trust.

Answer

The court that ordered the repayment of trust funds.

Question 41

A trustee who is unable to perform their duties due to illness or incapacity may:

Accepted Answer

Apply to the court for the appointment of a new trustee to replace them.

Answer

Delegate their duties to a family member or friend, which may not be legally permissible.

Answer

Continue to act as trustee despite their inability, risking potential liability.

Question 42

A trustee who acts in good faith and makes a reasonable mistake in their duties:

Accepted Answer

May not be held liable for breach of trust if they acted prudently and with reasonable care.

Answer

Must resign their position as trustee immediately.

Answer

Will automatically be held liable for any losses incurred.