Kenneth died four years ago. His valid will gave his estate (worth Kshs. 8,000,000) to Francis and Joseph to hold in trust for such of Kenneth’s children, Kevin and Esther, as should attain the age of 25. Kevin is now 21 years old and Esther is now 15, and still in school. Due to your training and experience in law, especially in the law of trust, Francis and Joseph have come to consult with you in relation to the management of the trust, and especially on the following issues: - Kevin is upset because the trustees have given Esther a monthly allowance from trust income for clothes and pocket money and Kshs.100,000 of trust capital to enable her pay her school fees, whereas Kevin has received nothing. - Kevin has also demanded information about the value of the trust fund and how it is invested. After Kenneth died, Joseph suggested that they invest most of the trust fund in the purchase of quoted shares in the Nairobi Stock Exchange. The value of the investments has gone down. The trustees blame the general economic climate but they are worried that the beneficiaries, especially Kevin, might want to hold them personally liable for the depreciation in the value of the investments. - Realising that they may not have the expertise to manage the trust investments, the trustees want to know whether they can employ a financial adviser to take over this aspect of trust business or appoint an investment expert as an additional trustee. Using your knowledge in the law of trust, comprehensively explain to Francis and Joseph the following: (a) Whether they have done anything wrong by making allowances for Esther from the trust income and capital while giving nothing to Kevin; (10 Marks) (b) Whether Francis and/or Joseph may be held liable for the poor performance of the trust investments at the Nairobi Stock Exchange; (10 Marks) (c) Whether the trustees can employ an investment expert to manage the trust investments or appoint him as an additional trustee and pay him out of the trust fund. (10 Marks)
Question
Kenneth died four years ago. His valid will gave his estate (worth Kshs. 8,000,000) to Francis and Joseph to hold in trust for such of Kenneth’s children, Kevin and Esther, as should attain the age of 25. Kevin is now 21 years old and Esther is now 15, and still in school. Due to your training and experience in law, especially in the law of trust, Francis and Joseph have come to consult with you in relation to the management of the trust, and especially on the following issues:
- Kevin is upset because the trustees have given Esther a monthly allowance from trust income for clothes and pocket money and Kshs.100,000 of trust capital to enable her pay her school fees, whereas Kevin has received nothing.
- Kevin has also demanded information about the value of the trust fund and how it is invested. After Kenneth died, Joseph suggested that they invest most of the trust fund in the purchase of quoted shares in the Nairobi Stock Exchange. The value of the investments has gone down. The trustees blame the general economic climate but they are worried that the beneficiaries, especially Kevin, might want to hold them personally liable for the depreciation in the value of the investments.
- Realising that they may not have the expertise to manage the trust investments, the trustees want to know whether they can employ a financial adviser to take over this aspect of trust business or appoint an investment expert as an additional trustee. Using your knowledge in the law of trust, comprehensively explain to Francis and Joseph the following: (a) Whether they have done anything wrong by making allowances for Esther from the trust income and capital while giving nothing to Kevin; (10 Marks) (b) Whether Francis and/or Joseph may be held liable for the poor performance of the trust investments at the Nairobi Stock Exchange; (10 Marks) (c) Whether the trustees can employ an investment expert to manage the trust investments or appoint him as an additional trustee and pay him out of the trust fund. (10 Marks)
Solution
(a) In relation to the allowances made for Esther and not for Kevin, the trustees have not done anything wrong. The trust was established for the benefit of Kenneth's children who attain the age of 25. However, the trustees have a duty to maintain the beneficiaries who are minors (under the age of 18), and this includes Esther who is 15 years old. The trustees are therefore justified in using the trust income and capital to provide for Esther's maintenance, including her clothing, pocket money, and school fees. On the other hand, Kevin, being 21 years old, is not a minor and therefore not entitled to maintenance from the trust. However, the trustees should consider Kevin's needs and circumstances and exercise their discretion in a fair and equitable manner.
(b) Regarding the poor performance of the trust investments, the trustees may or may not be held liable. The trustees have a duty to invest the trust property in a prudent manner. This means they should consider the suitability of the proposed investments and the need to diversify investments. If the trustees have acted prudently and the loss is due to factors beyond their control, such as a general economic downturn, they may not be held liable. However, if they have failed to act prudently, for example by investing most of the trust fund in a single type of investment without considering the risks, they may be held liable for the loss.
(c) As for employing an investment expert or appointing one as an additional trustee, the trustees are allowed to do so. The trustees have a duty to act in the best interests of the beneficiaries and this includes seeking professional advice where necessary. The cost of employing the investment expert can be paid out of the trust fund. However, the trustees should ensure that the expert is competent and the fees charged are reasonable. If the trustees decide to appoint the expert as an additional trustee, they should follow the procedure provided in the trust deed or the relevant law.
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