Settlor appointed trustee conflict of interest

Is a trustee appointed by a settlor under any different obligation when faced with a conflict of interest compared with a trustee not appointed by the settlor? The specific circumstances involve the possible exercise of a power of appointment, expressed to be exercisable at the absolute discretion of the trustees, in an interest in possession settlement which would, if exercised, reduce the benefit taken by the children of the conflicted trustee. The conflicted trustee was appointed by the Settlor when the settlement was created and is unwilling to exercise the power. There are only two trustees and the other trustee considers that the power should be exercised. How should the conflict of interest be managed?

I believe the general rule is that if a settlor appoints a trustee to a position of conflict then that conflict is considered to be acceptable - it cannot be self-dealing (its uncertain whether this would be self-dealing anyway given the trustee is not the beneficiary in question).

In your specific case, assuming there are no specific provisions allowing majority decision (very unlikely), the only possible solution would involve that trustee’s removal for breach of duty - however, it is far from clear that they are in breach simply by refusing to exercise a power unless there was an extremely clear cut reason why the power must be exercised or he/she has given a reason for their decision which is clearly unreasonable. The fact the trustee has a conflict would not itself be sufficient. The trustee cannot be pressed to withdraw from the decision as the decision cannot be made without them and cannot be pressed to retire unless you have good grounds beyond a legal conflict.

Andrew Goodman
Osborne Clarke LLP

That is a very helpful reply and extremely clear. Thank you.

Richard Lloyd