Hi, Mastermind

A man wholly owns and controls a company incorporated in England.

The man then resigns as director and he appoints one of his sons in
his place. This is purely nominal and the son draws no income and has
no duties other than signing the Annual Returns, Accounts, etc.

In the Accounts, the son duly certifies that he has no beneficial
interest in the shares of the company that are owned by the father
through nominee shareholders.

After some years, the father dies leaving this son as one of the
executors and as a beneficiary as to 25% of his estate.

The son fails to take out probate (within the prescribed time limit)
and, even after the death of his father, he continues to certify in
the Accounts that he has no beneficial interest in the shares.

But the son then acts as though he controls the company, to the
disadvantage of other beneficiaries of the estate. (This includes
ostensibly transferring the shares to one of his friends).

Can it be said that the son, as director, was a trustee of his
father’s interests in the company while his father was alive?

And that the son became a trustee to his father’s estate after the
death of his father?

What remedies are available to the other beneficiaries?

Plus … any of your usual brilliant ideas?

You have twenty seconds to answer …

Starting NOW!

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Request for Question Clarification by jem-ga on 28 Aug 2003 06:41 PDT

Hi Bryan :)

Thanks for requesting me - I always enjoy working on your questions! 
Keeps me on my toes :)

This one may take me a bit of time (plus I'm off to Edinburgh for the
weekend) -any particular deadline on this?  I already have a rough
idea of what the answer will be but checking it with my various
contacts plus additional research might take slightly longer than my
normal warp speed ;)

Warmest regards
jem-ga :)

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Clarification of Question by probonopublico-ga on 28 Aug 2003 08:14 PDT

Hi, Jem

No great urgency, please take as long as you need but, ideally, before
7 September.

Have a great time in Edinburgh!

But don't forget the earmuffs ... Recent research shows that the sound
of bagpipes can damage your hearing.

Kindest regards

Bryan

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Request for Question Clarification by jem-ga on 28 Aug 2003 08:17 PDT

Hi Again Bryan :)

Am actually making good progress on this for you so therefore very
likely to get a full answer to you either later this evening or
tomorrow just before mid-day.

Quick question: can I assume that the shares which the son transferred
were, at the time of transfer, either in the name of the father (via
nominee shareholders) and/or they were mentioned in the will as
forming part of the estate to be distributed, etc?

working at warp speed 9.....
:)jem-ga

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Clarification of Question by probonopublico-ga on 28 Aug 2003 08:55 PDT

Brilliant!

Thanks a lot.

The shares were held by the nominees at the time of the father's death
in October 1995 but (as you would expect) they had executed blank
transfer deeds.

However, the last Annual Return filed in May 2003, showed that the
shares had (ostensibly) been transferred in 1993. Moreover, the Stamp
Duty was not paid until April 2003. (Sounds familiar?)

Interestingly, the combined consideration was only £3 (There were
three lots.)

The shares were not specifically mentioned in the father's Will but
this specified 'all his property ...'

Over to you!

Hi Bryan :)

Wow - this question took TWO cups of Rose Pouchong tea to keep 
me focused ;)

I think the easiest way to disseminate the information I've gathered 
for you is to use your key questions as headings.  

1. <<Can it be said that the son, as director, was a trustee of his
father’s interests in the company while his father was alive?>>

I thought I recognised the share transfer/stamp duty issue from 
your previous question at:
 
http://answers.google.com/answers/main?cmd=threadview&id=240712

which you have indeed confirmed in today's clarification. 

Following on from my previous answer, the son (as director) 
certainly owed a fiduciary duty to act in the best interests of the 
shareholders of the company (which would have included his 
father's interests during his father's lifetime).  This duty of
fiduciary
care puts directors in a position of trust in relation to the affairs
of
the company and the shareholders.  On this point, see:

http://www.ukincorp.co.uk/?s=4B and;

http://www.winters.co.uk/information/directors_resp.html (in 
particular, the section entitled "Fiduciary duty", about a 1/4 of the
way down the page)

2. <<[Did] the son became a trustee to his father’s estate after the
death of his father?>>

This may be harder to establish (and in fact, it may not be possible 
to establish at all).  Generally speaking, executors normally 
become trustees ONLY if there is a specific provision in the will 
establishing a trust (and/or a further provision in the will
specifically
appointing them as a trustee of such trust).

As executor of his father's will, the son's duty is to deal with the 
ADMINISTRATION of the estate.  So, for example, this would 
include things like selling the assets of the deceased, closing bank 
accounts, paying bills and distributing the deceased's estate 
according to the instructions contained in the relevant will. 

For further information on the duties of an executor, see:

http://www.berrymanshacklock.co.uk/wills/probate.htm and;

http://www.making-a-last-will-and-testament.co.uk/last-will-testament-executors.php

and;

http://www.needanadviser.com/display.php/p/763 (this site has a 
particularly good, numbered list of the key duties of an executor)

You mentioned that the son, as executor, failed to take out probate 
in relation to the will.  As executor, the son must obtain authority 
from the relevant Probate Registry to administer his father's estate 
(including distributing assets to the beneficiaries and dealing with 
the assets of the estate) - see:

http://www.lawontheweb.co.uk/basics/wills.htm

for more on this point.

3. <<What remedies are available to the other beneficiaries?>> 

There are several courses of action which MAY lead to potential 
remedies for the other beneficiaries.  You should appreciate that, 
as with most specialised areas of the law, pursuing these options is 
not cheap nor is there any guarantee that any of these suggested 
courses of action will be successful.  The suggested actions noted 
below are not exhaustive, merely representative of the more 
common types that the UK courts hear. Taking specialist advice is 
STRONGLY recommended.

In relation to paragraphs 1 & 2 above, the beneficiaries could seek 
to establish either;

(i) an action relating to the son's alledged breach of his director's
duties in relation to the Companies Act legislation (well, in the case
of a deceased person, the executor of the estate normally deals with
court
actions - if there is another executor of the father's estate, then he
may
be able to bring this action independently of the son who is currently
the executor)

or;

(ii) the beneficiaries of the estate (which includes children of the 
deceased) can petition the court if they feel, for example, that the 
executor has/had no authority to deal with the estate (via lack of 
probate or otherwise) or the executor has failed to make adequate 
provision for any or all the beneficiaries - see, for example:

http://www.rigbygolding.co.uk/Docs/Willguide.doc (in particular, the 
section entitled "Subsequent claims against your estate" on pg 9 and 
the section dealing with shares in a family company on pg 18 of the
same
document) and;

A Client Guide to Challenges to Wills found at:

http://www.thursfields.co.uk/pdf/challengestowills.pdf 

or;

(iii) an action alledging that a constructive trust was created for
the
benefit of the father's estate and that the son, as director and/or 
executor, failed in his duties as trustee with respect to looking
after
and dealing with the assets (the trust property - in this case, the 
shares) for the benefit of the beneficiaries. (For a more in-depth
view
of the duties of trustees, see the Trustee Act 2000 at:

http://www.hmso.gov.uk/acts/en/2000en29.htm)

Constructive trust law is a highly specialised area of practice and 
you should know that the courts tend to be extremely hesitant in 
construing that a constructive trust has been created.

A good background guide to the world of constructive trusts can be 
found within the book review of "Constructive Trusts" by A J Oakley 
(a UK practitioner)at:

http://www.trusts-and-trustees.com/book_review/constructive_trusts_rev.html

This review (as compiled by two British practitioners) also highlights
the difficulty of establishing a constructive trust.

As a general rule, constructive trusts are most likely found in these
instances:

(a) fraudulent or inequitable conduct (e.g. mishandling or dishonest 
conduct in relation to property and;

(b) breach of fiduciary duty (e.g. actions in breach of fiduciary
duty)

Of further potential interest with respect to trusts, you might want
to
visit the Trusts Discussion Forum at:

http://www.trustsdiscussionforum.co.uk/

You don't have to subscribe to read messages there but you do 
have to subscribe (by leaving your email address) in order to post 
messages to the forum.  The forum itself seems to be quite active, 
with the most recent post dated as at 22nd August 2003 - see: 

http://www.trustsdiscussionforum.co.uk/archive/msg01844.html

There is a thread on investment responsibilities of executors found 
at:

http://www.trustsdiscussionforum.co.uk/archive/msg01146.html

I *trust* that I have provided you with some great weekend reading 
as well as some positive leads in the right direction. :)

No earmuffs for me re: Edinburgh trip - I actually quite enjoy the 
bagpipes (yes, it's true!) - it's the haggis and black pudding that 
has me diving for cover!

Warmest regards
jem-ga :)

Search Strategy

Keywords: trustee and executor UK

://www.google.com/search?hl=en&ie=utf-8&oe=utf-8&q=trustee+and+executor+UK

Keywords: duties of executors UK

://www.google.com/search?hl=en&ie=utf-8&oe=utf-8&q=duties+of+executors+UK

Keywords: duties of trustees UK

://www.google.com/search?hl=en&ie=utf-8&oe=utf-8&q=duties+of+trustees+UK

Keywords: UK constructive trusts

://www.google.com/search?hl=en&ie=utf-8&oe=utf-8&q=UK+constructive+trusts

Keywords: fails to take out UK probate

://www.google.com/search?hl=en&ie=utf-8&oe=utf-8&q=fails+to+take+out+UK+probate

Additional Research: personal knowledge, brief discussion with 
senior UK trust lawyer, brief discussion with senior UK probate 
consultant

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Clarification of Answer by jem-ga on 28 Aug 2003 12:23 PDT

Hi Bryan :)

Quick note to apologise for some of the inconsistencies in the
paragraph formatting (!) of my answer - when proofing the answer,
everything was laid out beautifully, however, posting to the GA site
sometimes produces variable formatting results!

:) jem-ga

As always, absolutely brilliant.

I would be lost without you.

Very sorry to hear about your love of bagpipes.

May I suggest a visit to the doctor?

Kindest regards

Bryan

Morning Bryan :)

Delighted that you are pleased with the answer and many thanks for the
5 stars and the tip.

Given the recent temperature drop, I may take those earmuffs after
all!

Kindest regards
jem-ga :)