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IAI Actuarial Core Principles · Business Management · Trusts and agency

A trustee of a family trust in Chennai buys shares in a company using trust money and sells them at a profit, but the trust deed did not authorise such investment. The profit is Rs 4 lakh. The trustee argues that the beneficiaries suffered no loss. What is the position under general Indian trust principles?

The trustee must hand over the Rs 4 lakh profit to the trust. A trustee may not profit from breach of trust or from using trust property, and the absence of loss to the beneficiaries does not entitle him to retain the gain.

  1. AThe trustee may keep the profit because no loss was caused to the beneficiaries
  2. BThe profit is shared equally between the trustee and the beneficiaries
  3. CThe trustee must account for the profit to the trust, since a trustee should not benefit from a breach of trustCorrect
  4. DThe profit belongs to the Government as unauthorised gain
  5. The beneficiaries may claim only the original sum, not the profit

Explanation

Gains arising from the use of trust property belong to the trust. A trustee cannot retain profit from an unauthorised investment merely because no loss occurred. The option allowing him to keep it is wrong because it ignores this principle.

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