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IAI Actuarial Core Principles · Business Management · Trusts and agency

Trustee Rohan wrongly transferred a trust flat to a buyer, Suresh, who knew it was trust property and that the transfer breached the trust. The beneficiaries learn of this. Which remedy best reflects the beneficiaries' proprietary position?

The beneficiaries can follow the flat and recover it from Suresh, because he acquired it with notice of the trust and the breach. Only a buyer for value without notice would be protected, so the claim is not limited to damages against the trustee.

  1. AThey can only sue Rohan for damages and have no claim against Suresh
  2. BThey can follow the property and seek to have it recovered from Suresh, who took with notice of the trustCorrect
  3. CThey must wait until the trust terminates before taking any step
  4. DThey may only ask Suresh for a gift of equivalent value
  5. They can claim the flat only if Rohan consents

Explanation

A transferee who takes trust property with notice of the breach holds it subject to the beneficiaries' rights, so the property can be traced and recovered. A bona fide purchaser for value without notice would be protected, but Suresh had notice. Limiting the claim to damages against Rohan understates the beneficiaries' rights.

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