The Trustee Delegation Bill Trust Law and Principles

Feature

posted 1 Jul 1999 in Volume 4 Issue 5

The Trustee Delegation Bill - Trust Law and Principles

One of the hallowed principles of trust law is that trustee functions cannot be delegated. Exceptions to that rule exist :

(i) where the trust deed expressly authorises delegation;

(ii) where delegation is permitted by the beneficiaries, all of whom are mentally capable and over the age of 18;

(iii) under section 3(3) of the Enduring Powers of Attorney Act 1985 ("EPAA 1985"), which allows an attorney under an enduring power to "execute or exercise all or any of the trusts powers or discretions vested in the donor [of the enduring power] as trustee" and also confers power to give a valid receipt for capital or other money; and

(iv) under section 25 of the Trustee Act 1925 ("TA 1925"), which allows delegation by power of attorney for a period not exceeding 12 months.

The non-delegation principle makes good sense in the context of a traditional will trust or settlement. However, the Law of Property Act 1925 ("LPA 1925") also imposes a trust in every case where land is owned by more than one person. In Walia v Michael Naughton Ltd [1985] 1 WLR 1115 the court held that a general power of attorney granted under section 10 of the Power of Attorney Act 1971 ("POAA 1971") did not entitle the donee of the power to execute a transfer of the legal estate in co-owned land, even where the donor had a beneficial interest in the land. The transfer was a trustee function, and so delegation was prohibited.

Section 3(3) of the EPAA 1985 was inserted in reaction to Walia, but was criticised as being far too wide. In 1994 the Law Commission produced a report "The Law of Trusts : Delegation by Individual Trustees" which concluded that section 3(3) should be repealed. At the same time they considered the problem of delegation by co-owners of land. The Trustee Delegation Bill addresses both of these issues.

Co-owners of land

Clause 1 to the Bill creates a new exception to the non-delegation rule. Subject to the terms of the trust or the power of attorney, it allows an attorney to exercise the donor's trustee functions if :

(a) the act relates to land, the capital proceeds of a conveyance or income from land ("relevant property"); and

(b) at the time that the act is done, the donor has a beneficial interest in the relevant property.

Clause 1(4) contains terms similar to those in section 25(5) of the TA 1925, providing that the trustee will remain liable for the acts or defaults of the attorney. However, anyone dealing with a attorney under clause 1 will still need to know whether the donor has a beneficial interest in the relevant property. Clause 2 therefore provides that where the purchaser's interest depends on the application of clause 1 he is entitled to rely on a statement from the attorney to the effect that the donor has a beneficial interest in the relevant property. Provided the statement is made within 3 months of the trustee function being exercised it may be treated as conclusive evidence of the donor's interest. There are specific provisions applying in the event of fraud or inaccuracy, while an attorney who makes a false statement may be liable under the Perjury Act 1911.

Clause 3 overturns Walia by expressly providing that where clause 1 applies the donee of a general power of attorney in the form prescribed by section 10 of the POAA 1971 may exercise the donor's trustee functions in relation to "relevant property". Section 10 is amended accordingly.

This leaves section 22 of the LPA 1925, which currently provides that a trustee of land who suffers from mental disorder must be discharged before any dealing with the legal estate occurs. This clearly frustrates the intention behind clause 1 of the Bill. Clause 9 therefore introduces a new section 22, making discharge unnecessary if there is an enduring power in place in relation to the trustee.

Section 3(3) of the EPAA 1985

Clause 4 of the Bill repeals section 3(3) of the EPAA 1985. The result is that trustees will only be able to delegate their trustee functions if one of the other exceptions to the non-delegation rule applies. This will only include the new exception set out in clause 1 of the Bill if the trustee has a beneficial interest in the "relevant property".

Section 25 of the TA 1925

The power to delegate in section 25 of the TA 1925 is currently limited to a period of 12 months and cannot be used to delegate to the only other co-trustee (save where that trustee is a trust corporation).

Clause 5 of the Bill sets out a new wording for section 25, preserving the trustee's power to delegate for a period of up to 12 months but now providing expressly that the donor may specify a shorter period; if no time limit is expressed then the power will only apply for 12 months. The prohibition on delegation to a sole co-trustee is removed, and there is a new prescribed form of power of attorney for use by a trustee delegating to a single attorney.

Clause 6 repeals section 2(8) of the EPPA 1985, which prevented a power of attorney granted under section 25 being an enduring power.

Receipt of Capital Monies etc

It remains the case that a valid receipt for capital monies arising from the sale of land can only be given by two or more trustees, while a conveyance must be made by at least two trustees if it is to overreach any powers or interests affecting a legal estate in land.

Clause 7 of the Bill reiterates these requirements, and makes clear that they will not be satisfied where all of the trustees delegate to the same attorney. However, two people acting in different capacities (for example, a trustee and an attorney appointed by a second trustee) or jointly in the same capacity (for example, following a delegation by all of the trustees to the same two attorneys) will be able to give a valid receipt.

Clause 8 amends section 36 of the TA 1925 to give the attorney a limited power to appoint a new trustee for the purpose of dealing with land. Subject to the terms of the trust deed or power of attorney, the power may be exercised by :

(a) a trustee who is also an attorney under a registered enduring power granted by all of the other trustees (up to a maximum of two); or

(b) an attorney for all of the trustees (up to a maximum of three).

Transitional provisions

Clauses 1 and 8, and the new section 25, will not apply to powers of attorney granted before the Bill comes into force. However, in relation to existing unregistered enduring powers the repeal of section 3(3) of the EPAA 1985 will only take effect after a year. For registered enduring powers, section 3(3) will continue to apply until the registration is cancelled.

Clause 7 applies to all powers of attorney, whenever created, but it will not prevent an attorney under an enduring power to which section 3(3) of the EPAA 1985 still applies from acting under that section. The new section 22 of the LPA 1925 will also apply to all enduring powers, whenever created.

Finally, it is worth mentioning clause 9 of the Bill, which applies to all powers of attorney created after the Bill comes into force. It creates a new rule of interpretation whereby (subject to any contrary intention expressed in the power) an attorney's authority to act in relation to land will be construed to include authority to act in relation to all of the donor's interests in the land.

Sarah Lacey, Chancery Barrister, Three Stone Buildings