denotes premium content | Jan 9 2009 Feature
posted 1 Mar 2000 in Volume 5 Issue 3
The Trustee Bill
The Trustee Bill, if passed and
when it comes into force, will be a practical answer to some of those tricky
issues we all come across from time to time, and a lot else besides. While it
includes provisions relating to charitable trusts this overview concentrates on
those relating to non-charitable trusts and wills.
The Bill implements the
recommendations of the Law Commission in Trustees' Powers and Duties
(1999) Law Com No. 260. It aims to create a new wider statutory power of
investment in place of the limited powers under the Trustee Investment Act 1961;
to give trustees new powers to appoint agents, nominees and custodians and to
insure property and for trustees to receive payment. It also imposes a new
statutory duty of care on trustees. If the trust deed expressly excludes one of
the new statutory powers and was made after 3rd August 1961, the power will not
take effect. Trust deeds which were executed before 3rd August 1961 are treated
differently.
The Bill is divided into six parts:
Part I
- new statutory duty of care with the circumstances to which it
will apply set out in Schedule 1.
Part II - gives new powers to trustees to invest in assets other than land as if they were an absolute owner. This replaces the power in the Trustee Investment Act 1961.
Part III - relates to investing in land. It is broadly the same as Part II but is separated for convenience in repealing legislation.
Part IV - deals with collective delegation by trustees to agents, nominees and custodians and the liability of trustees for the actions of such agents.
Part V - resolves some of the problems relating to payment of professional fees, as well as dealing with trustees' expenses.
Part VI - sweeps up, including transitional and
consequential provisions, with a new power to insure replacing s.19 of the
Trustee Act 1925; extends the application of some of the changes in the Bill to
personal representation; sets out the limited effect of the Bill on pension
schemes, unit trusts and some charitable schemes.
Investment Powers
The main motivation for
the Bill has been the increasing problems experienced by trustees under trust
deeds which do not contain powers to delegate, or to allow investments to be
held in the name of nominees, or title documents to be held by custodians. Many
trustees simply ignored their lack of powers either with or, more usually,
without the blessing of the courts. However legal advisers have always had to be
careful to advise their trustee clients that, whatever the inconvenience or
indeed risk of loss to the trust fund, they could only delegate, nominate or
allow others to control title documents in limited circumstances, and were at
risk of personal liability for breach of trust if things went wrong.
The introduction of
CREST and the greater use of discretionary investment management meant that a
change in the law was, if not inevitable, at least highly desirable. The new
provisions are broadly the same for both investment in land and personalty,
although dealt with in separate parts of the Bill. For personalty, "a trustee
may make any kind of investment that he could make if he were absolutely
entitled to the assets of the trust".
Clause 8 relating to land states that
a trustee
- may acquire freehold or leasehold land in the U.K.
- as an investment, for occupation by a beneficiary or for any other reason,
and
- for the purpose of exercising his functions as a trustee, a trustee who
acquires land under this clause has all the powers of an absolute owner in
relation to land.
There is no express duty to have regard to the interests of the beneficiaries when exercising this power but it is probably implicit. The new power does not apply to the trustees of Settled Land Act settlements.
In exercising any power of investment (not just one arising under the Bill) a trustee must have regard to the 'standard investment criteria' - broadly its suitability and the need for diversification - and must also seek advice. There is no requirement to seek advice where 'the trustee reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so', for example where taking advice would not be cost-effective.
The general power of investment can be excluded or modified in the settlement but no provision relating to the powers of investment of a trustee contained in a trust instrument made before 3rd August 1961 is to be treated as restricting or excluding the general power of investment. From this, it is clear that the provision applies, as one would expect, to existing trust deeds, and clause 7 (6) explicitly states that the power to invest under the 1961 Act is to be treated as confirming the general power of investment. Trusts which are governed by specific legislation are not able to rely on the general power of investment. Trustees are also required from time to time to review investments against these standard investment criteria and consider whether they should be varied.
When coupled with the new duty of care the new investment powers are intended to give wide scope for investment by trustees while ensuring that trustees act prudently with regard to trust funds, so protecting beneficiaries.
Statutory Duty of Care
The new statutory duty of care, which supersedes the common law duty of care, can be excluded or modified by the trust deed but where it applies it does so not only to the exercise of the general power of investment under the Bill but also to the exercise of powers under the trust instrument.
Clause 1 and Sched 1 of the Bill set out the duty of care and the specific circumstances in which it applies. The standard of care depends on ' any special knowledge or experience that he has or holds himself out as having' and ' if he acts as trustee in the case of a business or profession & any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession'.
While this is not necessarily a surprise, it brings home the importance of a solicitor trustee ensuring that he is well-versed in trust matters, since it is likely that a high standard of care will be demanded of him.
Delegation
Trustees will be able to delegate collectively certain of their functions, most usefully those relating to the management of investments. This power to delegate, like the ones relating to custodians, can be excluded or modified by the trust deed.
The shift in analysis represented by Part IV of the Bill is from the characterisation of powers of investment and some powers of management as being fiduciary (and therefore non-delegable) to their being either administrative (or delegable) or dispositive (not delegable). Trustees of non-charitable trusts may delegate any function except
(a) a function relating to the distribution of the trust assets
(b) a power to allocate fees or other payments to capital or income
(c) a power to appoint a trustee
(d) a power conferred by the trust instrument or an enactment ...
i. to delegate a trustee function
ii. to appoint a nominee or custodian
In exercising this power under the Bill there is a general prohibition on appointing beneficiaries as an agent, thereby preventing the section's use as a way of circumventing the restriction on delegation under s.9 of the Trust of Land and Appointment of Trustees Act 1996 and, perhaps unsurprisingly, a sole trustee cannot appoint itself as an agent. The statutory duty of care in s.1 does not apply to agents, who are still subject to the normal rules of agency and duty of care to their principals. Nevertheless the agent is subject to any specific duties or restrictions attached to the function delegated, e.g. the duties under clause 4 in respect of the general power of investment (regard to the standard investment criteria).
There is special provision with regard to the (non-delegable) trustees' function of consulting beneficiaries under s.11 of the Trusts of Land Act. The terms of the delegation to the agent cannot override s.11. Nor can they
- allow the agent to appoint a substitute
- restrict the liability of the agent or his substitute to the trustee or any beneficiary
- or permit the agent to act where a conflict may arise
unless it is 'reasonably necessary' to delegate on such terms (which may well be the case in appointing, say, fund managers on their standard terms of business).
Trustees must keep the delegation of functions under review and the Bill introduces the requirement for the Trustees to produce a written 'policy statement' as guidance for agents in respect of asset management. This is really a statement of best practice, which now becomes a duty under clause 1 of the Bill.
There is now a default power to appoint nominees, but it is not intended to affect the fiduciary relationship of the trustees to the beneficiaries of the trust. The trustee will, however, only be liable for the acts or defaults of the nominee or custodian if he is in breach of his duty of care when entering into or reviewing the arrangement. The appointment must be evidenced in writing and the nominee may only be
- a person who carries on a business which consists of or includes acting as
a nominee or custodian or
- a body corporate controlled by the trustee
Remuneration
Part V recharacterises the payment of professional executors appointed under a will to be remuneration for services and therefore an administration expense and not a legacy. S.15 of the Wills Act 1837 will not therefore apply. The same approach has been taken to the appointment of trustees under a will trust. Except with regard to charitable trusts, however created, professional persons and trustees will be entitled to reasonable remuneration for their services even if the instrument creating the trust is silent as to charging, and even if those services are capable of being provided by a lay trustee. This does not apply to wills where the testator died before this Act is passed.
With regard to charitable trusts the Secretary of State may make regulations to allow charging of the trust as charitable.
Insurance
Clause 34 inserts a new s. 19 in the Trustee Act 1925 which enables trustees to insure property, subject (in the case of bare trusts) to any direction given by the beneficiary or beneficiaries.
The Bill certainly assists in some of the more practical areas of trust and estate administration. It is written in a version of plain English and with luck it will be a first step to a general sweeping away of many of the outmoded or more arcane aspects of trust law.
Susan Midha is a specialist
in inheritance tax and estate planning. she can be contacted on (01689)
851816 or
