10 - Trustees: Powers & Duties

Question 1

How do express powers in the declaration of trust affect trustees’ ability to pay income or capital to beneficiaries before they become entitled?

Answer 1

A settlor may expressly provide in the declaration of trust that trustees are allowed, in the future, to pay income or capital to beneficiaries before they become strictly entitled.

If these express provisions are included, trustees must follow them.

In the absence of express provision:
- The Trustee Act 1925 (TA 1925) gives trustees various statutory powers to pay income or capital early to beneficiaries.
- The settlor can modify or exclude these statutory powers as much as they wish.

Question 2

What types of income might trust property generate, and how is this income typically applied for beneficiaries under the trust?

Answer 2

Income refers to returns paid on a regular basis generated from trust capital. Common types of income include:
(a) Dividends paid on shares
(b) Interest paid on bank accounts
(c) Rent paid for occupation of land

Trusts often include forms of property regularly producing income returns, which trustees may apply under specific conditions to benefit minor beneficiaries who hold a trust interest.

If 18 or over, trustees should be paying income directly to the beneficiary.

Question 3

Under Section 31 of the TA 1925, what powers do trustees have for applying income for the maintenance, education, and benefit of minor beneficiaries?

Answer 3

Section 31 of the TA 1925 gives trustees the power to use trust income to pay for the maintenance, education, and benefit of a beneficiary under the age of 18 years (an infant beneficiary or minor), provided:
(a) There is no contrary provision in the declaration of trust.
(b) Trustees can only exercise this power in favour of minor beneficiaries who have some interest in income – vested or contingent – but not where there are any ‘prior interests’ to income.

Trustees cannot use s 31 to apply income for a beneficiary where someone else is the life tenant with a prior right to the income.

Question 4

How does the existence of a life interest affect trustees’ powers to apply income for a minor beneficiary under Section 31 of the TA 1925?

Answer 4

In life interest trusts where a life tenant exists, trustees must pay income to the life tenant, who has a prior interest in income. Trustees are therefore restricted from applying income for a minor beneficiary during this period.

Example:
- If a trust is created for “Rajesh for life, remainder to Saleem,” trustees must respect Rajesh’s life interest, as he has the only right to income during his lifetime.
- Upon Rajesh’s death, if no one else holds a prior interest, Saleem’s interest allows trustees to apply income for his benefit under s 31 TA 1925.

Question 5

What specific considerations must trustees make when applying income for a minor beneficiary’s maintenance, education, or benefit under Section 31 of the TA 1925?

Answer 5

Trustees should not pay income directly to a minor beneficiary as:
- For very young beneficiaries, it would make no practical sense.
- Minors cannot give good receipt for trust income.

Instead, trustees should pay income:
- Directly to the beneficiary’s parent or guardian, or
- Directly to the provider of maintenance, education, or benefit services, such as a school for educational fees.

Question 6

Under Section 31 of the TA 1925, are trustees obligated to use trust income for minor beneficiaries’ maintenance, education, or benefit?

Answer 6

Trustees have the power under s 31 of the TA 1925 to apply trust income for minor beneficiaries’ maintenance, education, or benefit, but they are not obligated to do so.

Trustee discretion: The decision to apply income rests with the trustees, and they cannot be compelled to exercise this power.

Example:
- In the case of Tessa, a 12-year-old beneficiary, her father may request that trustees use trust income to pay for martial arts lessons.
- While trustees may apply income for Tessa’s benefit, it remains their discretionary choice. If they choose not to apply the income now, they should accumulate it – that is, invest it for Tessa’s future benefit.
- This accumulated income would later be transferred along with the trust capital once Tessa reaches 18, as mentioned any income must be paid to the beneficiary once they turn 18.

Question 7

How does Section 31 of the Trustee Act 1925 address the payment of trust income to adult contingent beneficiaries?

Answer 7

Adult contingent beneficiaries are those whose interests in trust property have not yet vested due to an unfulfilled condition.

Under Section 31 of the TA 1925:
- These beneficiaries are entitled to trust income as it arises, pending the vesting of their beneficial interests.
- Trustees are required to pay this income to adult contingent beneficiaries until the condition for vesting is met, i.e., once the beneficiary turns 18.

Example:
- A trust is created for Ulrika, contingent upon her reaching 25 years of age. At present, Ulrika is 15, and her interests remain contingent on this condition.
- While Ulrika is under 18, trustees may use their discretionary power to apply trust income for her maintenance, education, or benefit and must accumulate any unused income.
- Upon reaching 18 but before turning 25, the trustees’ discretion to apply income ends, and they have a duty to pay income directly to Ulrika as it arises.
- Upon reaching 25, if the condition is met, Ulrika gains a vested interest and can claim the trust property, including any accumulated income.

Question 8

What is the statutory condition regarding a contrary provision in the trust declaration when advancing capital?

Answer 8

Trustees cannot advance capital if there is a contrary provision in the declaration of trust.

Question 9

What is the requirement regarding a beneficiary’s interest in capital for trustees to advance capital?

Answer 9

Trustees can only advance capital if the beneficiary has an interest in capital, which includes:
- Beneficiaries with a vested interest in trust capital, either in possession or in remainder.
- Beneficiaries with a contingent interest in trust capital.

Example: A trust created for Rajesh (husband) for life, remainder to Saleem (son, aged 8), where:
Rajesh is only interested in income, and Saleem is the only one interested in capital.
Trustees cannot pay capital to Rajesh unless they obtain Rajesh’s written consent if they wish to benefit Saleem early.

Question 10

How must trustees determine if a payment is for the advancement or benefit of the beneficiary?

Answer 10

Payment must improve the material situation of the beneficiary.
Broad application: Covers most uses except for purposes like pleasure, leisure, or hobbies.

Trustees must ensure:
The capital benefits the beneficiary, not solely others, though incidental benefits to others are acceptable.

Example: If a trust is for two grandchildren and their mother requests capital advancement to pay her overdrafts:
Trustees would be in breach of trust if they advance funds for this purpose, as shown in Re Pauling’s Settlement Trusts (1964).

Question 11

What are the limits on the amount of capital trustees may advance to a beneficiary?

Answer 11

For trusts created after 1 October 2014: Advance payments must not exceed the beneficiary’s full entitlement.

For trusts created on or before 1 October 2014:
Trustees can only advance up to half the beneficiary’s entitlement.

Example: For a trust worth £60,000 created through a 2008 will, effective in 2016, with equal shares for two children (Wesley and Yvonne): Yvonne’s guardian can request up to £30,000 for her benefit.

Question 12

How does an advancement affect the beneficiary’s entitlement when they become entitled to trust capital?

Answer 12

Any prior advancement is deducted from the beneficiary’s entitlement when they become eligible to claim trust capital (known as ‘hotchpot rules’).

Example: If a trust for Adam and Britney includes an advancement of £15,000 to Britney at age 19:
When Britney reaches 21, her share of trust capital will be reduced by the £15,000 already advanced.
If Britney dies before age 21, her estate does not have to repay the advanced amount.

Question 13

What is the requirement for advancing capital to a beneficiary when there is a prior interest-holder

Answer 13

If there is a prior interest-holder, an advancement to another beneficiary can only occur if:
- The prior interest-holder is an adult and consents in writing.

Example: If a trust is created for Catrina for life, remainder to Dianne (aged 25) and Elma (aged 20) if they reach 30:
- An advancement to Elma requires Catrina’s written consent, as it might reduce the income-generating capital for Catrina.
- Trustees do not need Dianne’s consent as her interest does not rank prior to Elma’s.

Question 14

What is the difference between current and accumulated income when considering the trustees power of maintenance?

Answer 14

The power of maintenance allows trustees to use both current income and accumulated income.

Trustees are not limited to income generated after deciding to exercise the power of maintenance; they can also utilise any previously accumulated income.

Example: If trustees have accumulated £25,000 over five years and the trust fund currently generates £5,000 per year, they can use both these sources to meet expenses. If a minor beneficiary’s annual school fees are £10,000, the trustees can combine the current and accumulated income to cover this amount, even though current income alone would be insufficient.

Question 15

A trust fund was established for A, B and C in equal shares.

The trustees are due to distribute the capital but need to bring into account the following exercises of the power of advancement:

1. Ten years ago, when the trust fund was worth £15,000, the trustees paid £5,000 to A.
2. Five years ago, when the trust fund was worth £12,000, the trustees paid £3,000 to B.
3. The fund has now increased in value to £12,000 again.

The trustees want to treat each exercise of the power of advancement as the beneficiary’s proportionate share of the trust fund.

How much of the £12,000 should be distributed to each of A, B and C?

Answer 15

A - £0
B - £4,000
C - £8,000

When the trust fund was worth £15,000 the trustees paid £5,000 to A. This represented 100% of A’s interest in the trust fund, meaning the remaining £10,000 was held for B and C equally.

The trust fund then increased in value to £12,000. When the trustees paid £3,000 to B, this represented 50% of B’s interest in the trust fund (and 25% of the overall trust fund). This left B with a one third share of the trust fund (£3,000 at the time) and C with the remaining two thirds.

Now that the trust fund has increased again to £12,000, B has a one third share of that £12,0000 (i.e. £4,000) and C has the remaining two thirds (i.e. £8,000). A has already received their full entitlement in exercise of the power of advancement so is not entitled to any further capital.

Question 16

Provide a summary of the statutory powers of maintenance and advancement.

Answer 16

Statutory powers of maintenance: Trustees can apply income for the maintenance,
education or benefit of a beneficiary under the age of 18 years so long as they have a beneficial interest in income. The power of maintenance only applies while the beneficiary is a minor. Trustees must pay income to adult contingent beneficiaries with an interest in income.

Statutory powers of advancement: Trustees can apply or pay capital to beneficiaries
interested in capital for their advancement or benefit. Various conditions must be satisfied
before capital can be applied early. This applies to adult and minor beneficiaries.

Powers not duties: It is important to remember that these are powers that trustees can exercise in their discretion. Trustees are not obliged to exercise these powers and
beneficiaries cannot compel them to do so.

Question 17

What is the role of trustees in managing a trust, and how is a balance struck between trustee autonomy and beneficiary oversight?

Answer 17

Trustees are the managers of the trust and are under a duty to observe the terms of the trust, acting in the best interests of the beneficiaries.

Beneficiaries can complain to the court if trustees commit a breach of trust, creating a system of accountability.

Often, a trust is set up by a settlor who believes the trustee is better placed to manage the property than the beneficiaries.

The law seeks to strike a balance:
- Trustees must be answerable to the beneficiaries whose property they manage, preventing trustees from having complete autonomy.
- However, it would be equally unacceptable for beneficiaries to dictate every aspect of trust management.

Question 18

What is the difference between trustee duties and powers in managing a trust?

Answer 18

Duties: Obligations that trustees must fulfil, which beneficiaries can enforce in court if necessary.
Example: In a fixed interest trust, trustees have a duty to distribute trust property at the right time to the right beneficiaries. Beneficiaries can obtain a court order if trustees refuse.

Powers: Discretionary and generally beyond beneficiaries’ control.
Example: Trustees have powers under statutory provisions to advance funds early to certain beneficiaries but are under no duty to do so, meaning beneficiaries cannot compel this.

Trustees’ responsibilities regarding powers:
They must periodically consider whether to exercise their powers.
If they decide to exercise a power, they must do so properly.

As long as trustees fulfil these requirements, beneficiaries have no grounds for complaint over the non-exercise or execution of these powers.

Question 19

How do express provisions in the declaration of trust affect trustees’ obligations and potential breaches of trust?

Answer 19

The declaration of trust may contain express provisions from the settlor that:
- Modify, limit, or amplify the general legal framework governing the trust.
- Limit or exclude trustees’ liability for any breach of trust.

Question 20

What is the duty of care required from trustees in managing a trust?

Answer 20

Trustees must act with “all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own” (Speight v Gaunt (1883) 9 App Cas 1).
- This is an objective standard.
- The standard may be higher for paid, professional trustees, such as solicitors, who are expected to exercise the care and skill reasonably expected of experts in their field.

Example: If Gerald, a beneficiary, alleges that the trust fund is undervalued due to the trustees’ negligent handling of tax matters, trustees could be in breach of their duty of care if they did not act as prudent businesspeople would. Reasonable precautions, like seeking professional tax advice, are necessary to ensure tax-efficient handling of affairs. Neglecting this would amount to a breach.

Question 21

What are the initial duties a trustee must undertake when appointed to a trust?

Answer 21

A newly appointed trustee must:
- Ensure they are properly appointed.
- Ascertain the trust property and take all reasonable and proper measures to obtain control of it.
- If the transfer of trust property is outstanding, they must press for its completion.
- Review the trust document and associated paperwork to become familiar with the trust terms and its administration.
- Other trustees must produce relevant trust papers.
- Enquire into past business of the trust to ensure no past breaches of trust and remedy any discovered breaches.
- Where chattels are held on trust, ensure a proper inventory is drawn up.

Example: Henry, a newly appointed trustee over a trust holding company shares, fails to familiarise himself with the trust terms or investigate why prior trustees were removed. Additionally, he and another trustee fail to transfer shares to their joint names. Henry could be liable if his inaction causes loss to the trust.

Question 22

How should trustees act to maintain impartiality between beneficiaries?

Answer 22

Trustees must act impartially when exercising their powers, considering each beneficiary’s interests equally if a conflict arises.
- This does not imply that beneficiaries must receive equal treatment.
- Trustees are not required to consult or give a “fair hearing” to beneficiaries.
- Trustees must avoid favouring one beneficiary over another, as favouring one repeatedly could result in a breach of trust.

Question 23

What are the duties of trustees regarding personal and unanimous decision-making?

Answer 23

Trustees are generally required to act personally and cannot leave decision-making to others, except under certain statutory powers (e.g., appointing an attorney under s. 25 of the Trustee Act 1925).

Co-trustees must make decisions unanimously (unless stated otherwise in the trust document), ensuring one trustee does not abuse their powers.
- Example: If Arthur, James, and Wilfred are co-trustees with differing opinions on purchasing a property, Arthur and James cannot outvote Wilfred or secure court approval for the purchase; Wilfred’s opposition prevents the purchase from proceeding.

Trustees must be personally active in trust management and may be liable if they:
- Leave matters in the hands of a co-trustee without enquiry.
- Allow trust funds to be controlled solely by a co-trustee.
- Fail to monitor or correct their co-trustees’ actions.
- Ignore breaches of trust by a co-trustee.

While trustees can seek expert advice, they must still make decisions personally.

Example: Lionel, Henry, and Janet are trustees relying on John’s instructions for distributing trust funds without assessing appropriateness themselves. By allowing John to dictate their actions, they breach their personal duty to actively manage the trust.

Question 24

What does the duty to exercise discretions properly entail for trustees?

Answer 24

Trustees cannot be compelled by beneficiaries to exercise discretionary powers in a specific way; however, beneficiaries can challenge improper exercise of these powers.

When exercising discretionary powers, trustees must act:
- In good faith.
- Rationally.
- For the intended purpose of the power.
- With consideration of relevant material and facts, excluding irrelevant matters.
- With regard to any legitimate expectations a beneficiary might have for the power’s exercise.

Example: Trustees of a discretionary trust for the settlor’s children and grandchildren who decide to distribute only to beneficiaries with red hair and a birthday in March could face court intervention, as this exercise of discretion appears irrational or based on irrelevant considerations.

Question 25

What are the duties of trustees regarding giving reasons for the exercise of a power?

Answer 25

Trustees generally do not need to provide reasons for their decisions.
However, if they do give reasons, both beneficiaries and the court may examine their soundness.

If a beneficiary has a legitimate expectation that a discretion will be exercised in their favour, trustees may need to provide reasons and advance warning if they plan to exercise discretion differently.

Example: If trustees have given Ada an annual capital advance for the past ten years, they cannot discontinue this payment without first warning Ada and giving her a chance to persuade them to continue.

Question 26

What rights do beneficiaries have regarding the disclosure of trust information?

Answer 26

Beneficiaries are entitled to access specific documents, including:
- The trust document or will that created the trust.
- The trust accounts.
- A schedule of trust investments or other documents showing trust property investments.

Beneficiaries cannot demand documents that reveal trustees’ deliberations on discretionary decisions.
Trustees are not required to disclose:
- Trust diaries or minutes detailing decision rationales.
- Letters of wishes from settlors, which are non-binding and intended to facilitate confidential trustee discretion.

If beneficiaries seek documents explaining trustee decisions, they may apply to the court.
The court:
- Has inherent jurisdiction to supervise trust administration and may consider disclosure in the interest of sound administration, particularly if there is evidence suggesting a breach of trust.
- Typically presumes against disclosure unless necessary, as it can lead to family disputes or reveal confidential beneficiary information, such as finances or health conditions.

Question 27

Provide a summary of the trustees duties.

Answer 27

Standard of care. When running a trust, a trustee is held to the same standard as an ordinary prudent business- person who is managing their own affairs.

Duties when running a trust. Trustees must take decisions unanimously and personally.
They must be active in the running of the trust and must supervise the actions of their co- trustees. When exercising powers, the decisions that trustees take are a matter for their own discretion, but that discretion must be exercised rationally and in good faith.

Reasons and documents. Trustees do not need to give reasons for the decisions they take or the powers they exercise. Beneficiaries are entitled to see the trust document and some associated core documents (such as accounts), but cannot demand sight of documents that record the decisions that trustees have taken (such as minutes of meetings). If beneficiaries want to see such documents, they will need to apply to the court.

Question 28

What are the duties of trustees in managing and investing trust property?

Answer 28

Trustees are responsible for the proper management of trust property, which includes:
- Duly and promptly investing all trust capital and income not being distributed or applied for beneficiaries, in line with the specific trust requirements.
- Ensuring that trust funds are not left uninvested for an unreasonable period, as trustees may become liable for any resulting losses.

In determining how to invest trust funds, trustees must consider the differing needs of beneficiaries:
- Life tenants may require a steady stream of income, while contingent beneficiaries, who may not be entitled to their share for some years, will expect the trust fund to grow in value to keep up with, or even exceed, inflation.

Trustees must identify the objectives of the trust and assess the likely requirements of beneficiaries before deciding on investments, taking into account both income stability for life tenants and the need for capital growth for contingent beneficiaries.

Question 29

How does the law balance trustee accountability and investment discretion?

Answer 29

The law aims to balance the accountability of trustees to beneficiaries and the need for trustees to exercise investment discretion by:
- Allowing beneficiaries to recover losses where trustees have failed to act properly, thereby ensuring some recourse if trust property is mishandled.
- Recognising that if trustees have followed the proper process in selecting investments, beneficiaries generally cannot challenge the trustees simply due to poor investment performance.
- Establishing best practice that trustees should seek expert advice when considering investments and may delegate investment functions to a more suitably qualified agent.

Question 30

What are the primary considerations trustees should assess before making investments?

Answer 30

Trustees should develop a tailored investment strategy suited to the particular trust by assessing the following factors:
- The type of interests beneficiaries hold in the trust and their individual circumstances.
- The anticipated duration of the trust, whether investments need to be geared towards the short-term or long-term.
- The overall size of the trust fund, as this influences diversification options and enables purchasing a variety of investments.
- The tax position of both the trust and the beneficiaries, which may affect investment decisions.

Question 31

How should trustees manage a trust that has both income and capital-growth beneficiaries?

Answer 31

Trustees must strike a balance in investment strategy to serve the needs of beneficiaries entitled to income and those entitled to capital growth:

In a trust where, for example, Philip holds a life interest and Rachel holds the remainder interest, income-producing investments benefit Philip, while capital-growth investments help ensure Rachel will receive sufficient capital when her entitlement arises.

Given the trust is likely to last a long time, trustees may initially adopt a higher-risk strategy for capital growth, as there is time to recover from downturns. Over time, trustees can ‘de-risk’ the trust by transitioning to safer investments, securing the capital for Rachel.

The relatively large trust fund size allows for a diversified investment portfolio, providing stability. Diversification reduces risk by spreading investments, so if some lose value, others may compensate with gains. With a large fund, trustees can take some calculated risks while ensuring a portion is in safer investments for security.

Question 32

What are the key characteristics and considerations for investing in shares as a type of investment?

Answer 32

Returns:
- Income from dividend payments.
- Capital return from any increase in share value.

Considerations:
Historically, shares have shown capital growth over any 10-year period, with higher returns over a longer investment time frame, though share values can fluctuate and carry risk.

Spreading investments across companies in different sectors and geographies can mitigate risk.

Blue-chip companies are relatively safe, but investing in riskier companies, such as those in emerging markets, may yield better returns but with added risks from less regulation and currency fluctuations.

While shares in public companies are traded on stock exchanges, shares in private companies (Ltd) can also be profitable but typically offer less financial transparency and limited trading options.

Question 33

What are the key features and factors to consider with bonds as an investment option?

Answer 33

Returns:
Income from the coupon (interest on the loan).
Potential capital growth when bonds are sold on secondary markets.

Considerations:
Bonds represent loans to governments or companies, detailing the repayment date and annual interest rate.

Risk levels vary, with gilts (UK government bonds) considered safe due to a low risk of government default.

Bonds generally offer stable income and are viewed as income-producing, with some potential for capital growth in secondary markets.

Question 34

What should trustees consider when investing in property as a form of investment?

Answer 34

Returns:
- Income from rent if the property is let.
- Capital return from the rise in property values over time.

Considerations:
Property values tend to rise steadily, though they may experience occasional sharp downturns, making property a relatively secure but sometimes volatile investment.

Property is an expensive asset, requiring significant capital to purchase and maintain, but can provide stability in an investment portfolio due to steady capital appreciation and rental income.

Question 35

What are the characteristics and considerations for holding cash-in-bank as an investment?

Answer 35

Returns:
- Income from interest payments.
- No capital growth.

Considerations:
Cash-in-bank is the safest form of investment, generating regular but often low income.

While a balanced portfolio should include some cash, long-term investments typically allocate a smaller proportion to cash, as it lacks growth potential compared to other investments.

Question 36

What examples are not classed as investments?

Answer 36

The following are examples of things that are not classed as investments:

(a) Purchasing a ‘run- around’ car. These cars depreciate in value over time and do not
produce income. Purchasing classic cars or luxury, high- end items might produce a capital
return in the long- term, but this would be a very risky form of investment for most trusts.

(b) Placing bets on the horses. You might win occasionally, but the expectation is that most
people lose most of the time. This is not an investment.

(c) The law has historically taken the view that unsecured loans are not investments, and that trustees are not permitted to make unsecured loans unless the trust document contains a very clear, express provision to that effect.

Question 37

What role do express provisions in the declaration of trust play in relation to trustee investments?

Answer 37

• The settlor can specify, within the declaration of trust, the types of investments trustees are permitted or restricted from purchasing.
• If such express provisions are made, trustees must follow them.
• The settlor may also include exclusion clauses, allowing trustees to avoid liability for any losses arising from their investment decisions.
• Without express provisions, the Trustee Act (TA) 2000 outlines the powers and duties trustees have regarding investment decisions.

Question 38

What are the statutory duties trustees must follow when purchasing or reviewing investments under the Trustee Act (TA) 2000?

Answer 38

Trustees must follow specific statutory duties under the TA 2000 when purchasing or reviewing investments, which include:

Standard Investment Criteria (Section 4):
Suitability: Trustees must assess if the investment is suitable for the trust in a two-step process:
- Step 1: Determine if the type of investment is appropriate for the trust (e.g., deciding if shares are a suitable investment).
- Step 2: Assess the specific investment choice within that type (e.g., examining company risks, fund size, sector, geographical exposure, investment duration, beneficiaries’ interests, and tax consequences).

Diversification: Trustees should diversify investments to reduce risks associated with relying on a single investment type or sector.
Example: Purchasing only shares in the oil sector could expose the portfolio to significant risks if that sector faces a downturn, making a more diverse investment mix advisable.

Review of Investments: Trustees must periodically review the investments, applying the standard investment criteria to decide if any changes are needed. The frequency of reviews depends on the circumstances of the trust, with more frequent reviews required during events like economic downturns.

Obtaining Investment Advice (Section 5):
Trustees should seek professional advice before purchasing, reviewing, or selling investments, unless they reasonably conclude that advice is unnecessary (e.g., one trustee is a qualified financial adviser).
The trustees must exercise the investment powers personally, and while advisers may guide them, final decisions rest with the trustees.

Duty of Care (Section 1): Trustees must apply reasonable care and skill in their investment duties, with professional trustees held to a higher standard.

Question 39

What non-statutory duties must trustees consider when exercising investment powers outside of the Trustee Act (TA) 2000?

Answer 39

In addition to statutory duties, trustees must consider the following non-statutory duties:

Impartiality Between Beneficiaries:
Trustees must balance the interests of all beneficiaries fairly, ensuring that no one beneficiary’s needs (e.g., income for a life tenant) are prioritised to the detriment of others (e.g., capital growth for a remainder beneficiary).

Maximising Returns:
Trustees have a duty to secure the best financial return for the beneficiaries, but they are not required to pursue the highest possible return if it involves excessive risk. Financial considerations generally take precedence over personal ethical or moral views.

Ethical Considerations:
Ethical concerns can only influence investment choices in limited cases:
- If an ethical investment yields comparable returns to a morally dubious one.
- If the trust is charitable and the ethical investment aligns with the trust’s objectives or maintains its reputation.
- If the settlor expressly excludes certain sectors which it cpnsiders unethical from investments on ethical grounds within the trust declaration.

Question 40

What are the key points regarding the options for delegation of investment functions by trustees as outlined in the Trustee Act (TA) 2000?

Answer 40

Trustees may delegate investment functions collectively if they feel uncomfortable making investment decisions themselves. The key points regarding delegation options are as follows:

Trustees can delegate to:
- A third party, such as an independent financial adviser.
- One of their own number, provided that trustee is suitably qualified.

Trustees cannot delegate these functions to a beneficiary.
A third-party agent may be compensated with reasonable remuneration.

Question 41

What processes must trustees follow when delegating their investment functions to another party according to the Trustee Act (TA) 2000?

Answer 41

Trustees must adhere to specific procedures when delegating investments, known as ‘asset management functions’:

Written Agreement: Retain the investment agent through a formal written agreement.

Policy Statement: Prepare a written policy statement to guide the agent in exercising asset management functions in the best interests of the trust, demonstrating reasonable care and skill in its creation.

Compliance Term: The agreement must include a provision requiring the agent to comply with the policy statement.

Statutory and Non-Statutory Duties: The agent is bound to the same statutory and non-statutory investment duties that would otherwise apply to the trustees.

Regular Review: Trustees must regularly review the agent’s performance and the effectiveness of the arrangements, including updating the policy statement if necessary or terminating the agreement if the agent is non-compliant.

Suitably Qualified Agent: Selection of the agent must be made with reasonable care and skill.

Liability (Section 23): A trustee is not liable for the agent’s acts or defaults unless they have breached their personal duties, resulting in loss to the trust.

Question 42

Provide a summary of a trustees duties when making investments.

Answer 42

Power of investment. Generally speaking, trustees can purchase any form of investment
for the trust that they could purchase for themselves. The main exception is that trustees
cannot purchase land overseas.

Duties when exercising investment powers. Trustees must select investments with reference to the standard investment criteria (suitability and diversification), they must
review investments from time- to- time, and they must select and review investments with the benefit of professional advice. They must do all this and choose appropriate investments with reasonable care and skill. Trustees must also act fairly between beneficiaries when choosing investments and should try to generate the best financial return for the trust.

Delegation. Trustees can collectively delegate their investment decisions to an agent. They must comply with various duties when delegating these functions down to the agent, such as ensuring that they select a suitably qualified agent and produce a policy statement
that correctly identifies the investment objectives of the trust. So long as trustees comply
with these personal duties, they will not be liable for any losses caused by the decisions
of the appointed agent