Trust Duties - Investment

Question 1

Common investment types

Answer 1

1. Shares : income=dividend; capital = any rise in value of shares
2. Bonds: income=coupon; capital= price when sold on second market (primary as income producing investment)
3. Real estate: income=rentl capital= rise in property value
4. Cash in bank: income=interest, capitnal = no capital growth.
5. E.g. of things not classed as investment:
   (a) run around car: depreciate in value, no income. Classic or high end car might produce capital returns but risky
   (b) Placing bet on horses
   (c) Unsecured loan: trustees are not permitted to take unsecured loan unless trust document expressly permits.

Question 2

Authorised investments

Answer 2

1. Trustee can make any kind of investment that they could make if they were absolutely entited to the assets of trust (s3 of TA2000) save for investment in land covered below.
2. A trustee may acquire freehold or leasehold land in UK(not abroad) either:
   (a) as investment
   (b) for occupation by beneficiary
   (c) for any other reason

Question 3

Statutories duties when purchasing investments

Answer 3

**Statutory duties: **
1. must have regard to standard investment criteria (s4 TA 2000):
(a) investment must be suitable for trust
(b) need for ** **
2. Trustees must review the investment from time to time (e.g. 6 months in normal, in economic downturn, as quickly as possible)
3. When reviewing investment or thinking of selling/purchasing investments, trustee should obtain and consider proper advice from qualified experts, unless the trustee reasonable conclude that it is not necessary (e.g. he is financial adviser).
4. Duty of care

Question 4

Non-statutory duties in exercising investment powers

Answer 4

1. Must act impartially between beneficiaries: in choice of investment must strike a fair balance between need of all beneficiaries (e.g. life tenant want income, remainder wants capital)
2. Must secure best return for beneficiaries : generally financial considerations must take priority over other consideration.
3. In some circumstances, trustees may take ethical consideration when choosing investment:
   a) if an investment in ethical concern is likely to yield as good return
   b) if trust is charitable, trustee can refuse to invest in things that might be in consistent with charitable purposes
   c) settlor can set out in declaration of trust that trustee should not invest in specific sectors that settlor considered unethical

Question 5

Delegation of trustees investment functions

Answer 5

1. Trustees can collectively delegate investment function to either a 3rd party or one of them (if such trustee is suitably qualified), but cannot delegate to a beneficiary.
2. A third party agent can be paid reasonable remuneration
3. Process for delegation:
   a) retain investment agent by written agreement, which include a term that agent will secure compliance with policy statement
   b) must exercise reasonble care and skill in prepare together a written statement (policy statement) gives guidance to how agent should exercise their asset management functions
   c) agent must comply with same investment duties that apply to trustees
   d) trustees must regurlarly review arrangements under which agent is acting including: consider to revise and update policy statement, asses whether agent comply with policy statement, and bring the retainer to end if they believe that the agent does not comply.
   e) Trustees mus select with care and skill a suitably qualified agent

Question 6

Will the trustees be liable for any act or defaults of agent?

Answer 6

No, unless the trustees has breached any personal duties in delegating an agent (s23TA 2000)