Trustee Duties: Investment Flashcards
LISt the objectives the trustees will consider when deciding how to invest trust property.
1) What sort of interests do the beneficiaries have;
2) What are the circumstances of the individual beneficiaries;
3) How long will the trust last for? Are they investing for the short term or the long term?
4) Size of the turns fund;
5) Tax position of the trust and the beneficiaries.
What is the income and capital of shares which are purchased as an investment by the trustees?
The dividends will be the income arising from the shares.
The capital will be the value of the share them selves.
What risks should be considered by trustees who invest tryst money in shares?
The longest you have one invested in shares, greater the chance of the capital value increasing over this long period.
They are not generally as suitable as a short term investment.
It is worth spreading investment across shares in multiple companies operating in different lines of business and in different regions globally to avoid
What is the income and capital of money invested in bonds?
The income is the coupon (ie the interest which runs on the loan.
The capital is the money generated when the bonds are sold on secondary markets.
What needs to be considered when investing trust money in bonds?
Bonds are provided in exchange for money lent to gov and companies.
Bond states repayment amount and interest paid back to investor each year.
some are riskier than others. Those which are fans to the gov are safer and secure.
What is the income and capital of money invested in a property?
The income is any rent paid by tenants if let out.
Capital is the value of the property as it rises.
List some things which are not classed as investments of trust property.
Trust money which is invested in buying:
1) A run around car (they depreciate in value over time).
2) Placing bets on horses (or any gambling).
3) Unsecured loans. trustees cannot use money to make unsecured loans unless trust document expressly gives them this power.
Which two main express provisions can be included in the trust document which heavily affect the investment duties of the trustees?
Settlor can include clauses which exclude liability for any losses arising out of the investment choices they make.
The test document may also expressly identify forms of investment the turtles can purchase and those they cannot.
Explain the general power of investment under s3 TA 2000.
Trustee can make any king of investment that they could make if they were absolutely entitled to the asset (aside from investments in land which are covered by s8).
Briefly explain the s8 TA 2000 power to invest in land.
Trustee may acquire freehold or leasehold land in the UK either:
1) as an investment;
2) for occupation by a beneficiary; or
3) for any other reason.
They CANNOT purchase land outside the UK under s8.
List investment criteria under s4 TA 2000 which sets out the statuary duties of investment.
1) Investment must be suitable for the trust; and
2) The need for diversification (solar as appropriate).
Explain the statutory duty that the investment must be suitable forth trust.
Two step process.
Say for example trustees considered investing in shares.
Step 1 would be for the trustees need to consider whether the trust should be investing in shares.
Step 2 then requires them to decide whether the shares of that particular company are a good investment (including the size of the investment and the potential risks involved).
Explain the statutory duty of diversification of investment.
Trustees must make surety investment is sufficiently diverse.
Eg investing all money into three energy companies would likely be deemed insufficient for the purposes of diversification.
Trustees must also review the investments from time-to-time. When doing so they must have regard to the standard investment criteria, assessing whether the investments should be varied.
Explain the duty to review investments from time to time.
Trustees must also review the investments from time-to-time. When doing so they must have regard to the standard investment criteria, assessing whether the investments should be varied.
Once every 6 months is likely to be sufficient for a long term trust, however if there is an economic crash, checking investments more regularly would be considered necessary.
Explain the duty under s5 to consider proper investment advice when thinking of selling/purchasing investments.
Trustees should obtain ad consider proper investment advice form someone the trustees reasonably believe to be qualified to give such advice.
Trustees must act reasonably when selecting an adviser.
The adviser will advise, but the trustees must make their own decisions.
Give an example of a situation where it would be deemed reasonable not to consult a professional adviser on the purchases of investments.
Where one of the trustees is a professional financial adviser.
What is the s1 TA 2000 duty?
Duty to exercise reasonable care and skill in relation to the investments they make.
Professional trustees (eg solicitors) are held to a higher standard.
What are the non-statutory duties the trustees must exercise when investing?
1) Must act impartially between beneficiaries; and
2) They must secure the best return for the beneficiaries.
Explain the non-statutory duty to act impartially between beneficiaries.
Investments must strike a fair balance between the needs of al the beneficiaries (eg life tenant wanting income) and remainder beneficiaries (eg those who are entitled to capital).
Allowing a beneficiary to use trust property without compensation for the other would also breach this duty.
Explain the non-statutory duty to secure the best return for the beneficiaries.
vernally means to secure the best financial return for then beneficiaries. Financial considerations must therefore take precedence over the other considerations.
They will not be guided by their own moral or ethical views with regard to investments. However it may be relevant in the following circumstances:
1) if ethical investment is more likely toiled return than the morals dubious investment, the trustees can invest in the ethical one.
2) if the trust is charitable, trustees can refuse to invest in things which conflict with charitable purposes of the trust/ alienate charity’s supporters.
3) settlor can set out in trust document the sectors trustees should not invest in for ethical reasons. This is binding on the trustees.
List the processes the trustees must comply with when delegating their investment powers to someone else.
1) Third party must be appointed by written agreement;
2) They must prepare a written statement (policy statement) giving guidance as to how agent should exercise their asset management functions in the best interests of the trust.
3) Written agreement. under which agent is repainted but include term that agent will comply with policy statement.
4) Trustees must regularly review arrangements under which the agent is acting. that may include revising the policy statement, or ending the renter if the agent is not complying.
5) Trustees MUST select a suitably qualified person to delegate asset management functions to. the selection MUST be made with reasonable care and skill.
Trustees will not be liable for breaches by the agent so long as the above are satisfied.
Explain delegation if investment powers.
Trustees can collectively delegate investment functions.
They can delegate to either a third party, or one of the trustees (so long as that trustee is suitably qualified to make investment choices). They cannot delegate to a beneficiary.
Third party agent can be paid reasonable remuneration for their services.
Are trustees liable for breach of investment functions by a third party properly appointed?
No.
Under s23 TA 2000 provided the trustees have complied with their duties and properly appointed the agent, they will not be liable.
