Trustee Duties: Investment Flashcards
What are a trustee’s duties of investment?
They must duly and promptly invest all trust capital and income not being distributed to or applied for beneficiaries.
What should trustees consider when tailoring their investment strategy?
What sort of interests do beneficiaries have?
What are the circumstances of the individual beneficiaries?
How long will the trust last for? Are they investing for the short-term or the long-term?
What is the size of the trust fund?
What is the tax position of the trust and the beneficiaries?
What is the general rule for making risky investments?
The longer you have to invest, the more risk you can afford to take in the early years.
How does the size of the trust fund impact investment strategy?
The larger the trust fund, the greater opportunity there
is to buy a mixture of investments (known as ‘diversification’) and the more risk the trustee can afford to take when investing part of that fund.
What are the common types of income return from investments?
Dividend payments from shares
Coupon payments from bonds
Rental income from property
Interest from cash-in-banks.
What are the common types of capital return from investments?
Rise in the value of shares.
Capital generated when selling bonds on the secondary market.
Rise in property values.
No capital growth for cash-in-banks.
What examples of things that are not classed as investments
Purchasing a ‘run-around’ car which depreciates in value over time and does not produce income.
Placing bets on the horses.
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.
What types of investments are authorised under TA 2000?
Any kind of investment that they could make if they were absolutely entitled to the assets of the trust.
For investments in land, a trustee may acquire freehold or leasehold land only in the UK either as an investment; for occupation by a beneficiary to for any other reason.
What are the statutory duties of a trustee when purchasing investments?
The investments must be suitable for the trust.
There is a need for diversification.
Trustees must review the investments of the trust from time-to-time.
What is the two-step process for ensuring that investments are suitable for the trust.
Under step 1, the trustees should consider whether the trust should be investing in that type of asset.
step 2 requires trustees to consider whether that particular asset is a good choice.
What is required when trustees review investments?
If the trustees are in the early days of managing a long-term trust, they should review the investments every six months. However, if there is an economic downturn (eg a stock market crash), then the trustees should review the investments as quickly as possible.
Trustees should obtain and consider proper investment advice from someone the trustees reasonably believe to be qualified to give such advice unless the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate to do so.
What are the non-statutory duties of a trustee when purchasing investments?
Trustees must act impartially between beneficiaries.
In their choice of investments, trustees must strike a fair balance between the needs of all the beneficiaries
Trustees must secure the best return for the beneficiaries
How must trustees act impartially between beneficiaries?
They must balance between the needs of a life tenant (who wants income) and the needs of a remainder beneficiary (who wants capital appreciation.)
Not allowing one beneficiary the use of trust property without compensation for another beneficiary.
What is required for trustees to secure the best return for beneficiaries?
This does not necessarily mean that the trustees must secure the highest return as that might entail accepting too much risk for the trust.
Financial considerations must take precedence over other considerations such that the trustees should not be guided by their own ethical or moral views about investments.
When may trustees take ethical considerations into account?
If an investment in an ethical concern is likely to yield as good a return as an investment that is more morally dubious, the trustees can invest in the ethical concern
if the trust is charitable, the trustees can properly refuse to invest in things that might be at odds with the charitable purposes of the trust and that might alienate the charity’s supporters
the settlor can set out in the declaration of trust that trustees should not invest in specific sectors that the settlor considered to be unethical
