Trustee Duties: Investment Flashcards
What is the starting for trustees when they consider what powers they have in regards to investment?
They must check if there are express provisions in the declaration of trust
- If so, they must be followed
- If none, follow provisions of Trustee Act
What is the most important thing for trustees to do when using investment powers?
As trustees might not be financial specialists, generally, as long as they follow proper procedures, they cannot be blamed if the investments do badly
When investing, what standard of care must trustees meet?
In all instances, trustees must perform these actions, exercising such care and skill as is reasonable in the circumstances
- Objective standard of care and higher standards for professional trustees
What kind of investments can trustees make?
Trustees must purchase authorised investments (shares, bonds, property etc)
Trustees can make any kind of investments as if they were absolutely entitled to the trust property + can purchase UK land for any purpose
- Cannot purchase land overseas without express provision in trust deed
Can trustees loan money to beneficiaries?
They can only do so for the beneficiary to buy a house, provided they obtain a mortgage over the borrower’s land
Can trustees purchase land for beneficiaries?
S8 of the Trustee Act 2000 permits trustees to purchase freehold or leasehold land in the UK for occupation by a beneficiary but s8 involves the exercise of a discretion so it is up to the trustees to decide whether or not to invest trust money in this way
- Beneficiaries cannot control trustees’ discretions
What are the standard investment criteria?
When selecting or reviewing investments, trustees must have regard to the standard investment criteria
1) Consider if the investment is suitable for the trust – will it produce the right kind of return (income/capital or both), what risks might attach?
2) Consider the need for diversification – helps split the risk
- Even buying one type of investment in many companies might not meet the requirements
Do trustees need advice when investing?
When selecting or reviewing investments, trustees must obtain and consider proper advice
- Don’t have to take advice if it is unnecessary or inappropriate (ie if trustees qualified themselves)
Adviser can give advice, but trustees must exercise their powers personally and make the decisions as what to or to not invest in
How often must trustees review investments?
Trustees must review investments from time to time
- No set period and timing will be a question of fact in each case
How should the trustees act between beneficiaries when investing? Can trustees take non-financial considerations into account?
Trustees must seek the best financial return and must treat all beneficiaries fairly
- Financial considerations should take precedence over personal, ethical views etc of trustees and beneficiaries
- Charities don’t have to follow that – they can follow ethical concerns if they are wary the charity might lose followers otherwise
- They need to strike a fair balance between beneficiaries who may be interested in income and those who may be interested in capital
If the trustees decide to appoint an agent to make decisions about investments, what must they consider when appointing them?
Trustees can select a suitably qualified agent to carry out asset management functions – selection must be done with reasonable care and skill
Trustees must appoint the agent in writing and must provide the agent with a written policy statement
- This statement gives guidance on how they can exercise investment powers in the best interests of the trust – must be created with reasonable care and skill by trustees
- Agreement should include a term that the agent will comply with policy statement
If the trustees decide to appoint an agent to make decisions about investments, what must they consider during the appointment?
1) Agent will follow same investment duties as trustees would (above)
2) Trustees must regularly review the agent’s actions
- Should dismiss the agent if things aren’t working
3) Trustees are not liable for defaults of the agent, but trustees may remain liable for breach of the above appointment/process duties
- Not vicariously liable like they are for attorneys
- If trustees comply with their duties when appointing them and regularly review them, they won’t be liable
