A Century of Trusts

Robin Towns LL.B   – Solicitor and Sometime Legal Adviser to Lloyds Private Banking
(taken from Isssue No 10 –  January 2000)

 

How Many Noughts – Two or Three?

Yes, this is, or at least is intended to be, a serious question: it is not simply that I am a lawyer with a less than normal proficiency in terms of numeracy skills. The apocalyptic date 1st January 2000 has already inspired – and may well continue to generate – a plethora of articles and books, not to mention television and radio programmes, on the coming of the third millennium and the ways in which life today differs from that at the end of the first. Where that is not possible, historians, both professional and amateur, have treated that precise date – whether rightly or not is a debate into which I am not prepared to enter – as the start of a new century and have compared and contrasted current circumstances with those in 1900. The origin of the law of trusts and of the powers and duties of trustees may be so old as to be incapable of precise identification in terms of a commencement date but there is no evidence to suggest that the contemporaries of Ethelred, whether or not ill prepared, or of Canute, no matter how trusting, were trustees in anything other than the general Biblical sense of stewards for future generations. It is thus necessary to look back to 1900, rather than to Y1k, for a meaningful, and hopefully bug-free, comparison – or, rather, ‘at or about’ that date, given that (to misquote Lord David Cecil in his biography of Sir Max Beerbohm) the Muse of History is not so considerate to her servants as to arrange that the successive phases of England’s development should coincide exactly with the start of successive centuries.

The Business of Trusts

‘The law governing the powers and duties of trustees has not kept pace with the evolving economic and social nature of trusts’: thus confesses the Law Commission in the opening paragraph of its Report on Trustees’ Powers and Duties published in July 1999. Trusts, so says the Report, are no longer ‘confined to the world of wills and family settlements (although they are clearly very important in those contexts) – they also have considerable, and increasing, relevance to many commercial enterprises from international financial transactions to the management of pension and other investment funds’ as well as to charities.

Trust law a century ago was almost totally concerned with wills and family settlements – especially marriage settlements to protect the fortunes and expectancies of married women against bounty-hunters and their creditors – plus, of course, charities. That is no to say, however, that the law of trusts was not as important then as it is now. Were any evidence necessary of the importance of trust law to the lay public at that time it is sufficient to refer to the Report of the Select Committee of the House of Commons appointed in 1895 to ascertain whether further legislative enactment might be made for securing the adequate administration of private trusts. The Committee estimated that as much as 5% of the whole capitalised value of property, real and personal, comprising the wealth of the U.K. –some five hundred millions sterling in then current values – was held on trust. This assertion led one contemporary textbook writer (Dr. W. G. Hart, LL.D., in A Digest of the Law relating to Private Trusts and Trustees published in 1909) to contend that ‘there is no doubt that thousands of people in this country are at the present moment trustees: still larger numbers are beneficiaries; almost everyone who has any property at all is at some time of his or her life concerned, in the one capacity of the other, with this branch of the law’.

Contrasting Views of the State of Trust Law

Trust law was, as now, regarded in the early years of the twentieth century as for the most part settled but, unlike the position exposed by the Law Commission in 1999, was also regarded in substance as satisfactory enough, having regard to what were then recent amendments. What was exercising law reformers then – as also now – was the chaotic expression of the law in countless reported decisions as modified, extended and amended by a large number of Acts of Parliament. In such a state of the law, thundered Dr. Hart, ‘it is not to be wondered at that the lay trustee should often err from ignorance of his obligations and even the lawyer can easily go wrong’. The remedy then sought was codification, along the lines not only of the Bills of Exchange Act 1882 and the Marine Insurance Act 1906 but also of the Indian Trusts Act 1882. A Trusts Bill was even drafted by Dr. Hart and introduced in the House of Commons in 1907 and again in 1908. Having reached no further than a second reading the Bill was referred to a Select Committee – ever the kiss of death – which having taken evidence and soundings came to the expected conclusion that such was the opposition to codification the Bill could not be supported. Notwithstanding the Acts mentioned, and a few (very few) others at about the same time, codification seems to be inimical to the British (or at any rate English) psyche. It has never been achieved in the trust context. This Bill made a very creditable attempt, in clause 1, to define a trust in a way which sought to draw on the best parts of textbook and judicial definitions; the author admitted, however, that the definition of fundamental terms has always proved a matter of difficulty for lawyers. There is much truth in the assertion that ideas which seem to be the most simple are really the most difficult to grasp with certainty and express with accuracy. There is still – possibly wisely – no general statutory definition of a trust.

Legislation

What was, of course, achieved in the property legislation of 1925 was, not codification, but, largely, a consolidation of the existing law with an update in terms of terminology. There was some, but not overmuch, introduction of new provisions: sections 25 (delegation), 32 (power of advancement) and 33 (protective trusts) of the Trustee Act 1925 were all new – and very important innovations – but other major provisions like the power of investment in section 1 are largely re-enactments of existing, pre-1900, statutes. It was not until 1961 that more modern investment powers were obtained and it is those which have for some years now been regarded as overdue for reform. With the important exception discussed below there has been during this century piecemeal legislative reform of the law in relation to private trusts, mainly of the timid, ‘too little too late’, variety: obvious examples are the Variation of Trusts Act 1958, the Perpetuities and Accumulations Act 1964 and the Trusts of Land and Appointment of Trustees Act 1996. Charities have been better, if again laggardly, served: the long overdue reforming Act of 1961 was itself modernised with a vengeance by the legislation of the early 1990’s. Law reform in the area of trusts is often neglected, squeezed out by a full legislative timetable of perceived more politically desirable Bills: there are unlikely to be public demonstrations demanding the reform of the perpetuities and accumulations provisions, which, by and large, have their roots at the beginning of the nineteenth century. Nevertheless, Parliament, if not also equity, is not past the age of child-bearing and the recent Queen’s Speech promises a new Trustee Act 2000 which will, hopefully, give trustees statutory powers to cope with dematerialised securities, the employment, both nationally and internationally, of agents, nominees, custodians and discretionary fund managers as well as to invest in land, to insure the trust property adequately and to be remunerated.

The Average Trustee

If one tries to picture the average trustee of 1900 I imagine that he – and the vast majority of trustees was almost certainly male and probably also middle-class and middle-aged – was either a layman – a member of the family – or a professional – almost certainly a solicitor. One thing is absolutely certain, namely that he was a person, an individual: the day of the corporate trustee had yet to dawn, or at any rate to flourish in any meaningful manner. It was only on 1stJanuary 1908, after many years of fruitless attempts, that the Public Trustee (aided by two clerks) opened his doors for business, bringing in his wake the concept of the trust corporation. It was during the first decade of the twentieth century that most of the banks and insurance companies altered the objects clause of their memorandum of association or formed subsidiary companies to enable them to act as trustees and personal representatives. Even if the Public Trust Office itself has not enjoyed a totally unblemished record of achievement or covered itself with glory in recent years and may soon be broken up and some of its business ‘privatised’, the introduction and establishment of the trust corporation concept have been of inestimable benefit – not just the benefit of the corporations themselves.

Companies as Trustees

Problems, however, remained for a company wishing to act as trustee or, worse still, wishing to act as executor of a will. Despite the Interpretation Act 1889 there was, until a court decision in 1905, considerable doubt whether the word ‘person’ in a document, as distinct from an Act of Parliament, could include a corporation aggregate. Until remedial legislation was passed in 1920 a company could not obtain probate in its own name but, on each and every occasion that a grant was sought, had to appoint under its common seal one or more individuals, known as ‘syndics’ (usually employees of the company), to apply for and obtain a grant of letters of administration for the use and benefit of the company, viz. the type of grant usually given to someone who responsible for the care of an infant or person of unsound mind. The grant, being of administration and not probate, required the usual bond and sureties and it was only in 1896 that the Court confirmed that the company itself was acceptable as the sole surety. The syndic system was anomalous and cumbersome: since the grant was made to the syndic what effect was a remuneration clause in the will in favour of the company and what if the syndic died or left the company’s service before the administration was completed? The system prevented a company from acting as joint executor with a private individual: an Act of 1899 had cured the difficulty of joint trusteeship but not of joint executorship because grants of probate and administration could not (and still cannot) be issued at the same time in the same estate.

Trust Corporations

Having been released, by statute, from the thraldom of the syndic system in 1920, companies which could also claim the status of trust corporations came of age in 1925. The property legislation of that year – and not just the Trustee Act – at last recognised that, for many (but not all) purposes, the trust corporation was as good as, if not better than, two individual trustees. Yet the trust corporation was still not quite on a par with the Public Trustee: he had a statutory power to charge remuneration for his services whereas the trust corporation had (and still has) to rely on either a specific and sufficiently wide provision in the will or trust instrument or the authority of all the beneficiaries (or, in practice, of the principal, adult, beneficiaries) or the approval of the court. On the other hand, the Public Trustee – but not the trust corporation – was barred from accepting trusts involving the carrying on of a business and exclusively charitable trusts. Notwithstanding that the trust corporation has not – and never will – displace the individual trustee and personal representative in terms of the number of trusts and estates administered by each of them respectively – and whatever may be their future in the next century – the trust corporation concept is one of the most important and significant developments of the twentieth century. It remains the case, however, that he trust corporation, albeit a person in point of law, is still not an individual, as some trust corporations found to their dismay and cost in the context of the retirement and appointment of trustees until this legislative trap in sections 37(1)(c) and 39(1) of the Trustee Act 1925 was belatedly amended in 1996 by the Trusts of Land and Appointment of Trustees Act (paras. (12) and (13) of Schedule 3).

Changes in Litigation

The courts have not, of course, been idle in the twentieth century but the main principles in the law of trusts had already been settled either before or during the nineteenth. Lawyers in the nineteenth century and the early years of this century were much pre-occupied with matters of the construction of wills and trust documents: a perusal of the list of cited cases in such books as Jarman on Wills, last published in 1951, will show how many of the authorities date from those periods. The fact that there has not been, and it is unlikely that there ever will be, a new edition of Jarman is not without significance. Although, perhaps surprisingly in itself, it has taken as long as the last decade of the twentieth century to obtain authoritative judicial decisions on the efficacy and scope of clauses in trust documents purporting to limit the liability of trustees for negligence etc, much of the involvement of Lincoln’s Inn in the past fifty years has centred around the use – and abuse – of trusts as instruments of tax avoidance.

The Importance of Practitioners

Apart, possibly, from the (largely very recent) developments in the law of constructive trusts – including its considerable influence on the whole of the judge-made law of restitution – the major extra-statutory contributions to the development of the law of trusts during the last hundred years have been achieved by practitioners rather than by the courts: it is they, the practitioners, who have supplemented the law by ensuring that in all well drawn trust instruments trustees possess all necessary powers; it is they who have borne the brunt of coping with the effects of fiscal legislation having first tried their best to understand it. Without seeking to minimise the problems facing the Victorian and Edwardian professional and lay trustee and personal representative – the then recently introduced system of estate duty on top of legacy and succession duties cannot have been mastered overnight – they at least did not also have to cope with capital gains tax, VAT etc as well as income tax and, from time to time, betterment levy and development land tax. They were severely, some might say harshly, treated by the courts if they committed a breach of trust or devastavit but at least they did not have complaints schemes, ombudsmen, and the law of professional negligence to contend with as well. Trustees, and their advisers, may – or may not – have had an easier life a century ago but it was certainly a different life: just think of the advances in technology over the period which apply to all professional life – from copperplate handwriting on parchment to typewriters to word processors and computers, from shorthand dictation to dictaphones to voice mail, from carbon paper to photocopiers and printers, from the post to telex to fax to e-mail. We may bemoan the frenzy generated by such advances – and the loss of the excuse of postal delays one ‘damaged in enemy action’ become no longer credible – but would many – or any – of us really want to turn the clock back?

A Matter of Attitude

Historically, the legal profession – and those with similar interests – have had more than their fair share of Luddites and less than the average number of reformers. The issue of the Solicitors’ Journal for 11th August 1900 reported a proposal by the Principal Probate Registry that, instead of submitting a copy of the testator’s will engrossed on parchment, the copy could be brought in ‘written on paper of a uniform size and shape’; further, it was proposed that the grant itself be produced on paper rather than parchment. `What`, bemoaned the editor of that august publication, `shall we come to next? … We suppose that we shall next have typewritten engrossments allowed. We confess that we are at a loss to understand the necessity or advisability of the proposed change and we hope that, on consideration, the proposed alteration may be abandoned`. After a more than decent interval for ‘consideration’ – certainly longer than most periods allowed for consultation these days – the President of the Probate, Divorce and Admiralty Division (how easily that name still trips off the tongue to those who are sufficiently long in the tooth!) announced that the proposal would proceed and that, on and after 1st January 1901, ‘special’ paper would be substituted for parchment for grants and will engrossments, such paper being ‘as durable as parchment and for all practical purposes equally tough’. Dismayed by this outrageous piece of judicial intransigence the editor of the Journal sought, like the last of the dinosaurs, to have the final word: `we shall certainly be curious to see this wonderful material, which must be essentially different from any paper ever hitherto produced; we venture to predict that, after a few years’ trial, the complaints of tattered engrossments and disannexed grants will become so general that the new rules will have to be rescinded`. That prediction, not surprisingly, went unfulfilled and we now have computer-generated grants! The sky has not fallen in. One hopes that the legal and para-legal professions are not only rather more receptive these days to ‘progress’ but, indeed, are in the forefront suggesting and advocating reforms to keep pace with the fast-changing world of the third millennium.

Robin Towns LL.B
Solicitor