The Trustee Delegation Act 1999 : 10 Months on

Nearly a year on from the commencement of this Act, Paul Saunders looks at some of
the practical issues that arise out of its application
(taken from Issue No 14 –  January 2001

 

The Trustee Delegation Act 1999 (`the Act`) came into effect on 1st March 2000 (*). It regulates delegation by individual trustees. Collective delegation by trustees will be governed by the Trustee Act 2000, which is outside of this article.

Origins of the Act
The Act arises out of a Law Commission Consultation paper, issued in 1991. It was appreciated that the provisions of s.3(3) Enduring Powers of Attorney Act 1985 (EPAA), may have been wider than intended by Parliament and gave rise to significant tensions between that Act, s.25 Trustee Act 1925 and s.22 Law of Property Act 1925. s.3(3) was introduced at a late stage of the Parliamentary debate on the EPAA, to rectify the `mischief` identified in Walia v. Michael Naughton Limited [1985] 3 All ER 673 (Walia).

Whilst many anticipated the Act would release these tensions, its effect is both narrower and wider than anticipated.

Main features of the Act
Before discussing the issues, it might help set the scene by briefly running through the provisions of the Act. It is effectively divided into 4 parts –

  • ss.1-3: cover delegation by a trustee with an interest in land
  • s.4: introduces a limited repeal of s. 3 (3) EPAA
  • ss.5 and 6: cover delegation by an individual trustee, generally
  • ss.7-10: clarify certain aspects of an attorney’s authority and the definition of `land` as referred to within the Act

Throughout the Act, the ability of an attorney to exercise any trustee function is subject to any restriction contained within either the power of attorney, or the instrument governing the trust.

(a) ss.1-3: delegation by a trustee with an interest in land

  • to resolve the mischief in Walia, a trustee of any trust of land, who has a beneficial interest in that trust, may delegate his trustee functions indefinitely by power of attorney
  • this extends also to his functions in relation to stocks and shares which represent the capital proceeds of a conveyance of land.

Such delegation may be by:

  • a power specifically made under s.1 of the Act
  • a general power valid under s.10 Powers of Attorney Act 1971
  • an enduring power of attorney

so long as any such power is made on or after 1st March 2000, OR

  • a pre-March 2000 enduring power of attorney where the provisions ofs.3(3) EPAA have been excluded by the Act.

The attorney, when exercising any trustee function, may be called upon to make a formal statement under the Act, confirming that the donor trustee had a beneficial interest in the trust of land as at the time of the attorney’s action. There is no form of statement prescribed in the Act or subordinate legislation.

(b) s.4: a limited repeal of s. 3 (3) EPAA

  • applies to all trusts, not just trusts of land
  • deals specifically with s.3(3) EPAA
  • confirms that s.3(3) EPAA permits the attorney under an EPA to exercise the donor’s functions as trustee
  • repeals s.3(3) EPAA for any EPA granted on or after 1st March 2000, but
  • confirms that for any EPA granted before March 2000 and which is registered, or submitted for registration, before 1st March 2001, s.3(3) EPAA applies until such time as registration is revoked or refused, and also that
  • for pre-March 2000 EPAs which are neither registered, nor submitted for registration before March 2001, s.3(3) EPAA will apply until 28th February 2001

(c) ss.5 and 6: delegation by an individual trustee, generally

The Act -substituted a new s.25 Trustee Act 1925, which clarifies more precisely the terms of that section as substituted by s.9 Powers of Attorney Act 1971, and by which a trustee may delegate the exercise of his functions. The main changes are

  • the omission of s.25(2) Trustee Act 1925, which prohibited the delegation by one trustee to the only other trustee
  • the introduction of a suggested form of power for use by a single donor for a single identified trust (see below).

THIS GENERAL TRUSTEE POWER OF ATTORNEY is made on ( date )

by ( name ) of ( address )
as trustee of ( name of trust )
I appoint ( name ) of ( address )
to be my attorney [from ( date )] [for the period of ( ? )] in accordance with section 25(5) of the Trustee Act 1925
Executed as a deed …………….

Where trustee powers are granted on or after 1st March 2000, the Act revokes the provisions of s.2(8) EPAA, which provided that a power under s.25 Trustee Act 1925 cannot be an EPA.

(d) ss.7-10: aspects of an attorney’s authority and the definition of `land`

  • reinforces the `two trustee rule` for the giving of a valid receipt for capital monies, to take into account the changes brought about by the Act
  • empowers an attorney under a registered EPA (being an EPA granted on or after 1st March 2000 under either s.1 TDA, or s.25 Trustee Act 1925) to appoint a new trustee to act with him in the exercise of any trustee function delegated to him under the power
  • introduces s.22(3) Law of Property Act 1925, which modifies that section to ensure that an attorney under a registered EPA for a trustee may exercise that trustee’s functions (previously, it has been suggested that the effect ofs.22 was to nullify s.3(3) EPAA)
  • confirms that `land` means any interest in land, whether a legal interest or an equitable interest.

Practical aspects of the Act

(a) trusts affected
As mentioned initially, ss. 1-3 of the Act apply only to the delegation of trustee functions by a trustee with a beneficial interest in land. This derives from the concept of a trust of land, as introduced by The Trusts of Land and Appointment of Trustees Act 1996 (TLATA). Although mainly aimed at joint owners of property (e.g. the matrimonial home) it applies to all trusts of land. If a trustee is also a life tenant, tenant for life or remainderman, it would appear that s.1 will apply, provided that the interest is vested (a stipulation of s.1 is that the trustee beneficiary has a beneficial interest at the time the `act is done`). Whilst I am inclined to the view that this would exclude a person with only a future interest in income, this is not expressly stated in the Act.

As s.1 extends to all trusts of land, not just those where the trustees are joint owners for themselves, we have a curious situation where the manner by which a trustee may delegate his authority is dependent upon the nature of his interest, if any, in the trust. A beneficiary-trustee therefore has greater power to delegate than, say, a settlor-trustee. When dealing with a trustee’s attorney, or preparing a power for a trustee, it must be a pre-requisite to establish if the trustee has a beneficial interest in the trust.

It is clear that a s.1 power does not operate where the trust is not a trust of land, so that trustees of personalty trusts may only delegate under the substituted s.25 Trustee Act 1925. So that it is not only necessary to establish if a trustee has a beneficial interest in the trust, but also if it is a trust of land or personalty.

(b) the `two-trustee rule`
As mentioned earlier, the provisions of the Act reinforce the `two-trustee rule`. The Act it makes it clear that a person acting as trustee and as attorney for the other trustee(s); or as attorney for all the trustees, cannot give a valid receipt for capital monies on their own. However, this rule is specifically excluded where the `person` is a trust corporation.

The `two-trustee rule` originates from s.14 Trustee Act 1925, which was amended by TLATA – the words of s.2(a) then being replaced so that the rule now applies to `proceeds of sale or other capital monies arising under a trust of land`. Taken with the reference to holdings of stocks and shares in s.1(6 ) of the Act it would appear that the `two-trustee rule` does applies not only to capital monies arising directly from an interest in land, but to all capital monies arising in a trust of land, such as the proceeds of sale of stocks and shares.

(c) multi-trust or single trust application
The new s.25 Trustee Act 1925 includes a specimen form of trustee power, for use by a single trustee in a single, specified trust. Initial reaction was that this meant a multi-trust power could no longer be granted, as may be used by a professional trustee if he will not be available for a period. However, the Act is not so prescriptive and, so long as a power follows the general form of the specimen, there is no reason why a multi-trust power cannot be granted.

(d) form of powers
Most of the trustee powers that I have seen to date and which purport to be made under the Act have, in my opinion, been invalid as they invariably include reference to `s.25(5) as amended by the Powers of Attorney Act 1971`. It is the addition of reference to the 1971 Act which renders such powers invalid. As these powers have been produced by different firms around the country, there would perhaps appear to be a general misunderstanding.

Staying on the subject of the form of trustee powers, there is no proposal to introduce a prescribed form for trustee EPAs. Accordingly, if a trustee EPA is to be validly granted it must comply with the Enduring Powers of Attorney (Prescribed Form) Regulations 1990. I suggest it would appear to be sufficient to incorporate the relevant wording from the specimen form into an EPA under the alternative of `the following property and affairs`. The only trustee EPA I have seen so far has been an attempt to graft an EPA into the middle of the specimen form, the result offending many of the 1990 Regulations and thus being invalid as an EPA.

Whilst the authority of an attorney under an EPA effective under s.1 of the Act (as.1 EPA) is not limited in time, a trustee EPA is valid for a maximum of 12 months only (or such shorter period as may be specified within the power). The Act does not provide for an extension of that period once the power has been registered and, generally, commentators have not addressed this point. If a trustee loses mental capacity towards the end of the period for which a trustee EPA was granted, as the registration process takes some 6 to 8 weeks, it may not even be completed before the attorney’s power to appoint a new trustee has lapsed. In order to try and avoid this situation arising non-beneficiary trustees might be encouraged to make a series of consecutive trustee EPAs covering, say, a period of 5 years at a time.

(e) transitional period
We are now approaching the end of the transitional period for pre March 2000 EPAs. As already stated, unless the power is registered, or submitted for registration, before 1st March 2001, the attorney’s authority under s.3(3) EPAAwill lapse at the end of February. If the trustee is also a beneficiary of a trust of land, with a qualifying interest, the attorney may exercise the beneficiary-trustee’s functions by virtue of s.1 of the Act. Otherwise the trustee will have to consider the need to grant a trustee power or trustee EPA.

(f) appointment of a new trustee
As identified earlier an attorney under a registered EPA (whether a trustee EPA or a s.1 EPA) can appoint a new trustee to enable him to exercise any trustee function, and not just to satisfy the `two-trustee rule`. When a new trustee is appointed by the attorney under the amended provisions of s.36 Trustee Act 1925, it would appear that s.36(9) cannot apply, so that the incapable trustee might be retired without the need for a separate application under Part VII Mental Health Act 1983. It should also be noted that once a registered trustee EPA has expired, the attorney can no longer exercise the donor’s trustee functions. Accordingly, the appointment of a new trustee will not, on its own, facilitate future dealings in the trust.

It is not clear if an attorney under a registered EPA can, of his own volition, appoint a new trustee (and retire the donor trustee). Whilst such action, of itself, will be the exercise of a trustee function, the scheme of the Act suggests that this might only be undertaken where it is subsidiary to the exercise of another trustee function. A formal request by the beneficiaries under s.20 TLATA would probably suffice, although only where the attorney acts under a trustee EPA.

(g) delegable trustee functions
Throughout the Act, other than in the substitutional s. 25 Trustee Act 1925, reference is made to delegation of trustee functions by a `trustee`. This would appear to exclude

  • a tenant for life, or statutory owner, under the Settled Land Act 1925 and
  • a personal representative.

Whilst this is consistent with references in the EPAA, the provisions of s. 3 (3)were not universally seen to exclude tenants for life or statutory owners from delegating their functions by EPA. The 1999 Act has put this beyond doubt.

It should also be noted that scope of the Act is defined by reference to the date upon which any power is granted. Accordingly, there would appear to be no reason why, say, a general power of attorney granted in 2001 might not be used in connection with the donor’s trustee functions in a qualifying trust of land created in, say 2003. Whilst it may be argued that such delegation could not have been in the donor’s mind at the time he granted the power, this cannot be taken for granted.

Conclusion
Although there was criticism of the Bill, when enacted in July 1999 it was little changed from the draft put forward by the Law Commission in 1994; the principal change being the incorporation of reference to trusts of land, as introduced byThe Trusts of Land and Appointment of Trustees Act 1996. Following the publication of one critical article, Trevor Aldridge, a Law Commissioner during the consultation period, commented in the Solicitors’ Journal that `31 individuals and organisations offered views. They are an impressive list, but even though it includes representative organisation (sic), the topic clearly remained a minority concern.` He went on to suggest that individual practitioners should participate actively in consultation and reform, rather than leave such issues for their professional bodies to pursue. The implication being that, whilst the it was not perfect, there was so little interest in the Bill that no changes need be made.

In summary, the Act gives significant privileges to those trustees who may take advantage of s.1, however, it also requires caution to be exercised

  • by those advising trustees upon the delegation of their trustee functions;
  • by trustees seeking to delegate their functions and
  • by third parties who must control their risk by being satisfied with the validity of the delegated authority for the instructions they receive.

(*) For a detailed review of the provisions of the Trustee Delegation Act 1999, readers are referred to `Trustee Powers of Attorney` by Christopher Parker, published in Issue No. 10 of The Tact Review (January 2000).

This article is based upon a talk given by the author to the Manchester Branch of the Society of Trust and Estate Practitioners on 9th January 2001.

Paul Saunders is the Senior Legal Services Manager for Barclays Bank Trust Company’s Executorship & Trustee Service.