TRUSTEE POWERS OF ATTORNEY

Christopher Parker
Halliwell Landau

 

Introduction

The Trustee Delegation Act 1999 received the Royal Assent on 15 July 1999 and is expected to come into force on 31 March 2000.  According to its long title, the threefold purpose of the Act is to

(1)   amend the law relating to the delegation of trustee functions by power of attorney;

(2)   amend the exercise of trustee functions by the donee of a power of attorney; and

(3)   make provision about the authority of the donee of a power of attorney to act in relation to land.

The changes largely implement recommendations proposed by the Law Commission in its report `the Law of Trusts: Delegation by Individual Trustees (1994) Law Com No 220`.

In order to understand why changes to the law were required it is necessary to consider the three types of power of attorney for which the legislature had already made provision by incremental enactments.  (Of the three types of existing powers, (viz general, trustee and enduring) currently under consideration it should be noted that purists might claim that there are really only two as an enduring power is essentially an extension of a general power or (subject to the repeal of Section 2(8) of the 1985 Act) a trustee power.)

 Trustee Powers

First, there was the trustee power of attorney under Section 25 of the Trustee Act 1925. Originally this provided a trustee intending to remain out of the United Kingdom for a period exceeding one month (as well as a tenant for life or statutory owner) with power to delegate by power of attorney the execution or exercise of all or any of the trusts, powers or discretions vested in him whilst he was absent abroad.  This statutory power, liable to be displaced by a contrary intention and effective subject to the terms of the trust instrument, was an exception to the rule that in the absence of an express power conferred by the will/settlement an attorney may not delegate (delegatus non potest delegare) unless authorised by all beneficiaries of full age and capacity who were collectively entitled to the entire beneficial interest under the trust.

With effect from 1 October 1971 this limited statutory exception to the general rule was extended by Section 9 of the Powers of Attorney Act 1971 to enable a trustee (as well as a personal representative, tenant for life or statutory owner) to delegate the execution or exercise of the trusts, powers and discretions for a period not exceeding twelve months, whether or not the reason for the delegation was absence abroad, provided that the donee of the power of attorney was not the only other co-trustee of the donor (unless a trust corporation) and before or within seven days of the grant the donor gave written notice (specifying the date on which the power was to come into operation and its duration, the donee of the power, the reason why the power was given and the trusts, powers and discretions delegated where some only were delegated) to the persons other than himself who had the power of appointing a new trustee and each of his co-trustees.

Within the specific context of trusts of land the limited power of trustees for sale to delegate their powers of management under Section 29 of the Law of Property Act 1925 was repealed and, with effect from 1 January 1997, Section 9 of the Trusts of Land and Appointment of Trustees Act 1996 substituted a new statutory power to enable trustees of land to delegate by power of attorney within the terms of Section 25 of the Trustee Act 1925 any of their functions as trustees which relate to the land.  This power can be exercised in favour of any  beneficiary of full age who is beneficially entitled to an interest in possession in land subject to the trust.  The power of attorney, which cannot be an enduring power, is required to be given by all the trustees jointly and (unless expressly irrevocable and to be given by way of security) could be revoked by any one or more of them.  It could also be revoked by the appointment as a trustee of a person other than those by whom it was given (though not by any of them dying or otherwise ceasing to be a trustee) or by the donee ceasing to be beneficially entitled to an interest in possession in land subject to the trust, but so that any separate authority of a beneficiary who remained beneficially entitled to an interest in possession in land would not be affected.  This power of delegation might be given for any period, even if indefinite, but the beneficiaries to whom functions had been delegated are not to be regarded as trustees for any purposes other than those which relate to the land subject to the trust.  Essentially, this specific reform, limited in favour of beneficiaries who had a present vested interest in the land (not therefore affecting a vested or contingent remainder), was intended to mirror the powers of a tenant for life under a strict settlement in the case of settled land.

General Powers

Second, the general power of attorney under Section 10 of the Powers of Attorney Act 1971, which had to be expressed in the form set out in Schedule 1 or to like effect thereto, enabled a donor to grant by general power of attorney to one or more donees (and if more than one jointly or jointly and severally) authority to do on behalf of the donor anything which he could lawfully do by an attorney, except for functions which the donor had as a trustee or personal representative or as a tenant for life or statutory owner; see Section 10(2).

Enduring Powers

Third, an enduring power of attorney under Section 3 of the Enduring Powers of Attorney Act 1985, which  had to be granted by an instrument in the form prescribed by regulations, enabled a donor to confer by power of attorney on the donee authority to do on behalf of the donor anything which the donor could lawfully do by an attorney in relation to all or a specified part of the donor’s property and affairs, or authority to do specified things on the donor’s behalf subject to any conditions and restrictions which the donor thought fit to impose, including the execution or exercise of all or any of the trusts, powers or discretions vested in the donor as trustee; see Section 3(3).

Development by Incremental Enactment

Although the point need hardly be stated it is unnecessary within the present context to consider other forms of power of attorney such as, for example, those powers of attorney which are used by probate practitioners or company lawyers.  Within the context of trustee powers of attorney the limitations on the scope of the authority originally conferred by Section 25 of the Trustee Act 1925 compelled change with the passage of time, leading to the amendments brought about by Section 9 of the Powers of Attorney Act 1971.  However, this did not address the increasingly common inconvenience experienced by beneficial co-owners of real property, usually husband and wife, where one could not delegate to the other all or any of the trusts, powers and discretions vested in him/her as trustee.  Moreover, it was held in Walia -v- Michael Naughton Ltd [1985] 3 All ER 673 that this inconvenience could not be circumvented by the grant of a general power of attorney under Section 10 of the 1971 Act.  As a result, Section 3(3) was hastily included within the 1985 Act to enable a beneficial co-owner of real property to delegate to the other co-owner the execution or exercise of all or any of the trusts, powers or discretions vested in him/her as trustee and, without the concurrence of any other person, to give a valid receipt for capital or other money paid.

 Effect of the Existing Statutory Framework 

The overall effect of the incremental enactment of these three types of power of attorney thus created a confusing statutory framework of provisions which was both overlapping and inconsistent.  Apart from its enduring quality the authority conferred by a power made under Section 3(2) of the 1985 Act overlaps with the authority conferred by a power made under Section 10(1) of the 1971 Act.  However, whilst Section 10(2) of the 1971 Act makes it clear that a general power does not apply to functions which the donor has as a trustee or personal representative or as tenant for life or statutory owner, the authority conferred by Section 3(3) of the 1985 Act, apart from its enduring quality, overlaps with the authority conferred by a trustee power granted under Section 25(1) of the 1925 Act but produces an inconsistency insofar as Section 2(8) of the 1985 Act prevents a trustee power from being an enduring power on the one hand yet does not require an enduring power to abide by the safeguards (if maximum duration is ignored) imposed on trustee powers by Section 25 of the 1925 Act on the other hand.  As the consequence, the authority conferred by Section 3(3) of the 1985 Act has provided a means by which trustees, whether or not beneficial co-owners of real property, can circumvent the requirements of Section 25 of the 1925 Act, thereby threatening to render trustee powers (and the statutory safeguards) redundant.

Structure of the 1999 Act

It is only with the benefit of a knowledge of this background that the purpose of the Trustee Delegation Act 1999, as summarised in the long title, may be understood.  The Act itself consists of thirteen Sections (and a Schedule of repeals), which may be divided into four distinct parts:-

(1)   Sections 1 to 4 deal specifically with the problem of a beneficial co-owner of real property who is required to exercise a trustee function;

(2)   Sections 5 and 6 amend Section 25 of the 1925 Act and provide a new form of trustee power of attorney;

(3)   Section 7 to 9 make ancillary provisions relating to trustee attorney use; and

(4)   Sections 10 to 13 deal with matters of interpretation, repeal and commencement.

It should be noted that there are no provisions which amend, or even refer to, the trustee power of delegation relating to the management of land conferred by Section 9 of the 1996 Act.  Likewise there are no amendments of, or references to, the trustees’ power to employ an agent to carry out any act required to be done in the execution of a trust under Section 23(1) of the 1925 Act, though it ought to be appreciated that the so called collective power of delegation is the subject of separate Law Commission recommendations for reform (Law Com No 260).

Part I: Exercise of Trustee Function by Beneficial Co-Owner

As to the first part, Section 1(1) provides as follows:

`The donee of a power of attorney is not prevented from doing an act in relation to: –

(a)            land,

(b)           capital proceeds of the conveyance of land, or

(c)            income from land,

by reason only that the act involves the exercise of a trustee function of the donor if, at the time when the act is done, the donor has a beneficial interest in the land, proceeds or income.`

Effect of Section 1(1) of the 1999 Act

Thus, it will be seen that Section 1(1) of the 1999 Act effectively extends the statutory exception, conferred by Section 25 of the 1925 Act, to the rule that a trustee may not delegate his trust, to acts by a person with a beneficial interest in land, the capital proceeds of a conveyance of land or income from land, in the exercise of a function which he/she has as trustee under a power of attorney which may be either a general power or an enduring power.  In other words a beneficial co-owner may now grant power of attorney to another, even if the only other, beneficial co-owner.

However, one of the more serious flaws in the drafting of the 1999 Act is the complete omission of any provision which clarifies whether or not beneficial co-owners within the meaning of Section 1 are nevertheless required to comply with the reinforced `two trustee rules` under Section 7.  The omission of any provision as to the interaction of the two Sections (which contrasts with examples of unnecessary duplication such as may be found in Sections 1 (3) & (5)) renders it uncertain as to whether a beneficial co-owner, who is the attorney for the only other beneficial co-owner, may execute a conveyance or deed, and give a valid receipt for capital money, under the authority of the power of attorney without the need to obtain the further co-operation of the donor, in which case this would represent an exception to the reinforced `two trustee rules`.  It is difficult to believe that this was not the intention of Parliament as otherwise the useful effect of the reform brought about by Section 1 will have been seriously compromised for many, if not most, beneficial co-owners of property.  As it stands, in the absence of any  provision to the contrary, it seems that the two Sections must be read together with the inevitable result that in the case of properties where there are only two beneficial co-owners, there is not much point in one of them granting power of attorney to the other with the object  of enabling him/her to exercise a trustee function within the meaning of Section 1 as he/she would be a `relevant attorney` and could not execute a conveyance or deed, or give a valid receipt for capital money, within the meaning of Section 7.   In that case it would still be necessary for the donor of the  power, as the only other beneficial co-owner, to join in the conveyance or deed, and in the giving of  the receipt; or else appoint a third party to act as attorney under the 1999 Act.  If this interpretation of the interaction of the two Sections is correct, then it would seem that the 1999 Act will require urgent amendment so that the reformatory intention of Parliament is not thwarted.

Interaction with general powers and enduring powers

For this purpose, Section 3 amends Section 10(2) of the 1971 Act with regard to general powers and Section 12 repeals Section 3(3) of the 1985 Act with regard to enduring powers.  This repeal is subject to the transitional provisions of Section 4, which relates to existing enduring powers with a longstop provision for cesser at the end of one year from the commencement of the Act.  Section 1(1) of the 1999 Act will apply to an existing enduring power when Section 3(3) of the 1985 Act ceases to apply; see Section 4(6).  It does not apply, however, where a donee is acting under a trustee power if otherwise expressly authorised to exercise all or any of the trustee functions of his/her donor either by the trust instrument or by Section 25 of the 1925 Act; see Section 1(8).

Liability of Donor and Application

Though a donor is not liable for the exercise of a trustee function by his/her donee by reason only of delegation under Section 1(1) the donor will be liable (as in the case of a trustee power) for the acts or defaults of the donee in the same manner as if they were his/her own acts or defaults; see Section 1(4).  This provision and, indeed, the new statutory extension mirrors the application of Section 25 of the 1925 Act in applying only if and so far as not displaced by a contrary intention, and has effect subject to the terms of the trust instrument; see Section 1(3)&(5).  There are also supplementary provisions enabling a bank or company in whose books stocks and shares are registered to ignore notice of the trust which it would receive when dealing with the donee of a power of attorney and disapplying the doctrine of conversion which still affects those trusts created by the wills of testators who died before the  1996  Act came into force on 1 January 1997; see Section 1(6)&(7).

The appropriate statement

For the purpose of simplifying what might otherwise be for a purchaser, dealing with a donee of a power of attorney, a complicated investigation of the donor’s beneficial interest in the land, proceeds or income Section 2(2) of the 1999 Act provides that a purchaser may rely upon `an appropriate statement` as conclusive evidence that the donor of the power of attorney had a beneficial interest in the relevant property at the time the act was done.  An appropriate statement is a signed statement by the donee of the power that when he/she was doing the act in question, or at any other time within the period of three months beginning with the day on which the act was done, the donor had a beneficial interest in the relevant property at the time when the donee was doing the act.  The term `beneficial interest` is not defined but there is no reason in principle why it should not include a vested or contingent remainder as well as an interest vested in possession; cf. the meaning of `beneficiary` and the terms `beneficiary who is beneficially entitled` and `beneficiary… entitled to an interest in possession` in Section 22 of the 1996 Act.  It will not include, however, a ‘beneficiary’ who is a mere object of a discretionary trust in whose favour no appointment of trust property has been made; see Gartside-v- IRC [1968] AC 553.  It should be noted that the conclusive nature of the evidence provided by an appropriate statement will be displaced by fraud or if the statement is inaccurate on its face and in the event that it is shown to be false the donee is liable to the same penalties which apply to the maker of a false statutory declaration under Section 5 of the Perjury Act 1911.

Part II: Exercise of Trustee Function by Delegation Under Section 25 of the 1925 Act

As to the second part, Section 5(1) of the 1999 Act inserts a new Section 25, with ten sub-sections (previously eight), in the Trustee Act 1925.

Effect of the changes to Section 25

Section 25(1) as amended reproduces the text of the old sub-section except for the reference to maximum duration.  This is still for a period not exceeding 12 months; see Section 25(2) which additionally provides for the date when the power commences and allows for a shorter duration than 12 months.  Section 25(3) reproduces the old Section 25(2) except for the prohibition on delegation to the only other co-trustee of the donor, which is completely removed.  The old Section 25(3) is completely removed as the formality requirements for the attestation of the deed are now contained in Section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989.  Section 25(4) relates to the giving, before or within 7 days of the grant, of written notice to the person empowered to appoint new trustees and to each of the co-trustees.  Section 25(5)&(6) contain the essential operative provisions of the new trustee power (see below) and Section 25(7), (8), (9) & (10) relate to liability for the acts or defaults of the donee, the extent of the powers exercisable under the delegation, the effect of notice of a trust on any bank or company and the Section’s application to a personal representative, a tenant for life or statutory owner.  The text of Section 25(4) and (7) to (10) reproduce the provisions of  the old Section 25(4) and (5) to (8) respectively.

The New Section 25(5)

Section 25(5) provides as follows:-

`A Power of attorney given under this section by a single donor:

(a)    in the form set out in sub-section (6) of this section; or

(b)   in a form to the like effect but expressed to be made under this sub-section,

shall operate to delegate to the person identified in the form as the single donee of the power the execution and exercise of all the trusts, powers and discretions vested in the donor as trustee (either alone or jointly with any other person or persons) under the single trust so identified.`

What is completely new about the trustee power is Section 25(5) which provides that a power of attorney expressed to be made under that Section by a single donor, in the form set out in Section 25(6) or in a form to like effect, shall operate to delegate to the donee (who has to be a single person) the execution and exercise of all the trusts, powers and discretions vested in the donor as trustee (either alone or jointly with any other person or persons) under the single trust identified in the form.  No longer is it possible, therefore, for more than one donor to appoint more than one donee or delegate the trusts, powers and discretions relating to more than one trust by a single form of trustee power.

The new statutory form of trustee power

The form of the new trustee power, set out in Section 25(6) is similar in style, and complements, the existing form of general power set out in the Schedule to the 1971 Act.  The text of the new form is reproduced below:-

`THIS GENERAL TRUSTEE POWER OF ATTORNEY is made on [date] by [name of one donor] of [address of donor] as trustee of [name or details of one trust].

I appoint [name of one donee] of [address of donee] to be my attorney [if desired, the date on which the delegation commences or the period for which it continues (or both)] in accordance with Section 25(5) of the Trustee Act 1925.

[To be executed as a deed]`

As indicated above, it is not necessary to use the statutory form so long as it is of similar effect and is expressed to made under Section 25(5) – however, it is no longer possible to use a trustee power for more than one trustee/attorney, or for more than one trust, as was previously the case, unless a separate form is used for each trustee/attorney, or trust.

Trustee Powers as Enduring Powers

Another new provision relating to trustee powers is that they are now capable of being enduring powers.  Section 2(8) of the 1985 Act, which prevented a power made under Section 25 of the 1925 Act from being an enduring power, is repealed by Section 12 of the 1999 Act and Section 6 additionally provides that it does not apply to powers of attorney created after the commencement of the 1999 Act.  Consequently trustee powers need no longer automatically terminate on the subsequent mental incapacity of the donor so long as the form complies not only with the provisions of Section 25(6) of the 1925 Act (as amended) but also the prescribed form currently set out in the Enduring Powers of Attorney (Prescribed Form) Regulations 1990.  It cannot endure indefinitely, of course, as it must terminate at the end of the 12 month period.

Part III: Ancillary Provisions Relating to Trustee Attorney Use

As to the third part, this contains miscellaneous ancillary provisions relating to trustee attorney use.

The `Two Trustee Rules`

Section 7(1) of the 1999 Act reinforces the so called `two trustee rules` in circumstances where:-

(a)    capital monies on a sale of land are required to be paid to, or at the direction of, at least two trustees by virtue of Section 27(2) of the Law of Property Act 1925 or Section 18(1)(c) and Section 94(1) of the Settled Land Act 1925;

(b)   a valid receipt for capital monies has to be given otherwise than by a sole trustee by virtue of Section 14(2) of the Trustee Act 1925; and

(c)      in order to overreach an interest or power affecting a legal estate in land a conveyance or deed must be executed by at least two trustees by virtue of Section 2(1)(ii) of the Law of Property Act 1925.

(d)     In any of those circumstances the relevant `two trustee rule` is not satisfied by money being paid to or dealt with as directed by, or a receipt for money being given by, `a relevant attorney` or by a conveyance or deed being executed by such an attorney.  For this purpose a `relevant attorney` means a person (other than a trust corporation) who is acting either as attorney for two or more trustees or both as a trustee and as attorney for one or more other trustees and who is not acting together with any other person or persons.  In other words it may be satisfied either by two people acting in different capacities or by two people acting jointly in the same capacity but not by one person acting in two capacities where there is no other co-trustee.

Appointment of Additional Trustee by Attorney

Section 8(1) of the 1999 Act inserts four new subsections immediately after Section 36(6) of the Trustee Act 1925 (relating to the appointment of additional trustees) to permit the donee of an enduring power to appoint new trustees where the reinforced `two trustee rules` would otherwise have frustrated the new power for a beneficial co-owner attorney to exercise the trustee functions of the donor.  It envisages a situation in which a single individual holds land upon trust for himself and another, appoints a third person as his attorney under an enduring power and then loses mental capacity and the power is registered.  If in those circumstances the attorney wanted to sell the land he/she could not satisfy the `two trustee rules` unless a new trustee was appointed.  It is provided by Section 36(6A) of the 1925 Act that the attorney may make an appointment under Section 36(6)(b) of that Act on behalf of the trustee or the trustees if he/she intends to exercise any trustee function by virtue of being beneficially interested in the land, capital proceeds or income therefrom under Section 1(1) of the 1999 Act or by virtue of the delegation of the trusts, powers and discretions vested in him or them under Section 25 of the 1925 Act or by an express power in the instrument creating the trust.

Attorney Acting For Incapable Trustee

Section 9 of the 1999 Act inserts a new sub-section (3) into Section 22 of the Law of Property Act 1925 to obviate the appointment of a new trustee or the discharge of an incapable trustee, in order to deal with the legal estate, where the donee of an enduring power is entitled to act for the incapable trustee.

Part IV: Final Provisions of the 1999 Act

As to the fourth part, the final provisions relate to interpretation, repeals and commencement of the 1999 Act.  Section 10(1) of the 1999 Act provides a new rule of interpretation with regard to the extent of an attorney’s authority to act in relation to land so that where he/she is authorised to do an act of any description in relation to that land, his authority to do an act of that description at any time includes authority to do it with respect to any estate or interest in the land which was held at that time by the donor (whether alone or jointly with any other person or persons).  This rule of interpretation may, however, be displaced by the expression of a contrary intention in the instrument creating the power of attorney and, in any event, has effect subject to the terms of that instrument.  The object of the introduction of a new rule of  interpretation is to prevent the frustration of the donor’s intention where he/she has not used the precise technical language which is strictly necessary.  With the coming into force of the Trustee Delegation Act 1999 trust practitioners will need to identify all trusts, estates and settlements where a trustee, personal representative, tenant for life or statutory owner has granted a subsisting trustee or enduring power of attorney relating to all or any of the trusts, powers or discretions vested in that trustee, personal representative, tenant for life or statutory owner so that perpetual diary notes of the need to replace the old trustee power with the new form of trustee power (if due to be replaced at the end of the current 12 month period) or the cesser of Section 3(3) of the 1985 Act and the commencement of the application of Section 1(1) of the 1999 Act should be duly noted and the clients advised accordingly.

Christopher Parker

Was called to the Bar by the Inner Temple in July 1984. Currently he is working as a (non-practising) Barrister in the trusts and estates department of Halliwell Landau