THE TRUSTEE ACT 2000 ISN’T JUST ABOUT DEFAULT POWERS
Martyn Frost provides some thoughts on the wider application of the Trustee Act 2000 reforms,
particularly where they will apply to all trusts
(taken from Issue No 16 – July 2001)
The reforms of the Trustee Act 2000 were not just about introducing new default powers, it is worth bearing mind that some of the reforms are of far more general application. A number of the changes will apply to all trusts, regardless of whether or not any default powers operate, whilst others will apply to all trusts unless disapplied by a contrary intention in the trust instrument. The purpose of this short article is to draw attention to those areas of, if not universal application, wider application than default powers. N.B. all references in this article are to Trustee Act 2000 unless otherwise stated.
Universal duties for investments
For trust deeds dated before 3rd August 1961 the new general investment power is not automatically applied i.e. it does not replace all express investment powers, as an express power of wider ambit than the general investment power would be unchanged. What it will do is prevent any reduction or restriction of the new statutory power by the terms of the deed. Given the comparative rarity of very wide powers pre-1961 this will probably mean in practice that most express powers will be replaced with the wider statutory power.
In all trusts arising under intestacy, whenever created, the new statutory power will apply; as it will in any other trust previously restricted to the investment powers under Trustee Investment Act 19612
The new general investment power contained in s.3 may be a default power (in the absence of wider powers), but the standard investment criteria in s.4 will apply to all trusts, whether or not the general investment power is used. The standard investment criteria (which can be summarised as suitability and diversification) will apply to[a] the exercise of all investment powers however conferred on a trustee, and [b] every investment review (which s.4(2) now requires to be carried out for every trust, although it does not specify frequency) carried out by a trustee.
Further, both [a] and [b] above will apply to any agent to whom trustees collectively delegate any investment management3 under whatever power. Whilst the Act is not explicit on the point, it is thought that it is not possible to exclude the standard investment criteria by the terms in the trust instrument4 although the reference within them to diversification only applying, `in so far as is appropriate to the circumstances of the trust5 will operate in some trusts to substantially modify their application (e.g. where a trust is expressly created for a single stock).
There is an additional requirement in s.5 that, before exercising any power of investment6 or carrying out any investment review7, a trustee must obtain advice from someone he reasonably believes to be capable8 unless he reasonably concludes that it would be unnecessary or inappropriate.9
Within the Act there is also a statutory duty of care10 imposed on[a] the exercise of `any…power of investment, however conferred`,11[b] the review of trust investments12 and[c] the taking of investment advice13
This applies to all occasions, unless the deed excludes or limits it
Universal duty in relation to land
The statutory duty of care is imposed on a trustee14 when exercising any power to acquire land15 or exercising any power in relation to land16 unless the deed excludes or limits it.
The statutory duty of care is also expressly provided to apply to the exercise of a delegation of a trustee’s functions relating to any land17 held upon a trust of land18
Universal duties on delegation
As with the previous duties, the statutory duty of care is imposed on any appointment of agents, nominees or custodians under any power, however conferred19 unless the deed excludes or limits it. However, there are more delegation provisions that will be of wider application .
|s.14||Terms of agency||The ability to determine reasonable remuneration and expenses applies to delegation under any20 power|
|s.15||Asset management: special restrictions||Delegation in writing, policy statements etc. appear to be mandatory for any asset management delegation and are not to be excluded by a contrary intention21|
|s.18||Investment in bearer securities||If trustees retain or invest in bearer securities they must appoint a custodian22 in writing23 unless there is a contrary intention expressed in the trust instrument24 (this whole section does not apply to custodian trustees25). The duty of care will apply26|
|s.22||Review of agents, nominees and custodians||The duty to review etc. applies to any delegations27 as does the duty of care which attaches to it28 unless excluded by the trust instrument.|
It is also to be noted whilst all of Part IV of the Act regarding agents nominees and custodians does not apply to unit trusts29 or common investment funds for charities30, it does apply to agents for pension fund trustees (subject to some specific restrictions)31
The new s.19 inserted into Trustee Act 192532 creates a power to insure which is available to trustees in default of an express power in the trust instrument. However attached to the exercise of any power to insure is the new statutory duty of care33, unless the trust instrument excludes this.
ss.15 and 22(1) and (3) Trustee Act 1925
Although there are no changes to the existing text of s.15 Trustee Act 1925 (indeed there have never been any since 1925), the statutory duty of care is now attached to this power to compound liabilities or any similar express power34, but the duty can be excluded by the trust instrument. A similar amendment is made to apply the duty of care to the provisions regarding reversionary interests and valuation or any similar express powers35.
Settled Land Act 1925
The major changes to the investment powers of strict settlements are mandatory and not capable of exclusion by the terms of the trust instrument (see issue 14 of the TACT Review January 2001 for fuller details of these changes)
The above should show that the reforms of the Act are wider than the headline issue of default investment powers (the writer has already heard this Act referred to as the Trustee Investments Act 2000(sic)) and that some issues such as the standard investment criteria and the statutory duty of care have now become issues to consider in all trusts.
Martyn Frost is a manager with Barclays Bank Trust Company.
3 The duty under s.4 will not apply to trustees of pension schemes (s.36(3)), trustees of authorised unit trusts (s.37(1)) or common investment schemes for charities (s.38(a)).
4 See Lewin on Trusts (17th edition) 35-147
11 schedule 1 para. 1(a)
12 schedule 1 para.1(b)
13 schedule 1 para. 1(b)
14 The power under s.8 to acquire land will not apply to settled land (s.10(1)(a)),trustees of pension schemes (s.36(3)), trustees of authorised unit trusts (s.37(1)) or common investment schemes for charities s.38(a)).
15 schedule 1 para. 2(b)
16 schedule 1 para. 2(c)
17 s.9 Trusts of Land and Appointment of Trustees Act 1996
18 s.9A Trusts of Land and Appointment of Trustees Act 1996 inserted by schedule 2 para.47
19 schedule 1 para. 3(d)
21 See Lewin op.cit. 36-10V
26 schedule 1 para. 3(1)(c)
28 schedule 1 para. 3(1)(e)
31 see s.36(5)-(8) including the express exclusion of ss.16-20 regarding nominees and custodians
33 schedule 1 para. 5(b)
34 schedule 1 para. 4
35 schedule 1 para.6