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Trustee and Investment and the Trustees Acts

Introduction

The trustee owes a duty of care to the beneficiaries of the trust property and the trustees have a general duty to act fairly between the beneficiaries and also make investments which are appropriate. (Todd and Wilson 2005, p.355)

This essay will look at the Trustee Act 2000 and if the Act addresses the major difficulties in relation to the extent and operation of the duty of care owed by trustees and in particular their investment responsibilities or if the Act does little more than restate the previous law with all its shortcomings in the protection of beneficiaries interest and trust property.

Trustee and Investment and the Trustees Act 1961

The Trustee Investment Act 1961 defined for trustees the categories of assets in which trust funds could be invested, this was to ensure that trustees invested only in safe investments. (Reed and Wilson 2001, p.38)

The 1961 Act provided that the trust fund or any part of the trust fund could be invested in narrower range investments enumerated in Parts 1 and 11 of Sch 1 to the Act.

Generally, under the old Act, a trustee can not invest in any type of investment that is hazardous even if it was permitted by an express power of investment. See Cowan v Scargill (1985) Ch 270. Before the 2000 Act, the law identified the boundary between investments and non investments by holding that an acquisition made on behalf of a trust would only qualify as an investment if it produced direct financial benefits in the form of an income. (Watt 2006, p.308)

Trustees and Investment and the Trustee Act 2000

Section 3 of the Trustee Act introduced the general power of investment. The Act provides that ‘a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust’. (Section 3(1) of the Trustee Act 2000) .The main exception to this power is that the powers to invest in land other than loans secured on land are excluded. (Section 3(3) of the Trustee Act 2000) This exclusion is not water tight as the power to invest in freehold or lease hold is contained in section 8 of the Act. (Reed and Wilson 2001, p.39)

Any investment carried out by trustees must be exercised in accordance with the Standard Investment Criteria, namely the suitability of the investments and the need for diversification and trustees must review the investments from time to time and consider if the investments should be varied in the light of the Standard Investment Criteria.

Extent and operation of the duty of care owed by trustee before and after the Trustee Act 2000

Under pre existing common law rule, unpaid trustees were bound to use only such due diligence and care in the management of the trust as an ordinary prudent man of business would use in the management of his own affairs.

The Trustee Act 2000 imposed on trustees a new statutory standard of care. According to s1 (1) of the 2000 Act, the appropriate level of the new standard of care is to be determined according to whatever is reasonable in the circumstances.

Finally, under pre-existing common law rule, unpaid trustees were bound to use due diligence and care as an ordinary prudent man would in the management of his own affairs. This rule has been repealed by the Trustee Act 2000, however because the statutory rule of care only applies in the situations listed in the Act, it is possible to argue that the common law rule may have survived, presumably unintentionally, in some situations not specifically included in the list. (Oakley, 2003 p.572)

Conclusion

The 1961 Act surely did not provide trustees with sufficient wide powers in the context of today’s modern world of investments. The 2000 Act tried to remedy some of the deficiencies of the 1961 Act, so that investment of trust property will be less cumbersome and in tune with the modern world of investments. The Trustee Act 2000, brought about some changes to the duty of care owed by trustees and in particular their investment responsibilities. Under the 2000 Act, there was no division of the trust fund, but the general power of investment is subject to the safeguards prescribed by sections 4 and 5 of the Act. (Todd and Wilson 2005, p.357) This safeguard refers to the duty of trustees to have regard to the Standard Investment Criteria and the obtaining and consideration of proper advice. These are however not entirely new provisions. They were lifted from the Trustee Act 1961.The 2000 Act contained concepts which have been retained at least in part from the 1961 Act. By the time the 1961 Act was repealed, amendments have been made to the Act to enable 75 per cent of the fund to be invested in wider range investments. Therefore one can argue that the 1961 Act was not as restrictive or stiffening as some people suggest. The 2000 Act no doubt brought about some changes in the way and manner trustees conduct investment, however it did not cure all the ills and difficulties of the 1961 Act. It will not be far fetched for one to conclude that despite the attempts by the Trustee Act 2000 to address the duty of care owed by trustees and in particular their investment responsibility, the Act does little more than restate the previous law. There are still shortcomings in the protection of beneficiary’s interest and trust property

The statutory duty of care is expressly applied to trustees exercising the general power of investment and it also applies to the exercise of any powers conferred by a trust instrument. It is unclear therefore whether the introduction of the statutory duty of care represents a change to the law, or simply recognition of the common law position, which had always been in existence. (Reed and Wilson 2001, p.51)

Bibliography

Gardner, S (2003) An Introduction to the Law of Trusts, 2nd Edition, Oxford University Press, Oxford

Haley, M and McMurtry, L (2006) Equity and Trust, Sweet and Maxwell, London

Hayton, D.J (2003) The Law of Trusts, Sweet and Maxwell, London

Hayton, D.J (2003) Underhill and Hayton Law of Trust and Trustees, 16th Edition, Butterworths LexisNexis, London

Hudson, A (2004) Understanding Equity and Trust, 2nd Edition, Cavendish Publishing, London

Oakley, A.J (1996) Trends in Contemporary Trust Law, Oxford University Press, Oxford

Oakley, A.J (2003) Parker & Mellows: The Modern Law of Trusts, Sweet & Maxwell, London

Penner, J.E (2002) The Law of Trusts, Butterworths LexisNexis, London

Reed, P and Wilson, R (2001) The Trustee Act 2000: A Practical Guide, Jordan, Bristol

Thurston, J (1998), A Practitioner’s Guide to Trusts, 2nd Edition, Tolley Publishing, Croydon

Todd, P and Wilson, S (2005) Text Book on Trust, 7th Edition, Oxford University Press, Oxford

Watt, G (2005) Trust, 2nd Edition, Oxford University Press, Oxford


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