Lecture 10 - Powers and Duties of Trustees PDF

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Monday, 23 November 2020

Lecture 10 Powers and Duties of Trustees! Powers •

Powers of sale - Land S 6(1) Trusts of Land and Appointment of Trustees Act 996 (‘TLATA’). Trusts for sale have been replaced by TLATA, existing trusts for sale were converted into trust of land. Different rules for strict settlements, since 1 Jan 1997, no longer possible to create strict settlements of land. !

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Power to insure - S19 Trustee Act 1925. Important when you have buildings or valuable personal items. !

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Powers to invest!

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Powers to delegate!

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Powers of advancement - enable the trustees to pay the income or capital of the trust for the benefit of the beneficiary. S32 Trustee Act 1925. Inheritance and Trustee’s Powers Act 2014, amended S32 so that Trustees can now advance the whole of personal advancement under the statutory power. !

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Powers of maintenance - paying the income of the trust as it arises each year to the beneficiaries. Statutory power of maintenance under S31 Trustee Act 1925 but there were quite a few restrictions with this power. Inheritance and Trustee’s Powers Act 2014, new act amended S31, removed a lot of the restrictions contained in the old version. !

Duties •

To collect in assets - safeguarding assets, building which are trust property there is a duty to safeguard them, insuring buildings etc. !

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To invest - trustees have a duty to invest as well as powers of investment, best interest of the beneficiaries. !

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To distribute - duty to distribute in accordance with the terms of the trust, beneficiaries interests are fixed, trustees have a discretion over who should benefit. !

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Duty of care - was that of ‘prudent man of business’ now it is a statutory duty of care and skill as set out in S.1 Trustee Act 2000. !

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Duty to maintain equality between the beneficiaries. Sometimes beneficiaries have competing interests. !

Investment No statutory definition of an investment. ! •

Re Wragg [1919] 2 Ch 58!

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Cowan v Scargill [1985] Ch 270 !

Statutory Powers of Investment:! •

Trustee Act 2000 - applies to investments before this date as well as after. !

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S.3 (1) General Powers of Investment - trustees may make any kind of investment that they could have made if they were absolutely entitled to the assets of the trust. Exception of land. !

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S.8 (1) Power to invest in land in the UK - trustee may acquire land or an interest in land for occupation by a beneficiary or for any other reason. !

Express Powers of Investment ! •

I.e. powers in the trust instrument.!

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E.g. a wide general power of investment, wider than statutory powers. !

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Usually allows trustees to invest in land outside as well as within the UK. !

Trust instrument may also restrict the powers of investment:! •

S.6 (1) (b) - the statutory general powers of investment from S.3 is subject to any restrictions or exclusions in the trust instrument. !

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S. 9 (1) (b) - there can be similar restrictions on the statutory power in S.8 to invest in land. !

Ancillary powers when investing: ! •

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Trustees will need engage the services of specialists in investment when investing the money of a trust. Nominees, agents etc. !

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Appoint custodians of assets - S.11 Trustees Act 2000 sets out these powers. !

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Delegating asset management functions - S.15 Trustees Act 2000, agreement in writing or an agreement evidenced in writing. !

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Daniel v Tee [2016] EWHC : provides a useful illustration of the application of Section 15. Held that there was no lawful delegation to the third party. !

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Powers to appoint nominees - S.16 TA 2000.!

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Powers to appoint custodians - S.17 TA 2000. !

Investment - Statutory Duties ! Trustee Act 2000:! •

Duty of care and skill - S.1 Trustee Act 2000, “[S]uch care and skill as in reasonable in the circumstances’. !

- Regard is had to a number of factors:! - Any special knowledge or experience that the trustee has or holds himself out as having. !

- Any special knowledge or experience expected of a person acting the course of the trustee’s profession. ! •

Standard investment criteria - S.4 the trustees must have regards to the standard investment criteria !

- The Criteria: ! - The suitability of the type of investment and the suitability of the particular investment within that type. !

- The need for diversification of investments. ! - From time to time trustees must review the investments in the light of the criteria to consider whether the investment should be varied. !

- Portfolio theory: modern approach to investment, recognises the benefits of diversification of investment. Not all investments will prove to be profitable. Hoffman J in Nestle v National Westminster Bank [1993]. ! •

Duty to obtain advice - S.5 Trustee Act 2000, duty to obtain and consider proper advice on investments and varying investments. !

- Unless trustee reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so. ! 3

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- Unless trustee reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so. !

- Proper advice is from a person who is reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial or other matters relating to the proposed investment. !

Investment - Equitable Duties ! •

Dealing equitably between different beneficiaries - e.g. between life tenant and remaindermen. Life tenant of life interest is entitled to income of the trust for life. After life tenant’s death, remainder-beneficiaries will be entitled to the capital of the trust. !

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Life tenant will want the trustees to invest in properties that produce a lot of income, as the income belongs to them. !

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Remainder beneficiaries will want the trustees to invest in properties with greater capital growth potentials, they receive this on the death of the life tenant. !

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Trustees have to ensure an equal balance between life tenant and remainder beneficiaries. Sufficient income and capital growth. !

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Trustees with controlling interests, where a trust has a controlling interest in a company, the trustees ought to pay more attention to the running of the company than they would normally do. !

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Companies are run by directors, where a trust has controlling interest, the trustees cannot leave the running to the directors and assume everything will be done correctly. !

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Controlling interests - Bartlett v Barclays Bank [1980]. May be beneficial to have two trustees on the board of directors. !

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Non financial considerations (e.g. ethical investments). Cowan v Scargill [1985] e.g. not to invest in the shares of oil companies or tobacco companies. !

Cowan v Scargill [1985]:! •

Scargill refers to Arthur Scargill who is the leader of the NUM (National Union of Miners) at the time of the miners strike. !

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Whether the trustees of the NUM pension scheme could refuse to invest in certain investments due to ethical and political objection.!

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Some of the trustees were appointed by the Union, they did not wish to invest in overseas investments or investment in energies that were in competition with coal. Union appointed trustees refused to follow an investment plan produced by the trusts advisors. !

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Held: the Union appointed trustees were in breach of trust, the trustees duty in general is the maximise the financial benefit to the beneficiaries (present and future members of the pension scheme). Trustees should aim to gain the best financial return for the beneficiaries. !

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Union appointed trustees were following the Union’s policy.!

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Court also held that financial benefit was not also paramount, if all the beneficiaries were adults and had strict views on not investing in certain industries or companies, the trustees could take this into account as to what investments to make.

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