INVESTMENT MANAGEMENT FOR TRUSTS - TRUSTEE INVESTMENT

This information is aimed at professional trustees, such as solicitors and accountants, as well as unpaid trustees (such as friends and family). It may also be of use to those who have an interest in a trust, such as beneficiaries. The Trustee Act 2000 is important as it removed the restrictions placed on many trusts by previous legislation, and also imposed a statutory duty of care on trustees which must be taken into account when making trustee investment decisions.

What are the main provisions of the Trustee Act 2000?

The Act applies to England and Wales, and separate legislation exists in Scotland.
The main provisions allowed for the modernisation of the statutory trust powers. In practice, most modern trusts that are set up by solicitors will have powers equal to or greater than the minimum requirements set out in the legislation. However, the Act regulates situations where this is not the case. This could apply to older trusts, charitable trusts, and trusts arising from intestacy.
The main provisions are:
A statutory duty of care for trustees
General powers of trustee investment
The power to acquire land
The power to delegate certain functions
The power to insure trust property
Rules for the remuneration of trustees and agents

The duty of care for trustee investment

Although this duty can be modified or excluded by the trust instrument, it exists to protect the interests of the beneficiaries.
Where a trustee carries out the powers of the Act, or those granted by the trust deed, under Section 1  he must exercise:
such care and skill as is reasonable in the circumstances having in regard  in particular –
(a) to any special knowledge or experience that he has or holds  himself out as having; and
(b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession.
Thus, a higher degree of care applies to professional trustees. What is reasonable will depend on the circumstances of the trust.

The general power of trustee investment

The Act removed restrictions imposed by earlier legislation. There now exists a more general power of trustee investment.
Usually this means that the trustees can make use of a much wider variety of investments. In practice this means all types of collective investment such as unit trusts, OEICs, investment trusts and investment bonds, as well as property and bank accounts, according to the needs and taxation of the trust.

The standard investment criteria

This was a new duty imposed by the Act, which trustees must take into account.
Section 4 states:
(2) A trustee must from time to time review the investment of the trust…
(3) The standard investment criteria, in relation to a trust, are –
(a) the suitability to the trust of investments made… proposed to be made or retained…, and
(b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.
Thus, the trustees must ensure that any investment proposed or retained is suitable for the trust in question, and give due regard to the need for diversification of assets to minimise risk to the beneficiaries.
This can be important as different beneficiaries will have different neds, especially when some are entitled to income and/or capital.  the Act makes it clear that simply putting money into one type of asset such as shares, or a bank account, does not amount to proper diversification.

Advice on investment management for trusts

Section 5 states:
(1) before exercising any power of investment… a trustee must… obtain and consider proper advice about the way in which, having regard to the standard investment criteria, the power should be exercised.
(2) When reviewing the investments of the trust, a trustee must…obtain and consider proper advice about whether, having regard to the standard investment criteria, the investments should be varied.

We specialise in trustee investment management

We regularly advise trusts and trustees on trustee investment management, and help clients to achieve their goals by monitoring and analysing their investment portfolios. We can ensure that trustees live up to their obligations under the Act by advising them on the suitability of different types of investments, and how to achieve proper diversification.

Also, see our trustee investment case study.

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Dan Woodruff

Certified Financial Planner & Chartered Wealth Manager at Woodruff Financial Planning
Financial Planning helps you to navigate and anticipate significant life changes. I want to help you to ensure your money is managed wisely to give you the financial security that will fund the future and lifestyle that is important to you.

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