Trustee Act's Impact on Trusts

The significant change introduced by the Trustee Act 2000 (TA 2000) is that it has removed the considerable restrictions stipulated under the 1961 Trustee Investments Act on the investment powers of trustees. TA 2000 introduced a new power of investment for the trustees replacing the one under the TA 1925. Under the TA 2000, s3 the trustees can make investments as if they were entitled to the assets in trust. According to s7(1), it applies to all trusts, subject to any express restriction or exclusion in trust. While doing so, they must consider 'standard investment criteria'. The Act, however, did not touch the provisions regarding authority of the settlers and advisors to draft their own law in the trust instrument. The law is still the default law. While the Act gives new power to the trustees, the TA 2000 has not defined the term 'investment'. It is left to wide interpretation subject to the determination of the common law.

The TA 2000 may have considerable impact of the trusts arising out of intestacies and older trusts. For instance, under the TA 2000 the trustees can exercise wide power to buy, as an investment or for any other reason, freehold land and also leasehold land. However, the power could be considered too wide that, as provided under s.5(3), unless the trustees conclusively determine whether an advice is needed as to the exercise of the power to invest, the question of obtaining proper advice does not arise. The question in this regard would be whether the TA 2000 defines the expertise or qualification of the trustees in regard to specific trust, so as to justify this wide exercise of power.

The TA 2000 extends the Trusts of Land & Appointment of Trustees Act 1996. It has now enabled purchase of land anywhere in the United Kingdom. However, it has been subject to criticism because of its failure to empower the trustees to buy land outside the UK. An alternative argument could be that the trustee can delegate its power, which may enable buying properties abroad. Under the traditional model, the trustee is a personal office and there is general duty of non-delegation. Langdale MR in Turner v Corney (1841) stated that trustees have no right to shift their duty on other persons. They could for employing skilled agents in specialist tasks.

The Secretary of State has power to add other functions that may be delegated beyond what is provided in the TA 2000. Under this power, trustee can appoint investment managers. TA 2000 also gives power to the trustees to appoint nominees and custodians, delegate their functions, and insure the trust property. They are provided under sections 11-27. These powers are intended to facilitate better administration of trusts. It has also substituted the Trustee Act 1925, s19 by giving trustees the power to insure trust property and to pay premiums from the trust fund.

The TA 2000 provides new safeguards for beneficiaries, as provided in Section 1-2, in the form of statutory duty of care. Under the traditional model, the standard of duty of care was when the ordinary prudent man of business would do so, as was held in Speight v Gaunt. The TA 2000 provides for a new duty of care in section 1, which requires it to be reasonable in the circumstances, having regard to the actual skill, manifested skill, and reasonable expectation of professional skill. This statutory duty of care relates to exercise of investment power, reviewing investments and getting advice, and delegating and appointing agents. However, there might be difficulty in holding trustees liable, when there is a trustee exemption clause, as was seen in Armitage v Nurse (1998), where the clause provides for exempting the trustee from liability due to loss or damage to fund or income unless it is caused by his own actual fraud. The issue is with the availability of defence that the duty of trust was performed honestly and in good faith for the beneficiaries’ benefit. However, he will be liable if there was the element of dishonesty or recklessness. This presents a questionable extent that the beneficiaries have to hold trustees accountable. It could be argued that trust involves a personal, essentially moral responsibility on the part of the trustees and this cannot be taken away. In the case of Santander UK plc (2014), it was observed that it would not be fair to excuse the trustees from liability by just demonstrating that they are connected with loss, and have acted reasonably.

Dig deeper into Challenges in Certainty: Discretionary Trusts and Legal Application with our selection of articles.

TA 2000 made significant changes in the law of remuneration of trustee. Earlier, it was interpreted narrowly, as being either a personal office or a gratuitous office. Under TA 2000, s.28, trustees are entitled to payment for their services when there is a remuneration clause. Even in absence of the clause, they are entitled to reasonable remuneration, as was stated in Pullan (2014). TA 2000, however, does not provide for lay trustees, who or which could also have provided the services, or charitable trustees. However, there is a strict approach, as was stipulated in Brudenell-Bruce (2014) to be followed for lay trustees.

TA 2000 claims to have retained the nature of “default law”. However, this does not appear to be so. The office of the trustee has shifted from being personal to impersonal office, which is evident in the provision of the trustees exemption clause or the expansive investment power, for example the final decision of trustees in determining whether they require proper advice or not. The TA 2000 should have regulated the powers and duties instead of exposing the trust and the trust fund to higher risk investment. The Act appears to have aimed at securing and advancing trust fund and its management, with lesser focus on ethical considerations and more important, personal interest of the beneficiaries. Having apparently adopted a financial oriented approach to governing trust funds, the moral and personal duty of the trustees towards the beneficiaries seems to have taken a secondary position.