Many of us will find ourselves acting as trustees at some point in our lives. This may occur when a loved one dies and their will contains a will trust. Or our involvement as a trustee may occur if our church or other charity invites us to be appointed as a lay trustee.
In the case of a will trust, the mechanism of our appointment is via the testamentary document (the will) that appoints both executors and trustees. The trust itself, as a legal person, springs to life on the death of the testator. Prior to that it does not exist. And in the case of a will trust, our consent to act as trustee does not need to be sought beforehand. We all have some idea of what is required of an executor, but the duties and obligations of a trustee can appear altogether more mysterious.
In an attempt to codify the previously vaguely defined responsibilities and obligations of trustees, the Trustee Act 2000 imposes positive obligations on trustees to reflect modern practice, and provides a set of default powers that apply to trusts unless the trust document specifies to the contrary. The Act applies to all trusts, irrespective of when they were created.
The Act covers five areas of trust law:
From the perspective of lay trustees (private individuals who may have been press ganged into holding office) the Act may be viewed simply as a restatement of previous common law. So far, so good. However, whilst extending the trustees’ power of investment and allowing them to be paid for the work done in managing the trust, the Act has also blurred the lines between what can reasonably be expected of a professional trustee, such as a solicitor, and a lay person.
The legal precedent upon which the previous understanding pivoted was Lord Blackburn’s 1883 pronouncement in Speight v Gaunt: ‘As a general rule a trustee sufficiently discharges his duty if he takes, in managing the trust’s affairs, all those precautions which an ordinary pru- dent man of business would take in managing similar affairs of his own.’ All rather vague but well meaning.
Set against this unsure foundation, the problem has been caused by the Act clumsily setting out a fixed, objective point differentiating the standards to be met by professional and lay trustees, respectively, without defining where that point is. And just as it is impossible to hold a professional trustee to the standards of a lay trustee, so it is equally unfair that a lay trustee would be held to the standards of a professional.
This is the point at which life becomes difficult for lay trustees, or, more importantly, for charities that are forced to employ them. Unlike the previous common law duty to which trustees were held, the new duty of care imposed by the Act does not require the trustees at any time to act. It can immediately be seen that this lack of specificity could cause many arrangements to run aground through lack of involvement.
Furthermore, and rather incongruously, the Act requires trustees to demonstrate that in the absence of their possessing sufficient skills themselves, they must take professional advice. To further complicate matters, the Act gives a trustee the power to make any kind of investment, as if he were entitled to the assets of the trust himself.
This dramatic twist set aside the very complicated (and therefore expensive) procedures required under the Trustee Investments Act of 1961 to provide a default position limited only by the ‘standard investment criteria’ as set out in Section 4 of the Act, one provision of which sets out the need for investments to be ‘suitable’, whilst at the same time failing to define what ‘suitable’ means.
Section Five of the Act comes to the rescue by requiring trustees to obtain ‘proper advice’ before investing, unless the circumstances mean that it is inappropriate or unnecessary to do so. ‘Proper advice’ is defined as ‘advice of a person who is reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investment’.
Within the current regulatory framework, this requirement would be adequately discharged by trustees seeking and taking advice of an Inde- pendent Financial Adviser (IFA) such as The Harvest Partnership Ltd. The advice must be sought before the exercise of any investment power, and is also required if the trustee wishes to change where and how the trust is invested.
At The Harvest Partnership Ltd we possess the knowledge and skills to translate trustees’ wishes for managing a trust into practical reality. With carefully thought out strategies for income and capital growth we can help trustees achieve the correct balance between satisfying the needs of all classes of beneficiaries. Trustees can then relax safe in the knowledge that they have fully discharged their obligations.
So, if you're looking for a better way to discharge your responsibilities as a trustee, or know of a charity that could benefit from our services, we invite you to contact us.
|The Harvest Partnership Ltd||The Harvest Partnership Ltd|
|49-51 Homesdale Road||160 High Street|
|BR2 9LB||CT10 1JA|
|Phone: 020 8313 0337||Phone: 01843 260878|
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