Trustee Act 2000 summary – investment information for trustsMarch 5th, 2013 by Dan Woodruff, Certified Financial Planner with Woodruff Financial Planning
In this article we provide a Trustee Act 2000 summary – giving you all the information you need as a settlor, trustee or beneficiary if you have some involvement with the investments of a trust. This article applies to the position in England and Wales. There are separate provisions in Scotland and Northern Ireland.
- Trust definitions
- What is the Trustee Act 2000?
- Trustee Act 2000 investment powers
- Duties and responsibilities imposed by the Trustee Act 2000
Some quick definitions
The person who set up the trust and pays the money in to it.
The people who manage the assets of the trust for the beneficiaries.
The people entitled to receive some benefit from the trust.
What is the Trustee Act 2000?
The Trustee Act 2000 is important to trusts since it provides the default rules for the investments made by trustees. The Trustee Act 2000 also provides the rules for certain duties and responsibilities of trustees. It should be said that if your solicitor drafts your trust correctly they will likely create additional powers beyond the provisions of the Trustee Act 2000. The powers of the Trustee Act 2000 will only come into play if a trust is not drafted well. The rules surrounding the duties and responsibilities of trustees can not be taken away.
Trustee Act 2000 investment powers
The Trustee Act 2000 gives much wider powers for trustee investment than were previously in place. Now there is a power in place giving trustees the ability to invest as if they were the absolute owners themselves.
This is a much wider provision than was contained in previous legislation. Of course you may wish to restrict this power. If so, the trust could be set up with a much narrower range of investment powers. This would override the Trustee Act 2000 provisions. So for example, a settlor could stipulate that you would only allow the trust to invest in land, or in regulated investments.
Duties and responsibilities imposed by the Trustee Act 2000
The Trustee Act 2000 imposes some new duties and responsibilities on trustees. In general, these cannot be taken away by the provisions of the trust.
Statutory duty of care
The Trustee Act 2000 imposes a duty on trustees to act in the best interests of the beneficiaries of the trust. Trustees should not profit from their office (although beneficiaries can be trustees). Trustees should act impartially between different classes of beneficiaries. This is particularly important where certain beneficiaries are entitled to income from the trust, and others are entitled to the capital. Professional trustees have a higher degree of standard to meet under the Trustee Act 2000.
Under this duty of care trustees must exercise skill and care as is reasonable given the circumstances and the knowledge and experience of the trustee. Therefore, under the Trustee Act 2000, a family member trustee would have a lower standard to meet than a professional trustee, unless they have special skills.
This statutory duty of care can be excluded from trusts created after 2001, but a general duty of care would still exist.
Duty to Diversify
Under the Trustee Act 2000 all trusts should pay attention to the diversification of their investments. This typically means that trustees should ensure a good spread of investments. It would be rare that proper diversification would take place in a trust investing in just one asset class such as bank savings.
Duty to ensure investments are suitable
Under the Trustee Act 2000 all trusts should ensure that the investments made are suitable. This means paying close attention to the provisions of the trust and the appropriate balance between the various needs of the different beneficiaries entitled to capital or income. Particular attention should be paid to the amount of money to be invested and the risks to be taken with investments.
Duty to review investments
Trustees are required to review their investments under the Trustee Act 2000. This means that you cannot simply set up an investment and walk away. Those investments are likely to change and therefore need to be reviewed in light of the provisions of the trust and the needs of the beneficiaries.
Duty to obtain and consider proper advice
The Trustee Act 2000 stipulates that trusts should obtain and consider proper advice. This means taking advice from an appropriate expert. In the case of the set-up of the trust, this would be a solicitor. The tax treatment might go to an accountant or tax adviser. In the case of trustee investments, a properly authorised financial adviser should be consulted. This is particularly relevant when considering the need to diversify investments and to review them.
There may be cases where it is reasonable for trustees to ignore this. This might be the case if the costs of advice outweigh the benefits.
Financial Advice and trusts
We regularly deal with trusts and have created the Investment Management service for trustees, to help you with the issues raised above. This service will allow you to comply with the rules surrounding the Trustee Act 2000. We will enable you to demonstrate that you have taken and considered advice appropriate to the trust. You will also be able to prove that your trust has invested suitably and diversified its assets. Since regular reviews are built in to the service you will be able to cover this need too. See also our case study on trustee investment.