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Trustees Duty To Invest

Trustees Duty To Invest

Trustees Duty To Invest

Date: October 23, 2018

The role of a trustee is to hold assets for the benefit of the beneficiaries of the trust and to administer the trust in accordance with both the general law and the specific provisions of a trust document.  In all circumstances, when exercising their functions,  trustees are required to act in good faith with honestly and integrity and to exercise reasonable care and skill in administrating the trust. This includes the financial control of the trust assets and a duty to invest those where appropriate.  Where a professional is appointed as a trustee they are expected to exercise an even higher standard in regards to these principles.

Investment Choice

The general investment principles are contained in the Trustee Act 2000 (s3) and may also feature in the trust instrument itself, to give the trustees power to put trust assets into any investment which they would be able to invest in if they owned the funds themselves. This is obviously a wide ranging power however, there is further guidance as to how the trustees exercise this function. 

  • Trustees must consider the suitability of proposed investments for the trust and the investment strategy should be diversified if appropriate to spread risk.  
  • Where trustees do not feel they are suitably experienced or have special knowledge to enable them to make these decisions personally it is often a sensible position to take qualified financial advice to ensure the trustees are complying with their obligations.

Dependent on the nature of the trust other factors may need to be considered in the appropriateness of any investment, for example an Income in Possession trust (IIP) to produce income for a beneficiary for life before being distributed to remaining beneficiaries must way the balance between producing the income for those currently entitled against preserving or increasing the capital for those ultimately interested following the termination of the life interest.  Often something as simple as this can be overlooked and recently we have been involved in assisting a trust where a capital sum of £8,000 was placed onto a trust in the 1980’s for the benefit of a surviving widow were only consideration was given to generating income for that surviving widow and not any subsequent capital growth.  In the 1980’s £8,000 had a significantly greater value then £8,000 in 2018. 

Beneficiaries age or tax position may also be relevant to investment choice of trustees and should be considered. Where trust funds are to be held for minor beneficiaries then trustees may consider a none income producing product as a suitable investment vehicle to mitigate the need for income tax accountable to HM Revenue & Customs. 

Investment Review

Following initial investment choices by trustees it is also a requirement that investments are regularly reviewed and if necessary amendments made to ensure that trustees continue to discharge their professional duties and responsibilities.  Where financial advisors are retained by trustees in relation to investments, this obligation to a large extent met by the reviews of the financial advisors submitting a report to the trustees. 

With Brexit on the horizon and the uncertainty over market reaction it is perhaps an ideal time for trustees to consider the investment strategy of their trust funds and as always document any decisions made to confirm that trustees have considered the investment.

Failure to Manage Correctly

Where trustees do not manage a trust fund correctly they can be held to have breached their positno and be held accountable for loss. Where a loss has been incurred but the trustees have acted ina ccordance with their duties, for example if the stock market fell, trustees will not normall ybe liable if they have acted appropriately.  Often it is inaction of trustees rather than a incorrect informed choice that can lead to a question of negligence and in the pre-trustee act case of Nestle v National Westminster Bank PLC (1994) the beneficiaries argued that the trustees had exercised their investment powers too restrictively and that if the trust had been properly invested, it would have been worth a significantly greater value (over £1 million) Whilst the Court accepted the beneficiaries’ arguments they dismissed the claim because the trustees could not be held as following a investment strategy which no reasonably confident trustee would have done in the same circumstances.  Had they not taken any action at all in considering investments the outcome would have been significantly different with the trustees facing liability for the loss. 

Need Further Advice?

Our private client solicitors include members of the Society of Trusts and Estates Practitioners, the internationally recognised body of leading professionals in the areas of estate planning and trusts, and are available to provide advice on trust establishment, administration and resolution across our network of 10 offices throughout Yorkshire and the Tees Valley including York, Harrogate, Northallerton and Stockton.  Should you consider that you may need advice in relation to your role as trustee then contact your nearest office, call 0800 160 1010 or visit www.coles-law.co.uk and our team will be happy to help you.