Trustee
Act 2000
2000 CHAPTER 29
Introduction
1.These explanatory notes relate to the Trustee Act 2000 which
received Royal Assent on 23 November 2000. They have been prepared
by the Lord Chancellor’s Department in order to assist the reader in
understanding the Act. They do not form part of the Act and have
not been endorsed by Parliament.
2.The notes need to be read in conjunction with the Act. They are
not, and are not meant to be, a comprehensive description of the
Act. So where a section or part of a section does not seem to
require any explanation or comment, none is given.
3.A glossary of technical terms used in these notes is provided at
Annex A.
Summary
4.The Act will implement, with minor modification, the changes in
relation to the law of England and Wales recommended in the report
by the Law Commission and the Scottish Law Commission Trustees’ Powers and Duties (1999) Law Com No 260 Scot Law
Com No 172. The principal change will be the creation of a new wider statutory
power of investment to replace the present limited power under the
Trustee Investments Act 1961. This new power of investment will be
supported by a range of new powers to appoint agents, nominees and
custodians; to insure trust property; and to pay professional
trustees. These measures will facilitate the better administration
of trusts and enable trustees to take full advantage of the wider
investment opportunities now open to them, whilst protecting the
interests of beneficiaries against abuse of the new powers. As
under the present law the new powers will only apply to the extent
that the trust instrument permits.
5.The sections in the Act are divided into 6 parts:
·Part
I (sections 1-2) of the Act introduces a new safeguard for
beneficiaries in the form of a statutory duty of care which will
apply to trustees in the exercise of their new wider powers under
the Act. The circumstances in which the duty will apply are listed
in Schedule 1.
·Part
II (sections 3-7) sets out the new general trustee power of
investment which gives trustees the same powers of investment as an
absolute owner other than in land subject, however, to appropriate
safeguards. The new power will replace the power in the Trustee
Investments Act 1961.
·Part III (sections
8-10) introduces a new power that will allow trustees to acquire
freehold and leasehold land for any purpose.
·Part
IV (sections 11-27) contains a wide range of measures relating to
collective delegation by trustees.
o
Sections 11-15 provide trustees with a wide power to delegate their
functions in the absence of an express power, or where an express
power does not provide to the contrary. Not all functions may be
delegated but the new law will permit the delegation of
discretionary functions that do not relate to the distribution of
the trust assets.
o
Sections 16-20 provide trustees with a power to appoint nominees
and custodians in the absence of an express power, or where an
express power does not provide to the contrary.
o
Sections 21-22 impose a duty on trustees to keep any delegation
under review and to take appropriate action.
o
Section 23 defines the extent of the liability of a trustee for the
acts and omissions of an agent, nominee or custodian and his or her
permitted substitute.
o
Sections 24-27 contain supplementary provisions.
·Part
V (sections 28-33) aims to create a better regime for the payment of
professional trustees and the reimbursement of trustees’ expenses
and those of their agents, nominees and custodians.
·Part
VI (sections 34-40) deals with several matters including the
creation of a new power to insure trust property in place of the
present section 19 of the Trustee Act 1925; the extension of the
reforms in the Act to personal representatives; the limited
application of the Act to occupational pension scheme trusts,
authorised unit trusts and certain schemes under the Charities Act
1993; consequential amendments; transitional provisions,
commencement and other supplementary matters.
Background
6.Trust law is of wide application. It applies far beyond the
traditional spheres of wills and family settlements. It has major
application to charities and has increasing importance in commerce.
It is very significant in relation to the management of pension and
other investment funds. However, the law governing the powers and
duties of trustees, particularly the relevant provisions of the
Trustee Act 1925 and the Trustee Investments Act 1961, has not kept
pace with the evolving social and economic role which trusts now
fulfil. This discrepancy has been brought into sharp focus by the
fundamental changes in the conduct of investment business during the
last ten years such as the introduction of the CREST system on the
London Stock Exchange. The situation is now so serious that the
view is widely held that it is very difficult for such trustees
acting under the terms of trust instruments which make no specific
provisions as to investment powers, to satisfy their paramount duty
to act in the best interests of the beneficiaries of the trust.
7.Although the awareness of the need for reform is now sharply
defined, the Act is the culmination of a long history of proposals
for reform of the law of trusts. Several of the reforms in the Act
were considered in the Twenty-third report of the Law Reform
Committee The Powers and Duties of Trustees in
1982. In 1995 HM Treasury
carried out a consultation in relation to a proposal to adjust the
proportions of permitted investments under the 1961 Act. The
response to this consultation made clear that a more fundamental
reform was required. In November 1995 the Law Commission embarked
on a review of the powers and duties of trustees and together with
the Scottish Law Commission and the Trust Law Committee provided
detailed advice on the present law to HM Treasury. The Trust Law
Committee itself was established in 1995 to press for reform of the
law of trusts.
8.In May 1996 Investment
Powers of Trustees: A Consultation Document was published by HM Treasury. In June 1997 the Law Commission
published a consultation paper Trustees’ Powers and Duties (LCCP
No 146). Attempts were made to legislate for some of the proposed
reforms under the Deregulation and Contracting Out Act 1994 but the
Order was lost when Parliament was dissolved in 1997.
9.In July 1999 the Law Commission and the Scottish Law Commission
jointly published Trustees’
Powers and Duties (1999) Law Com No 260 Scot Law Com No 172. In this report the Law Commissions recommended that there should
be primary legislation to reform the law governing the investment
powers of trustees and, in so far as it would be practicable to do
so, that the Trustee Investments Act 1961 should be repealed. The
Law Commission also recommended certain further changes applicable
to England and Wales only.
The Bill
10.The Act has 43 sections and 4 Schedules.
Commentary on Sections
Part 1: The duty of care
11.Sections 1 and 2 form Part I of the Act. Together they implement
the recommendations in Part III of the Report. The sections create a
new precisely defined statutory duty of care applicable to trustees
when carrying out their functions under the Act or equivalent
functions under the trust instrument. As in the law generally, the
phrase “duty of care” signifies a duty to take care to avoid causing
injury or loss. The new duty will bring certainty and consistency to
the standard of competence and behaviour expected of trustees. It
will be a safeguard for beneficiaries and thereby balance the wider
powers given to trustees elsewhere in the Act. The duty will take
effect in addition to the existing fundamental duties of trustees
(for example, to act in the best interests of the beneficiaries and
to comply with the terms of the trust) but will exclude any common
law duty of care which might otherwise have applied.
The duty
is a default provision. It may be excluded or modified by the terms
of the trust. This new duty will apply to the manner of the
exercise by trustees of a discretionary power. It will not apply to
a decision by the trustees as to whether to exercise that
discretionary power in the first place.
12.In relation to the investment of trust funds the new duty makes
statutorily explicit the present common law duty which measures the
behaviour of the trustees against that expected of the ordinary
prudent man of business. This test includes a subjective element to
allow for the particular skills and experience of the trustee in
question. The new duty of care puts this beyond doubt. In relation
to collective delegation by the body of trustees the new duty will
however replace the unsatisfactory and insufficiently demanding
provisions of sections 23 and 30 of the Trustee Act 1925.
13.Section 1 defines the new uniform statutory duty of care for
trustees. The circumstances where the duty will apply are defined
in Schedule 1 to the Act, which is introduced by section 2. The
duty will not apply outside those circumstances. To comply with the
new duty a trustee must show such skill and care as is reasonable in
the circumstances of the case making allowance for his or her
special knowledge, experience or professional status (section
1(1)(a) and (b)). Thus, in relation to the purchase of stocks and
shares, a higher standard may be expected of a trustee who is an
investment banker, specialising in equities, than of a trustee who
is a beekeeper, particularly if the investment banker is acting as a
trustee in the course of his or her investment banking
business. The new duty will therefore provide a standard against
which the manner of the exercise of a power by trustees can be
measured in the particular circumstances of the case. In
determining what constitutes reasonable care consideration would
also be given to the nature, composition and purposes of the trust
being administered.
Section 2:
Application of duty of care
14.Section 2 introduces Schedule 1 to the Act, which defines when the
new duty will apply. In general terms the new duty will apply to
any exercise by a trustee of a power to invest trust property or to
acquire land; to appoint agents, nominees and custodians; or to
insure trust property.
Part II: Investment
15.Sections 3 to 7 form Part II of the Act. This Part creates and
defines a new default power of investment for trustees who do not
have specific powers of investment under the trust instrument or
legislation or whose trust instruments do not make provision which
would be contrary to the new powers. Section 3 creates the general
power of investment. Sections 4 and 5 create additional duties on
the trustees to consider standard investment criteria and to take
proper advice in exercising any power of investment. Section 6
provides that the general power of investment is a default
power. Section 7 defines the trusts to which the new power and
duties will apply.
16.Under the present law the powers of a trustee are defined by the
trust instrument or by legislation. Most modern trust instruments
expressly confer wide investment powers. Older trust instruments
frequently do not. In the absence of express powers under the trust
instrument the trustees must look to legislation to define their
powers. Some trustees, such as occupational pension trustees, have
wide statutory powers of investment (Pensions Act 1995 section
34(1)) but most do not. These trustees are restricted to the powers
contained in the Trustee Investments Act 1961. These powers,
although a generous provision when enacted, are now generally
considered too narrow. The 1961 Act divides the investments which
trustees may make into narrower and wider range
investments. Typically, narrower range investments are
fixed-interest securities and wider range investments are shares.
17.Under the new provisions trustees able to take advantage of the new
default powers will no longer be restricted to specified “authorised
investments” and will be able to invest in the same range of
investments as an absolute owner. Coupled with the new duty of care
(section 1) the new power is intended to confer the widest possible
investment powers whilst ensuring that trustees act prudently in
safeguarding the capital of the trust.
18.The new power will be a default power. That is, it will apply to
the extent that the investment powers of the trustees are not
expressed in the instrument creating the trust or any relevant
legislation. The new power is expected to be most beneficial in
relation to older trusts (including many charities), trusts arising
under “home made” wills and on intestacy.
19.The provisions of Part II do not apply to occupational pension
schemes, authorised unit trusts or certain schemes under the
Charities Act 1993 (see sections 36-38) which are governed by their
own statutory rules.
Section 3:
General powers of investment
20.Section 3(1) will implement the Law Commission’s recommendation in
relation to investment powers by giving trustees, subject to the
safeguards and limitations in sections 3-7 of the Act, the same
power to invest trust assets as if they owned the assets outright
rather than holding them on trust. This new power will enable
trustees to hold investments jointly or in common with other persons
thereby reversing the present rule.
21.The new power is however not entirely general. It does not extend
to investments in land other than by way of loans secured on land
(subsections (3) – (5)). The effect of this limitation is reduced by
section 8 which confers a power to acquire land for any purpose
including as an investment. Separating the powers of investment in
relation to land and other assets in this way has facilitated the
making of consequential amendments to other legislation (see
Schedule 2 to the Act). The new power is not entirely
unfettered. First, trustees will remain subject to their
fundamental duties (for example, the duty to act in the best
interests of the present and future beneficiaries and to avoid any
conflict between their duties as trustees and their personal
interests). Second, the new duty of care created in Part I of the
Act will apply (Schedule 1 paragraph 1(a)). At present, investment
under the Trustee Investments Act 1961 is subject to the common law
duty of care. Third, sections 4 and 5 impose specific duties to have
regard to the need for diversification and suitability of
investments and to obtain and consider proper advice where
appropriate. These duties will apply to trustees in the exercise of
a power of investment. Under the present law there is a general
duty to have regard to the need for diversification so far as
appropriate to the circumstances of the trust and to the suitability
to the trust of the proposed investment and, where exercising
certain statutory powers to invest, to take advice before making the
investment (Trustee Investments Act 1961 section 6).
22.The term “asset” is defined in section 39(1) as including any right
or interest. “Investment” is not defined in the Act. The general
power of investment permits trustees to invest assets in a way which
is expected to produce an income or capital return. “Land” is also
not defined in the Act but is defined in Schedule 1 to the
Interpretation Act 1978 as including buildings and other structures,
land covered with water, and any estate, interest, easement,
servitude or right in or over land.
Section 4:
Standard investment criteria
23.Section 4(1) provides that in exercising a power of investment,
whether under section 3 or otherwise, a trustee must have regard to
the suitability to the trust of the investment and, secondly, to the
extent that it is appropriate in the circumstances, to the need for
diversification of the trust’s investments. These factors are
defined in the Act (section 4(3)) as the standard investment
criteria. “Suitability” relates both to the kind of investment
proposed and to the particular investment as an investment of that
kind. It will include considerations as to the size and risk of the
investment and the need to produce an appropriate balance between
income and capital growth to meet the needs of the trust. It will
also include any relevant ethical considerations as to the kind of
investments which it is appropriate for the trust to make.
24.Section 4(2) requires a trustee to keep the investments of the
trust under review and to consider whether, in the light of the
standard investment criteria, they should be varied. This provision
codifies the common law position, under which “a trustee with a
power of investment must undertake periodic reviews of the
investments held by the trust”: Nestle v National Westminster Bank plc (No 2) [1993]
1 WLR 1260, 1282G, per Leggatt LJ.
25.The definition of the standard investment criteria in section 4(3)
is closely modelled on section 6(1) of the Trustee Investments Act
1961 and accords with modern portfolio theory. The general duty of
care applies in relation to the application of the standard
investment criteria by a trustee (Schedule 1 paragraph 1(b)). As the
exercise of a power of investment is subject to the duty of care in
section 1, trustees may need to have regard to other matters in
addition to the standard investment criteria, as defined. However,
the standard investment criteria will be of central importance in
every case.
26.Section 5 introduces a safeguard for beneficiaries in relation to
powers of investment under section 3 or otherwise. The new
safeguard is that a trustee, when considering the exercise of a
power of investment or carrying out a review of the investments of
the trust, must obtain and consider proper advice about how, in view
of the standard investment criteria (see note on section 4), the
power to invest should be exercised or the investments of the trust
be varied (section 5(1) and (2)). However, as the imposition of an
unqualified duty to take and consider advice before making any
investment or change in investments would be unnecessarily
burdensome, section 5(3) provides that the new duties to obtain
advice will not apply if the trustee reasonably concludes that it is
unnecessary or inappropriate to do so. This would be the case, for
example, if the proposed investment is small, so that the cost of
obtaining advice would be disproportionate to the benefit to be
gained from doing so, or where the trustees themselves possess
skills and knowledge making separate advice unnecessary. These
provisions are at once more extensive and more flexible than the
obligation to take advice in relation to most narrower and all wider
range investments under the Trustee Investments Act 1961 section
6. Where the 1961 Act does not apply at present, the obligation of
a trustee to take advice (if any) is dependent upon the application
of the rule that trustees must act with reasonable prudence in
exercising powers of investment.
27.“Proper advice” is defined in section 5(4). This definition is
based on that in section 6(4) of the Trustee Investments Act 1961
and recognises that there may be circumstances in which a person is
qualified to give advice by reason of his or her ability in and
practical experience of issues other than financial
matters. Although financial expertise will be the primary attribute
of an investment adviser, other skills may also be relevant. For
example, when an investment in land is proposed, the necessary
qualities of the person giving the advice are likely to include
expertise in the valuation of land. In addition, if the trustees
propose to invest in works of art, they would no doubt require
advice from an expert in the relevant field.
28.Section 5(1) builds upon and extends the present duty on trustees
wishing to invest in anything other than a very restricted class of
investments (for example, National Savings Certificates and Bonds)
to obtain and consider proper advice (such advice to be given or
confirmed in writing) as to whether the investment is satisfactory
bearing in mind the need for suitability and diversification
(Trustee Investments Act 1961 section 6(2) and (5)). There is no
express requirement in section 5 for the advice to be given or
confirmed in writing, but to do so will no doubt be regarded as best
practice in many circumstances, and may be necessary for trustees to
show compliance with the general duty of care in section 1.
29.The new general statutory duty of care is to apply in relation to
the exercise of the duty to obtain and consider proper advice under
section 5 (Schedule 1 paragraph 1(b)).
30.Subject to sections 36-38, which exclude the provisions of Part II
from occupational pension schemes, authorised unit trusts or certain
schemes under the Charities Act 1993 sections 6 and 7 define the
trusts to which the new power of investment will apply.
Section 6:
Restriction or exclusions of this part etc.
31.Section 6 provides that the new general power of investment
(defined in section 3(2)) is a default provision. It specifies that
subject to the provisions of section 7 relating to trusts in
existence when the Act is brought into force, the new power will be
available to all trustees in addition to any limited express power
of investment vested in them, but subject to any limitation imposed
by the trust instrument or by primary or subordinate legislation
(section 6(1)). This provision follows the precedent of section
69(2) of the Trustee Act 1925 in relation to the powers conferred by
that Act.
32.“Subordinate legislation” is defined in section 6(3) by reference
to the Interpretation Act 1978 to mean Orders in Council, orders,
rules, regulations, schemes, warrants, byelaws and other instruments
made or to be made under any Act (Interpretation Act 1978 section
21(1)).
33.Section 7 provides for the application of Part II of the Act to
trusts in existence when Part II comes into force (see section 42 as
to commencement). The general rule is that Part II applies to all
trusts irrespective of the date of their creation (section 7(1)).
This rule is however subject to certain exceptions. First, Part II
does not apply to pension trusts, authorised unit trusts or funds
established under schemes made under sections 24 or 25 of the
Charities Act 1993 (see sections 36-38). Second, the effect of the
rule that the new general power of investment is subject to any
restriction or exclusion imposed by the trust instrument (section
6(1)(b)) is not to apply to any trust instrument made before 3
August 1961 (section 7(2)). This will ensure that old restrictions
overcome by the 1961 Act do not revive to restrict the benefits of
the new general power of investment. Such restrictions pre-date a
general statutory power. Fourth, section
7(3)(a) provides that where a trust instrument gives the powers of
investment equivalent to the default powers for the time being
authorised by law, the trustees should have the general power of
investment. This provision ensures that an intention of a settlor
to provide ample powers of investment is not frustrated by this
liberalisation of the general law. It continues the policy
underlying section 3 of the Trustee Investments Act 1961 which
provided that any power of investment to invest property in any
investment for the time being authorised by law for the investment
of trust property, conferred before the passing of the 1961 Act, was
to confer the same power to invest as sections 1 and 2 of that Act. Section
7(3)(b) makes similar provision for trust instruments made after the
1961 Act was passed.
34.It may be helpful to give an example of how sections 6 and 7 will
operate.
35.Take, for example, an express power of investment in a post 2
August 1961 trust instrument authorising trustees to invest “only in government bonds”. This power would be taken to exclude the general power of
investment (section 6(1)(b)). On the other hand, an express power in
another instrument of the same date to invest “in shares quoted on
the London Stock Exchange, but not in shares of X plc” would take
effect as the general power of investment, subject to the
restriction on investing in X plc (section 6(1)). Had the trust
instruments pre-dated 3 August 1961, the general power of investment
would have applied free of either limitation (section 7(2)) as would
the new statutory powers conferred under the 1961 Act when it came
into force (Trustee Investments Act 1961 section 1(3)).
36.Had the trust instrument merely stated that the trustees were to
have such powers of investment as may for the time being be
authorised by law (or words to that effect), the Act would confer
the general power of investment (section 7(3)).
Part III: Acquisition of Land
37.Sections 8 to 10 form Part III of the Act. They create a new power
for trustees to acquire and deal with land on behalf of the
trust. Part III does not apply to occupational pension schemes,
authorised unit trusts and certain schemes under the Charities Act
1993 (see sections 36-38) or to trusts where, before Part III is
brought into force, the trustees already have power to invest or
apply trust funds by virtue of primary or subordinate legislation
(defined in section 6(2)): for example, under the Settled Land Act
1925.
38.At present, although trustees of land and Settled Land Act trustees
have power to buy land (with or without the aid of a mortgage in the
case of trustees of land) in England and Wales for any reason (not
just for investment), trustees of personal property only have power
to acquire land if expressly authorised to do so in the trust
instrument.
39.The new general power of investment introduced by section 3 of the
Act has only limited application to land (see section 3(3)) and is
in any event restricted to investment. The Act therefore makes
separate provision to remedy the disparity between the powers of
different types of trustees in relation to the purchase of land.
Section 8:
Power to acquire freehold and leasehold land
40.Section 8(1) gives trustees the power to acquire freehold or
leasehold land in the United Kingdom as an investment, for
occupation by the beneficiaries or for any other reason. This
provision is broadly modelled on section 6(3) and (4) of the Trusts
of Land and Appointment of Trustees Act 1996. The express duty to
have regard to the interests of the beneficiaries in exercising
powers under section 6(5) of the 1996 Act is not replicated in the
Act. However that provision merely clarifies what is already the
law and the omission of an equivalent provision is not intended to
diminish the obligations of trustees.
41.The phrase “freehold or leasehold land” is defined in section 8(2).
In England and Wales it means a legal estate in land. The only
estates in land which are capable of being legal estates are an
estate in fee simple absolute in possession and an estate for a term
of years absolute. These estates correspond to freehold and
leasehold respectively (Law of Property Act 1925 section
1(1)). Trustees may also acquire the equivalent interests in land
in Scotland and Northern Ireland.
42.Having acquired land a trustee must be able to deal with it
effectively. Following the precedent of section 6(1) of the Trusts
of Land and Appointment of Trustees Act 1996, section 8(3) gives
trustees who acquire land the powers, for the purpose of exercising
his or her trustee functions, of an absolute owner in relation to
the land. For example, trustees will have the power to hold land
jointly with other persons, have powers of sale and leasing, and
power to grant mortgages in respect of land.
43.Sections 9 and 10 have a similar effect in relation to the
application of Part III of the Act as sections 6(1) and 7(1)-(3)
respectively in relation to Part II.
Section 9:
Restriction or exclusion of this Part etc.
44.Section 9 makes it clear that the power to acquire land is in
addition to trustees’ other powers but is subject to any
restrictions or exclusions laid down in the trust instrument or by
any enactment or subordinate legislation (defined in section 6(2)).
The new power is therefore a default provision.
45.Section 10 provides that the power to acquire and deal with land
created in Part III applies to all trustees, whenever the relevant
trust was created. The new power does not apply to the trustees of a
settlement under the Settled Land Act 1925 or to trustees of trusts
subject to the Universities and Colleges Estates Act 1925.
46.The general duty of care imposed by section 1 of the Act applies to
the exercise of the new statutory power to acquire land under
section 8; to the exercise of any power to acquire land under the
trust instrument and, in both cases, when exercising any power in
relation to the land acquired (Schedule 1 paragraph 2).
47.By virtue of paragraph 45(1) of Schedule 2 to the Act the present
restriction on the scope of the powers of trustees of land in
section 6 of the Trusts of Land and Appointment of Trustees Act 1996
to land in England and Wales is removed so that trustees of land
will have the same powers in relation to the acquisition, management
and disposal of land will be applicable as other trustees.
Part IV: Agents, Nominees and Custodians
48.Sections 11 - 15 set out the powers of collective delegation that
trustees have in default of wide express powers being conferred by
the trust instrument. They do not relate to delegation by individual
trustees, which continues to be governed by section 25 of the
Trustee Act 1925 and section 1 of the Trustee Delegation Act
1999. Sections 16 - 20 govern trustees’ powers to appoint nominees
and custodians in cases where the trust instrument contains no
express powers to do so. Sections 21 - 23 provide for the review by
trustees of, and liability of trustees for, their agents, nominees
and custodians. Sections 24 - 27 deal with supplementary matters.
49.These powers of delegation and appointment are subject to the duty
of care created by section 1 (Schedule 1 paragraph 3) and will take
effect as a default provision applicable to all trusts except
pension trusts, authorised unit trusts, or funds established under
schemes made under sections 24 or 25 of the Charities Act 1993 (see
sections 36 - 38).
50.Under the present law the trustees of a trust cannot, as a
collective body, delegate their dispositive duties to distribute the
trust property to those entitled to it under the trust, or their
fiduciary discretions (that is powers implying a personal discretion
such as the selection of trust investments or the decision whether
or not to sell or lease trust property) without express authority in
the trust instrument. The Law Commission considered that in view of
the increasingly specialised nature of the tasks required to be
undertaken by trustees, some of the restrictions on trustees were
now a serious impediment to the administration of trusts and that
far “from promoting the more conscientious discharge of the
obligations of trusteeship, the prohibition on the delegation of
fiduciary discretions may force trustees to commit breaches of trust
in order to achieve the most effective administration of the
trust.”. The Law Commission concluded that in relation to trusts
which were not charitable trusts the characterisation of powers of
investment and some powers of management as in all respects
fiduciary and therefore non-delegable was outmoded and that in
general terms the proper distinction to be drawn in a modern law of
trusts for the purpose of ascertaining whether a particular function
ought to be delegable was between administrative powers (which would
be delegable) and distributive powers (which would not).
51.In relation to charitable trusts the failings of the present law
are mitigated by the power of the Charity Commissioners to authorise
dealings with trust property which would not otherwise be within the
powers of the trustees (Charities Act 1993 section 26) but the
underlying problems of the law remain. Unfortunately the
Commission’s proposals for trusts generally cannot be applied to
charities without some refinement. This is because the concept of
charitable purposes is much wider than the particular charitable
objects for which the trust exists. A prohibition on the delegation
of distributive functions, that is functions relating to charitable
purposes, would narrow the powers to delegate of charitable
trustees. The appropriate distinction in relation to charitable
trusts is between the functions which relate to the generation of
income to finance the charitable purposes of the trust and the
carrying out of those purposes. Different provision is therefore
made in the Act for charitable and non-charitable trusts.
Section 11:
Power to employ agents
52.Section 11(1) provides that, subject to the provisions of Part IV,
trustees may delegate any or all of their “delegable functions” to
an agent. For the reason already given, the nature of the functions
which may be delegated will in part be governed by whether the trust
is charitable or not. In the case of non-charitable trusts to which
section 11 applies, the trustees may delegate any function except
(a) a function relating to the distribution of the trust assets; (b)
a power to allocate fees or other payments to capital or income; (c)
a power to appoint a trustee; and (d) a power conferred by the trust
instrument or an enactment (i) to delegate a trustee function or
(ii) to appoint a nominee or custodian.
53.Section 11(3) sets out the functions that a trustee of a charitable
trust may delegate. Paragraph (a) ensures that non-discretionary
(as opposed to discretionary) functions that can now be delegated
under section 23(1) of the Trustee Act 1925 will continue to be
delegable. Paragraphs (b) and (c) provide for income generating
activities to be delegated except in so far as the income is derived
from profits of a “trade which is an integral part of the carrying
out the trust’s charitable purpose”. Fund raising activities which
are an integral part of carrying out the trust’s charitable purpose
would therefore not be delegable. The concept of a “trade which is
an integral part of the carrying out the trust’s charitable purpose”
is defined in section 11(4).
54.Examples of fund raising activities which are not delegable would
include the charging of fees by a school operating as a charitable
trust. Paragraph (d) enables further functions to be made delegable
by order made by the Secretary of State (defined in the
Interpretation Act 1978 Schedule 1, as one of Her Majesty’s
principal Secretaries of State). Section 11(5) provides that the
order will be made subject to a negative resolution procedure.
Section 12:
Persons who may act as agents
55.Section 12 defines the persons who may act as agents for the
trustees under section 11. Subject to the prohibition on the
appointment of beneficiaries (section 12(3)) and to the requirement
that if two or more persons are appointed they must exercise the
function delegated jointly, there are no restrictions on the persons
whom trustees may appoint as their agents under section 11. Thus,
the trustees may delegate to one of their number or to their nominee
or custodian (section 12(1) and (4)). The prohibition on the
appointment of a beneficiary as an agent for the trustees (even if
the beneficiary is also a trustee) will prevent the use of section
11 to avoid the restrictions on delegation by trustees of land to a
beneficiary under section 9 of the Trusts of Land and Appointment of
Trustees Act 1996. Under that section the delegation of a trustee
function relating to land to a beneficiary is permitted if the
beneficiary is of full age and beneficially entitled to an interest
in possession in the trust land. Such delegation must be by power
of attorney granted jointly by all the trustees and the beneficiary
is subject to the same duties and liabilities as the trustees.
Delegation of any function to a beneficiary continues to be possible
under section 25 of the Trustee Act 1925, but again this is subject
to restrictions which do not apply to delegation under section 11 of
the Act.
Section 13:
Linked functions etc
56.Section 13 provides that, subject to the exceptions specified
below, an agent authorised to act under section 11 is subject to any
specific duties or restrictions attached to the function
delegated. The reference to specific duties does not include the
duty of care imposed by section 1 of the Act. That duty is limited
to trusteesand
does not apply to an agent in the performance of the
agency. Nevertheless, agents will owe a separate duty of care to
the trustees under the general law of agency.
57.As the example given in subsection (1) of section 13 suggests, the
obligation to comply with specific duties and restrictions attached
to the trustee function delegated under section 11 will most
commonly apply in cases where the trustees delegate their investment
function. In these cases the agent will be obliged to have regard
to the standard investment criteria in accordance with section
4. The agent may also be required to obtain and consider proper
advice in accordance with section 5. However, it will usually be
the case that the person appointed to exercise the trustees’ powers
of investment as an agent would be able, if he were a trustee, to
utilise the exception in section 5(3). This fact is recognised by
section 13(2). Section 13(1) is, however, not restricted to
investment. For example, sections 36 - 39 of the Charities Act 1993
impose restrictions on dispositions and mortgages of land owned by
charities. If charity trustees delegate functions in relation to
land under section 11(3)(b), the agent will be required to comply with the requirements of the
1993 Act in carrying out those functions.
58.Section 13(3), (4) and (5) relate to the duties imposed by section
11(1) of the Trusts of Land and Appointment of Trustees Act
1996. These duties require some trustees of land, in the exercise
of their functions in relation to trust land, so far as practicable,
to consult certain beneficiaries and, so far as consistent with the
general interest of the trust, to give effect to their wishes. The
beneficiaries are those of full age and beneficially entitled to an
interest in possession in the land (Trusts of Land and Appointment
of Trustees Act 1996 section 11(1)). This duty can be excluded and
does not apply to trusts of land created or arising under a will
made before the 1996 Act came into force (Trusts of Land and
Appointment of Trustees Act 1996 section 11(2) and (3)).
59.The duty to consult beneficiaries under section 11(1) of the 1996
Act is not delegable. Delegation under section 11 is therefore only
permitted on terms that allow the trustees to consult and give
effect to the wishes of the beneficiaries (section 13(4)).
Consistently with this, an agent under section 11 is not obliged to
consult under section 11(1) (section 13(5)).
60.Section 14 relates to delegation generally and section 15 imposes
special restrictions in relation to the delegation of asset
management functions. Trustees who fail to comply with these
requirements will be liable for breach of trust. The general rule
in relation to delegation under section 11 is that trustees will be
free to decide the terms of the appointment of the agent (section
14(1)). The basis upon which the agency will have effect will be
governed by the general law of agency. This freedom is however
subject to various restraints. First, the exercise of the power to
delegate under section 11 or the trust instrument will be subject to
the duty of care (section 1 and Schedule 1 paragraph 3(1)(a) and
(d)). Second, there are some specific restrictions: trustees may
not delegate on terms which permit the agent to appoint a
substitute; which restrict the liability of the agent or his
substitute to the trustees or any beneficiary; or which permit the
agent to act where a conflict of interest may arise. However, these
restrictions will not apply if it is reasonably necessary to
delegate on such terms (section 14(2)). Third, in the case of asset
management functions and remuneration, the provisions of sections
15(2) and 29 to 32 respectively apply. The restraints in the first
and third categories of restriction are described in relation to the
relevant sections.
61.The second is a pragmatic response to the realities of modern fund
management which nonetheless ensures that adequate protection is
given to beneficiaries by imposing a test of reasonable necessity on
the trustees. Under the present law, subject to an exception for
property abroad under section 23(2) of the Trustee Act 1925,
trustees may only allow sub-delegation by their agent if authorised
to do so under the trust instrument. This is no longer appropriate
in modern conditions where the appointment of a fund manager will
often be essential to the efficient and effective management of the
assets of the trust. Section 14(3)(a) flows from this. As the
standard terms of business of fund managers generally require limits
on liability and the ability to act despite a conflict of interest,
the ability to appoint a manager would amount to little in practice
if trustees were unable to accept such terms (see section 14(3)(b)
and (c)).
Section 15:
Asset management: special restrictions
62.Section 15 places special requirements on trustees in relation to
the delegation of their asset management functions; that is, their
functions relating to the investment of trust assets and the
acquisition, disposal and management of trust property (section
15(5)). First, although there is no requirement of writing in
relation to agency agreements generally, the terms of an agreement
authorising the agent to exercise asset management functions on
behalf of the trustees must be in writing or evidenced in writing
(section 15(1)) and must require the agent to secure compliance with
the trustees’ guidance as to how the functions are to be exercised
for the time being (section 15(2)). This guidance must be in
writing or evidenced in writing (section 15(4)) and must be framed
with a view to ensuring the functions will be exercised in the best
interests of the trust (section 15(3)). The document containing or
evidencing the guidance is referred to in the Act as a “policy
statement” (section 15(2)(a)). The policy statement must be prepared
before the agent is authorised to act, but can be revised or
replaced (section 15(2)(a) and (b)(ii)). The duty of care under
section 1 applies to the preparation of a policy statement (Schedule
1 paragraph 3(2)(c)). The policy statement need not be in any
particular form, provided that it constitutes a record of the
trustees’ policy on how the functions in question should be
exercised.
63.For example, if trustees delegate their powers of investment to an
agent, they must enter into an agreement with the agent at the
outset setting out the investment objectives of the trust. Such an
agreement may include considerations as to liquidity of assets to
meet the needs of the trust, the desired balance between capital
growth and income yield, and any “ethical” considerations relevant
to the investment policy of the trust. The policy statement may
expand upon the manner in which the duties imposed by section 4
(duty to invest and to review investments having regard to the
standard investment criterion) should be discharged in respect of
the trust. In relation to the delegation of functions relating to
the acquisition and management of land on behalf of the trust, the
policy statement may include considerations as to the value and type
of property that may be acquired, and the quality of title
required. Where relevant it may also consider the terms upon which
land may be let, sold or charged. The requirement for a policy
statement only applies where the trustees delegate their discretion
in relation to the matters concerned. It does not apply, for
example, in cases where the trustees obtain investment advice but
take decisions on investment matters themselves.
64.The duties of trustees with respect to keeping the delegation of
functions (and any policy statement) under review are contained in
section 22.
Section 16:
Power to appoint nominees
65.Sections 16 to 20 govern the powers of trustees to appoint nominees
and custodians in cases where the trust instrument contains no, or
insufficient, express powers to do so.
66.In this context a nominee is a person appointed by the trustees to
hold trust property in his or her own name. Thus, a person may be
registered as the owner of certain shares in a company but may in
fact hold them as nominee for a trust. A custodian is defined as a
person who undertakes the safe custody of some or all of the assets
of the trust or of any documents or records concerning the assets
(section 17(2)).
67.The powers to appoint nominees and custodians are conferred by
sections 16 and 17. These powers are conferred on trustees of all
trusts except pension trusts, authorised unit trusts, or funds
established under schemes made under sections 24 or 25 of the
Charities Act 1993 (see sections 36 - 38). In addition, these
powers do not apply to trusts which have a custodian trustee as the
trust property will be vested in the custodian trustee (sections
16(3) and 17(4): see section 4(2) of the Public Trustee Act 1906),
or where relevant assets are vested in the official custodian for
charities. Nor do the powers apply if the trust instrument or
legislation provides to the contrary (section 26(b)).
68.Under the present law the ability of trustees of private trusts to
employ nominees and custodians is largely governed by two common law
principles. The first is that a trustee is under a duty to take
such steps as are reasonable to secure control of the trust property
and to keep control of it. This prevents trustees from placing
assets in the name of nominees or custodians and from using powers
of delegation to disguise the appointment of a nominee or
custodian. Second, where there are two or more trustees they have a
duty to ensure that the title to the trust property is in their
joint names so that it can only be transferred with the consent of
all. It follows that in the absence of express authority in the
trust instrument or statute trustees can neither vest property in
nominees nor place trust documents in the custody of a custodian. To
do so would result in breach of trust. The Law Commission considered
that the present law was unduly restrictive. In particular it did
not enable trustees to use nominees (a) to provide an administrative
service in relation to investments; (b) to facilitate dealings by a
discretionary fund manager; (c) as a method of using CREST; and (d)
in relation to overseas investments traded by a computerised
clearing system. In short the present law prevented many trustees
from participating in the benefits of modern investment management.
69.The duty of care (section 1) will apply to the appointment of a
nominee or custodian under sections 16 and 17 or the trust
instrument (Schedule 1 paragraph 3(1)(b), (c) and (d)).
70.Notwithstanding the fact that a person appointed to act as a
nominee (whether under section 16 or an express power in the trust
instrument) may act as a bare trustee, it is not intended that the
appointment of a nominee should affect the fiduciary relationship of
the trustees to the beneficiaries of the trust.
71.Subject to the provisions of Part IV of the Act (sections 11-27) section
16(1) gives trustees power to appoint a person to act as their
nominee and to vest the relevant assets in the nominee provided that
the appointment is in writing or evidenced in writing (section
16(2)) and the trust does not have a custodian trustee or relevant
assets are not vested in the official custodian for charities
(section 16(3)).
Section 17:
Power to appoint custodians
72.Section 17(1) makes similar provision for trustees to appoint a
person as a custodian. As mentioned section 17(2) defines
“custodian”.
Section 18:
Investment in bearer securities
73.Although section 17 confers a power to appoint a custodian, there
is one situation in which a custodian must be appointed. Under
section 18(1) trustees (other than sole trustees who are trust
corporations (section 25(2)) who retain or invest in securities
payable to bearer must appoint a custodian of those securities
unless the trust instrument provides to the contrary (section
18(2)). This provision replaces section 7(1) of the Trustee Act
1925 but does not replicate the requirement in that section that the
custodian must be a “banker or banking company”. Paragraph 1(2) of
Schedule 3 to the Act provides that any banker or banking company
holding any bearer securities deposited with him under section 7(1)
will be deemed to be a custodian appointed under section 18.
Section 19:
Persons who may be appointed as nominees or custodians
74.For the better protection of the beneficiaries section 19 restricts
the persons who may be appointed nominee or custodian under sections
16, 17 and 18 to persons who are either carrying on business as a
nominee or custodian (whether with or without other activities), are
a body corporate controlled (see below) by the appointing trustees,
or a solicitors’ nominee company recognised under section 9 of the
Administration of Justice Act 1985, (section 19(1), (2) and
(3)). It is intended that the use of such bodies corporate will
allow trustees to use special purpose vehicles for nominee or
custodianship purposes. In addition, trustees of charitable trusts
(other than exempt charities) must comply with any guidance about
the selection of a nominee or custodian issued by the Charity
Commissioners (section 19(4)). Subject to these constraints, a
trustee which is a trust corporation may be appointed a nominee or
custodian as may two or more trustees (whether or not trust
corporations) if they are to act jointly. However, a single trustee
other than a trust corporation may not be appointed (section 19(5)).
Section 19(6) provides that a person appointed as custodian or agent
may also be appointed nominee by the trustees. Section 19(7) makes
similar provision in relation to appointments of custodians. These
provisions replicate the effect of section 12(4) in relation to the
appointment of agents.
75.The terms “charitable trust” and “exempt charity” are defined in
section 39(1) of the Act.
76.The test for determining whether a body corporate is controlled by
trustees for the purpose of section 19(2)(b) is defined in section
840 of the Income and Corporation Taxes Act 1988 (see section
19(3)). This section provides that “control” in relation to a body
corporate means the power of a person to secure (a) by means of the
holding of shares or the possession of voting power in or in
relation to that or any other body corporate; or (b) by virtue of
any powers conferred by the articles of association or other
document regulating that or any other body corporate, that the
affairs of the first mentioned body corporate are conducted in
accordance with the wishes of that person. Control may therefore
be direct or indirect.
Section 20:
Terms of appointment of nominees and custodians
77.Section 20 has a similar effect in relation to the appointment of
nominees and custodians as section 14 has in relation to the
appointment of agents.
78.Sections 21 to 23 provide for the review by trustees of the
appointments of agents, nominees and custodians (section 22) and the
liability of the trustees for such persons (section 23). Section 21
defines when sections 22 and 23 respectively will apply. That is,
where trustees have appointed an agent, nominee or custodian under
sections 11, 16, 17 or 18 or under the trust instrument or under any
enactment or subordinate legislation: provided that in the case of a
trust instrument, the terms of the trust instrument are consistent
with section 22 or 23 (as the case may be) (section 21(2) and (3)).
Section 22:
Review of agents, nominees and custodians
79.Where it applies section 22(1) imposes a single duty with three
elements on trustees during any agency, nomineeship or
custodianship. First, they must keep under review the terms of the
appointment and how the person appointed is performing. This
obligation means that the trustees must keep under review the
question of whether the person who has been appointed to act for the
trust is a suitable person to do so, and whether the terms on which
that person acts are appropriate. In addition, the trustees must
keep under review the manner in which the agent, nominee or
custodian is performing his or her functions. The duty to “keep
under review” does not oblige trustees to review the arrangements at
specific intervals or in a particular way. The manner in which the
duty should be discharged will depend upon what is reasonable in the
circumstances. Second, if circumstances make it appropriate, the
trustees must consider whether to exercise any power of intervention
(defined in section 22(4)) that they have: for example, to give
directions or to revoke the appointment. Circumstances in which it
would be appropriate for trustees to do this may arise, for example,
where the agent, nominee or custodian is not carrying out his or her
functions effectively, or where the trustees have cause to doubt the
suitability of the person in question to continue to act for the
trust. Finally, if the trustees consider that there is a need to
exercise a power of intervention, they must do so.
80.Section 22(2) makes specific provision in relation to agents
authorised to exercise “asset management functions” (see section
15(5)). In these cases the duty under section 22(1) includes
consideration of whether the current policy statement (see section
15) is being complied with; whether it should be revised or replaced
and, if so, to revise or replace it accordingly (section
22(2)). Any revision or replacement must be in, or evidenced in,
writing and must be formulated with a view to ensuring that the
functions will be managed in the best interests of the trust
(section 15(3) and (4) as applied by section 22(3)).
81.When carrying out their duties under section 22, trustees are
subject to the duty of care under section 1 (see Schedule 1,
paragraph 3(e)).
Section 23:
Liability for agents, nominees and custodians
82.Section 23 defines when a trustee will be liable for the acts or
defaults of any agent, nominee or custodian or his or her permitted
substitute. This provision will enhance the protection of
beneficiaries by replacing the unsatisfactory provisions of section
23 and section 30 of the Trustee Act 1925 (as interpreted in Re
Vickery[1931] 1 Ch 572) with the standard duty of care under section
1. These sections are to be repealed by the Act.
83.Under the present law, in the absence of express provision in the
trust instrument, the liability of trustees for the actions of their
agents is governed by statute. The principal provisions are sections
23(1), 23(2). 23(3) and 30(1) of the Trustee Act 1925. However,
despite their common provenance, these provisions do not form a
coherent whole and are considered by many not to require a
sufficiently high standard in relation to the appointment and
control of agents by trustees. Section 23(1) exonerates trustees
who acted in good faith from loss resulting from the appointment of
their agents. It is uncertain whether trustees are still required
to act with reasonable prudence in appointing an agent. Section
23(2) has a limited application to agents appointed to deal with
trust property abroad. Section 23(3) gives trustees a limited power
to appoint certain agents and preserves the liability of trustees if
assets are left in the hands of the agents longer than is
necessary. However, the provision is a dead letter as the
delegation can be effected under section 23(1) without the said
liability. Under section 30(1) a trustee is chargeable only for
moneys and securities actually received by him or her. The trustee
is not liable for any loss caused by the act or default of anyone
else unless it is caused by his own wilful default (i.e. a conscious
breach, or reckless performance, of duty). Trustees will therefore
seldom be liable for loss caused by an agent. However, in cases
where section 30 does not apply (for example where an agent is
employed simply to transmit trust money or property from one person
to another) a higher standard is required of the trustees. They
will be liable if they fail to act with reasonable prudence. The
provisions of section 30 in particular have been the subject of much
criticism and comment. (All references to sections 23 and 30 in
this paragraph refer to the Trustee Act 1925.)
84.Section 23(1) of this Act makes clear that a trustee who satisfies
the duty of care (section 1 and Schedule 1 paragraph 3) in relation
to the appointment and review of the appointment (section 22) of an
agent, nominee or custodian will not be liable for the acts and
defaults of the appointee.
85.“Entering into arrangements” includes the selection of the agent,
nominee or custodian, the determination of the terms of the
appointment and, if applicable, the preparation of a policy
statement under section 15(2) (Schedule 1 paragraph 3(2)).
86.Section 23(2) governs the liability of trustees for the acts or
defaults of any permitted substitute of an agent, nominee or
custodian. Under sections 14(2)(a) and 20(2)(a), trustees may only
authorise or appoint an agent, nominee or custodian on terms that
permit the appointment of a substitute where it is reasonably
necessary for the trustees to agree to such terms. Having agreed
such a term, the trustees will only be liable for the acts or
defaults of a substitute agent, nominee or custodian if they failed
to comply with the duty of care under section 1 when agreeing that a
substitute could be appointed or when carrying out their duties of
review under section 22 in so far as they relate to the use of the
substitute.
87.Sections 24 to 27 make certain supplementary general provisions in
relation to the use of agents, nominees and custodians by trustees.
Section 24:
Effects of trustees exceeding their powers
88.Section 24 provides that appointments of agents, nominees or
custodians under Part IV are not invalidated by any failure of the
trustees to respect the limits of their powers. This provision will
facilitate dealings by third parties with agents, nominees and
custodians appointed by trustees. It will have the effect that
third parties will not need to satisfy themselves that the trustees
have complied with the requirements of the Act. Examples of the
kinds of mistakes which trustees might make include: the appointment
under section 11 of a person as an agent who is in fact a
beneficiary of the trust contrary to section 12(3); the
authorisation of an agent on terms which prevent the trustees as
trustees of land from consulting with the relevant beneficiaries
under section 11(1) of the Trusts of Land and Appointment of
Trustees Act 1996 (section 13(4)); or an appointment on terms which
permit the agent to appoint a substitute where that is not
reasonably necessary. Indeed, even where an agent is authorised to
exercise a function which is not a “delegable function” as defined
in section 11, the authorisation will be valid.
89.Section 24 does not, of course, relieve trustees of any of their
obligations under the Act. They will still be liable for any loss
incurred by the trust as a consequence of an ultra vires appointment. In addition, if a person is authorised to exercise a
function as an agent, that person may also be liable, as trustee de son tort,
if the function in question is not properly delegable under section
11. Both parties to the appointment have therefore an interest in
ensuring that the appointment can properly be made.
90.The powers of delegation conferred by Part IV are exercisable by
the trustees collectively. Section 25 makes clear that with one
exception Part IV of the Act applies equally to a trust with a sole
trustee as to a trust with a body of trustees. The exception is
that a trust corporation which is a sole trustee need not appoint a
custodian of any securities payable to bearer forming part of the
trust property (section 18). References to the trustees are
therefore to be taken to include sole trustees except in sections
12(1) and (3) and 19(5).
91.Section 12(1) authorises the appointment under section 11 of one of
a number of trustees as agent. Section 19(5) permits the appointment of a trustee which is a trust
corporation or two or more trustees as nominees or custodians under
sections 16, 17 or 18. These exceptions also make clear that a sole trustee
cannot be his or her own agent, nominee or custodian. Section 12(3)
prohibits the appointment of a beneficiary as an agent under section
11.
Section 26:
Restriction or exclusion of this Part etc.
92.Section 26 provides that the powers to appoint agents, nominees and
custodians conferred by Part IV are in addition to any other powers
vested in the trustees but are subject to any limitations in the
trust instrument or legislation. In short, the powers are general
default provisions which will not override specific
provision. “Subordinate legislation” is defined in section
6(2). Section 26 is to the same effect in relation to Part IV as
are sections 6 and 9 in relation to Part II and III respectively.
93.Section 27 provides that Part IV applies irrespective of the date
of creation of the trust. This will bring the benefit of the new
powers to the greatest possible number of trustees and
beneficiaries. Part IV, like Parts II and III, does not apply to
authorised unit trusts or schemes under sections 24 and 25 of the
Charities Act 1993 (sections 37 – 38). However, Part IV does apply
with modifications to occupational pension trusts (see section 36(4)
– (8)).
Part V: Remuneration
94.These sections relate to professional charging clauses and the
reimbursement of expenses incurred by trustees. The provisions of
the Act will govern the remuneration of “professional” trustees in
two ways: first, by setting down rules of construction for express
professional charging clauses in trust instruments; and secondly, by
providing for the remuneration of certain trustees when there is no
express professional charging clause in the trust instrument. The
new provisions will, in general terms, apply to all services
provided after Part V comes into force irrespective of the date of
creation of the trust (see section 33 below). The creation of an
implied professional charging provision is likely to be of the
greatest benefit to old trusts, informally created trusts and trusts
arising on intestacy whilst the new rules of construction will
benefit all professional trustees.
95.The general rule under the present law is that trustees should not
be paid for acting as such. This rule is founded on the principles
that trustees are not allowed to derive any benefit from trust
property and that to allow them to be paid might give rise to
conflicts of interest and duty. Despite the general rule, the
present law does permit trustees to be remunerated in certain
circumstances. The three most significant of these are where the
trust instrument so provides; where payment is authorised by statute
(for example, Trustee Act 1925 section 42, Judicial Trustee Act 1895
section 1(5); Public Trustee Act 1906 sections 4(3) and 9) and when
ordered by the court under its inherent jurisdiction to secure the
good administration of trusts. Modern trust instruments will
almost invariably contain an express professional charging
clause. The absence of such a clause would make it unlikely that a
professional trustee would accept office in relation to the trust
but would not prevent the trustees delegating administrative
functions to the professional as an agent. However, the mere
presence of an express charging clause may not itself be sufficient
to reward a professional trustee properly. First, such clauses are
strictly construed against the professional trustee. Thus, unless
the trust instrument provides to the contrary (as modern trust
instruments will usually do) the professional trustee with the
benefit of a charging clause will only be able to be paid for
services which could not have been provided by a lay
trustee. Second, remuneration under a professional charging clause
is in some cases regarded as a gift or legacy rather than an expense
of the administration.
Section 28:
Trustee’s entitlement to payment under trust instrument
96.Section 28 introduces the new rules of construction of express
professional charging clauses in trust instruments. Section 28(1)
provides that the new rules will apply in favour of trust
corporations and trustees acting in a professional capacity.
Subsection (5) explains that to satisfy the condition that a trustee
(other than a trust corporation) must be acting in a professional
capacity, there must be a close nexus between the profession or
business in the course of which the trustee acts and the services
which he or she provides as trustee.
97.The new rules for the interpretation of professional charging
clauses are set out in sections 28(2), and (4). These new rules will
apply in relation to trusts whenever created provided that the
application of the new rules is not inconsistent with the terms of
the trust instrument. Nevertheless, the new rules only apply in
relation to services provided on or after the commencement of
section 28.
98.Section 28(2) reverses the present common law rule which requires
an express charging clause to be strictly construed against the
trustee, so that, unless the trust instrument contains contrary
provision, a professional trustee, who has the benefit of such a
clause, may only be remunerated for services which could not have
been provided by a lay trustee. Where section 28(2) applies, the
services for which a trust corporation or a trustee acting in a
professional capacity may be entitled to payment include services
which are capable of being provided by a lay trustee (that is, a
person who is not a trust corporation and who does not act in a
professional capacity as provided by section 28(6)).
99.Section 28(3) provides for restrictions on the operation of the
clause in respect of charitable trustees.
100.Section 28(4) contains the second new rule of construction of
express charging clauses. Under the present law, payments under
express charging clauses are treated for many purposes as a gift and
not as remuneration for services rendered. The new rule reverses
this rule of construction for the purposes of section 15 of the
Wills Act 1837 (which renders void gifts made in a will to a witness
to the will and gifts to the spouse of such a person). The change
will enable trustees to be paid for work done in connection with
testamentary trusts even where they witness the will under which the
trust arises.
101.In addition, by virtue of section 28(4)(b) such payments will in
future be treated as remuneration for services for the purposes of
determining their priority as against other payments due from the
deceased’s estate (Administration of Estates Act 1925 section
34(3)). Thus, in relation to the administration of the estate, the
trustee’s charges will become an expense of the
administration. Section 33(2) prevents this provision from having
an effect upon priorities in the administration of estates where the
death occurred before section 28 comes into force.
Section 29:
Remuneration of certain trustees
102.In general terms section 29 creates an implied professional
charging clause applicable to all non-charitable trusts which do not
make provision for remuneration of professional trustees. The
remuneration of charitable trustees is dealt with in section 30.
103.Section 29(1) confers upon every trust corporation which acts as a
trustee the right to receive “reasonable remuneration” (as defined
by section 29(3)) from the trust funds (defined in section 39(1))
for any services that it provides to or on behalf of the trust
unless the right is negated in the circumstances mentioned
below. The right applies even if the trust corporation is a sole
trustee, but does not apply if the trust corporation is a trustee of
a charitable trust (section 29(1)(b)).
104.Section 29(2) provides, subject to certain conditions and
exceptions, for all other trustees of non-charitable trusts to
receive reasonable remuneration for any services they provide on
behalf of the trust. However, unlike trust corporations under
section 28, other trustees do not have an automatic entitlement to
such remuneration. The entitlement is not available to sole trustees
or to trust corporations and is dependent upon the trustee acting in
a professional capacity (see section 28(5)) and upon the agreement
in writing of each of the other trustees. In determining whether to
give such agreement, trustees will be subject to their paramount
duty at common law to act in the best interests of the present and
future beneficiaries of the trust.
105.Section 29 (3) defines “reasonable remuneration” in relation to the
provision of services by a trustee. It also makes it clear that a
trust corporation which is a recognised provider of banking services
may make any reasonable charges for the provision of such services
in the course of, or incidental to, the performance of its functions
as a trustee. In determining the level of remuneration that is
reasonable in the circumstances, regard must be had not only to the
nature of the services provided, but also to the nature of the trust
and the attributes of the trustee. Remuneration authorised under
section 29 will, by definition, be regarded as remuneration for
services (and not as a gift) for all purposes, and will be payable
out of the income or capital funds of the trust (see the definition
of “trust funds” in section 39(1)).
106.Section 29(4) provides that remuneration may be paid even if the
services provided could have been provided by a lay person (that is,
a person who is not a trust corporation and who does not act in a
professional capacity - see section 28(5)).
107.Section 29(5) specifies that the new power of remuneration will be
excluded by any provision about the trustee’s entitlement to
remuneration in the trust instrument or in legislation. The right
to be remunerated in section 29 is therefore in the nature of a
default provision. The phrase “subordinate legislation” is defined
in section 6(3).
108.Section 29(6) makes clear that appointment as an agent, nominee or
custodian does not exclude a trustee from section 29.
Section 30:
Remuneration of charitable trustees
109.Section 30 makes provision for the remuneration of charitable
trustees. As mentioned, section 29 does not permit the remuneration
of charity trustees (section 29(1) and (2)). Although the Law
Commission concluded that there was a strong case for including
charitable trustees within the scope of section 29, it recognised
that further consultation was probably necessary before a decision
could be taken. If the outcome of such a consultation were to be
that charitable trustees should be able to be paid in like manner to
trustees generally, it would be inconvenient if primary legislation
was necessary. Accordingly, section 30 confers a power upon the
Secretary of State to make provision by statutory instrument,
subject to an affirmative resolution procedure (section 30(4)), for
the remuneration of charitable trustees.
110.The provisions of sections 28 and 29 apply in relation to services
provided when those clauses are in force whenever the trust was
created (section 33(1)). Remuneration payable under these clauses
may be paid out of the income or capital funds of the trust (see the
definition of “trust funds” in section 39(1)).
111.Under the present law trustees have power to pay agents and to be
reimbursed out of the trust fund for the expenses they incur in
carrying out their duties (Trustee Act 1925 sections 23(1) and
30(2)). This power is subject to the general rule that trustees
only have power to pay proper costs incident to the execution of the
trust (Holding
and Management Ltd v Property Holding and Investment Trust Plc [1989]
1 WLR 1313, 1324). Sections 31 and 32 will clarify the law by
bringing together the existing statutory power and the common law
qualification. Sections 23 and 30 of the Trustee Act 1925 will be
repealed by the Act (section 40 and Schedule 3).
112.Section 31 makes provision for the reimbursement of trustees’
proper expenses. Section 31(2) makes clear that appointment as an
agent, nominee or custodian does not exclude a trustee from section
31.
Section 32:
Remuneration and expenses of agents, nominees and custodians
113.Section 32 makes provision for the payment of reasonable
remuneration and proper expenses to agents, nominees and custodians
who are not trustees.
114.The provisions will not apply until they are in force. When the
provisions are in force, they will apply in relation to trusts
whenever created. The services to which the provisions will apply
are services provided either before or after the commencement of
the provisions, but the only expenses to which the provisions will
apply are expenses incurred after (not before) the commencement of
the previsions. They do not affect the operation of either section
15 of the Wills Act 1837 or section 34(3) of the Administration of
Estates Act 1925 in relation to deaths occurring before they come
into force (section 33(2)). See the notes to section 28(4) for
a description of sections 15 and 34(3).
115.Remuneration and expenses payable under these clauses may be paid
out of the income or capital funds of the trust (see the definition
of “trust funds” in section 39(1)).
PART VI:
Miscellaneous and Supplementary
116.Section 34 creates a new power to insure. Under the present law
there is probably a common law power (and sometimes even a duty) to
insure trust property, but this is not entirely certain. In
addition, there are different statutory powers to insure under the
Trustee Act 1925 section 19 and the Trusts of Land and Appointment
of Trustees Act 1996 section 6(1). The power under section 19 is
limited to three-fourths of the full value of the property and does
not apply to bare trustees. The new power will replace these
disparate, unsatisfactory and, in places, uncertain provisions with
a clear general default statutory power for trustees to insure trust
property as if they were absolute owners. The new provision is
based upon the provisions which now apply to trustees of land by
virtue of section 6(1) of the 1996 Act.
117.Section 34(1) does this by inserting a new power to insure into the
Trustee Act 1925 in substitution for the existing section
19. Subsection (1) of the new section 19 confers a power upon all
trustees to insure any trust
property (whether land or personal property) against such risks and
in such sums as they see fit. Trustees will be able to pay the
insurance premiums out of the income or capital funds of the trust
(see new section 19(5)).
118.Trustees will be subject to the new statutory duty of care under
section 1 when exercising the power to insure under the new section
19 or any corresponding power conferred by the trust instrument (see
Schedule 1, paragraph 4). The duty of care will therefore apply,
for example, to the selection of an insurer and to the terms on
which insurance cover is taken out.
119.The new power to insure will apply to all trustees including bare
trustees irrespective of when the trust was created (section 34(3))
but will only be a default power (as is the case in relation to the
existing section 19 of the Trustee Act 1925 by virtue of Trustee Act
1925 section 69(2)).
120.The exercise of the power by bare trustees (defined for these
purposes in new section 19(3)) will however be subject to the
qualification in the new section 19(2). This provides that bare
trustees must comply with any direction from the sole beneficiary or
all the beneficiaries (as the case may be) that any trust property
is not to be insured or is only be insured on certain
conditions. The rationale for this qualification is that where the
beneficiaries are together absolutely entitled to the trust
property, they have power under the general law of trusts to bring
the trust to an end (Saunders
v Vautier (1841)
4 Beav 115; 49 ER 282). To the extent that any such directions are
given, the trustees may not delegate their power to insure. This is
so that the beneficiaries can ensure compliance with the directions
they have given (see new section 19(4)). The concept of a
“delegable function” referred to in new section 19(4) is defined in
section 11(2) of the Act.
121.Section 34(2) makes a minor consequential drafting amendment to
section 20(1) of the Trustee Act 1925. Section 20(1) provides that
insurance monies received by trustees against loss or damage of
trust property are capital monies.
Section 35:
Personal representatives
122.Section 35 applies the Act to personal representatives. The effect
of section 35(1) is that in relation to the matters contained within
the Act personal representatives have (subject to section 35(2) -
(4)) the same powers and duties in relation to the administration of
an estate of a deceased person as trustees have in relation to a
trust. This is consistent with the policy of the Trustee Act 1925
(see section 68(1)(17)).
123.Section 35(2) provides the necessary textual adjustments to achieve
this end. Section 8(1)(b) requires special treatment (section
35(2)(b) and (c)) because it confers power to acquire land for
occupation by a beneficiary. The general provision (section
35(2)(b)) equating beneficiaries with persons interested in the
estate of the deceased would therefore be too wide for the purposes
of occupation of trust property because it would include
creditors. Section 35(2)(c) therefore gives that expression a more
restricted meaning in relation to section 8(1)(b).
124.The effect of section 35(3) is that remuneration paid to a personal
representative will in future count as an administration expense for
the purposes: (a) of section 34(3) of the Administration of Estates
Act 1925 (see notes to section 28(3) above); and (b) of, in the case
of insolvent estates, any provision giving reasonable administration
expenses priority over preferential debts. The categories of
preferential debts listed in Schedule 6 to the Insolvency Act 1986
are (in ascending numerical order of priority): debts due to the
Inland Revenue; to customs and excise; social security
contributions; contributions to occupational pension schemes;
remuneration of employees; and levies on coal and steel
production. The remuneration of personal representatives will
therefore have priority over legacies and other debts of the
deceased. Section 35(4) prevents subsection (3) from having an
effect upon priorities in the administration of estates where the
death occurred before the clause comes into force (see section 42).
125.Section 36 governs the application of the Act to occupational
pension schemes established as trusts under the law of England and
Wales (section 36(1)). An occupational pension scheme for these
purposes is a scheme which has, or is capable of having, effect in
relation to a description or category of employment so as to provide
benefits payable on termination of service, death or retirement or
in respect of earners with qualifying service in an employment of
any such description or category (Pension Schemes Act 1993 section
1).
126.Trustees of occupational pension schemes are in a special position.
The investment powers of the trustees of such schemes and related
powers of delegation are conferred by section 34 of the Pensions Act
1995. Section 34(2) confers on pension trustees a power to delegate
their discretion to make any decision about investments to a fund
manager who satisfies certain requirements and prohibits the
delegation of such matters in any other way except under section 25
of the Trustee Act 1925 (delegation by individual trustees). By
virtue of section 47 of the Pensions Act 1995, occupational pension
trustees are required, where the assets of the scheme include
investments, to appoint a fund manager and can appoint nominees and
custodians (Occupational Pension Scheme (Scheme Administration)
Regulations 1996 (SI 1996/1715 r 2(c))). Consequently, Parts I, II and
III of the Act do not apply to such occupational pension trustees
when carrying out their investment functions; nor does Part IV in so
far as it confers power to appoint nominees and custodians or, in
relation to investment functions, an agent (section 36(3)(5) and
(8)). Conversely, the new general duty of care may apply to the
trustees of occupational pension trusts in relation to matters other
than investment, agency for investment purposes and the appointment
of a nominee or custodian (section 36(2)) and such trustees may
delegate non-investment functions under Part IV (section 36(5)).
However, for the protection of pension scheme beneficiaries, pension
trustees are expressly prohibited from delegating any function to
the scheme employer or to a person who is connected with, or an
associate of, the scheme employer (section 36(6)). “Employer” is
defined by virtue of section 36(7)(a) as the employer of persons in
the description or category of employment to which the scheme in
question relates and, if regulations so provide, persons who have
been the employer in relation to the scheme (Pensions Act 1995
sections 124(1) and 125(3)). Persons are connected with a company
if they are a director or shadow director or an associate of such a
person or the company (Insolvency Act 1986 section 249). Whether or
not a person is an associate is determined by the application of
section 435 of the Insolvency Act 1986. This section is lengthy but
spouses and close relatives are associates, as are business partners
and their respective spouses and employers and employees.
Section 37:
Authorised unit trusts
127.Section 37(1) provides that the new statutory powers of investment, acquisition
of land and to appoint agents, nominees and custodians in Parts II – IV of
the Act do not apply to trustees of authorised unit trusts. An
authorised unit trust is a unit trust scheme declared by order of
the Secretary of State to be such for the purposes of the Financial
Services Act 1986 (Financial Services Act 1986 section 207(1)). A
unit trust scheme is a collective investment scheme under which the
property in question is held on trust for the participants
(Financial Services Act 1986 section 75(8)). A collective
investment scheme is broadly speaking an arrangement with respect to
any property which is intended to enable the persons taking part to
participate in or receive profits or income arising from the
acquisition, holding, management or disposal of the property or sums
paid out of such profits or income (Financial Services Act 1986
section 75(1)). The Secretary of State will only issue an order
declaring a unit trust to be an authorised unit trust if he is
satisfied that the scheme and, in particular, the trust deed
complies with the requirements of regulations made as to – amongst
other matters – the powers and duties of the manager and the trustee
of the scheme (Financial Services Act 1986 sections 78 and 81).
Authorised unit trusts therefore have no need of the new powers
conferred by Parts II – IV of the Act. An authorisation order under
section 78 of the Financial Services Act 1986 Act can be revoked
under section 79 of that Act.
Section 38:
Common investment schemes for charities etc
128.Section 38 provides that trustees managing common investment and
common deposit schemes under the Charities Act 1993 do not have the
powers conferred by Parts II-IV of the Act with the exception of
trustees managing pooling schemes made under section 24 of that Act.
Common investment and common deposit funds enable different
charities to pool resources for investment purposes. The funds may
only be established by order of the court or the Charity
Commissioners under sections 24 and 25 of the Charities Act 1993
respectively. Such schemes may make specific detailed provision for
all matters connected with the fund. The powers conferred by Parts
II-IV are therefore unnecessary, with the exception noted above.
129.Section 39 sets out several of the definitions used in the Act.
Section 40:
Minor and consequential amendments etc
130.Section 40 gives effect to Schedules 2, 3 and 4 to the Act.
Schedule 2 to the Act contains consequential amendments to a number
of enactments. The need for such amendments arises, in most cases,
by virtue of the introduction of the general power of investment in
Part II of the Act and the power to acquire land in Part III.
Schedule 3 contains transitional and saving provisions. Schedule 4
lists the repeals to be effected by the Act.
Section 41:
Power to amend other Acts
131.Section 41 empowers a Minister of the Crown to make further
amendments of Acts of Parliament in consequence of or in connection
with Part II or III of the Act (powers of investment and acquisition
of land respectively). The power is exercisable by statutory
instrument subject to the negative resolution procedure. However,
where it is proposed to exercise the power in relation to a local,
personal or private Act, the making of any such instrument must be
preceded by consultation with any person who appears to the Minister
to be affected by any proposed amendment. It is likely that this
power will be exercised, in particular, in respect of local and
private legislation containing provisions which operate by reference
to the Trustee Investments Act 1961. The phrase “Minister of the
Crown” means the holder of an office in Her Majesty’s Government in
the United Kingdom, and includes the Treasury, the Board of Trade
and the Defence Council (Ministers of the Crown Act 1975 section
8(1)). The power under section 41 will come into force when the Act
is passed (section 42(1)) and may be exercised in relation to Acts
which extend beyond England and Wales (section 41(1)).
Section 42:
Commencement and extent
132.Section 42 provides that with the exception of itself and sections
41 and 43 (which come into force when the Act is passed) the
provisions of the Act will come into force on such day or days as
the Lord Chancellor may by order appoint (section 42(1) and
(2)). Such commencement orders may include transitional provisions
and savings (section 42(3)).
133.Section 42(4) limits the extent of the Act to England and Wales
only. This is subject to two qualifications. First, as mentioned,
an order may be made under section 41(1) amending an Act extending
beyond England and Wales. Second, the extent of consequential
amendments and repeals (other than to the Charities Act 1993 and the
Trustee Investments Act 1961) made in Schedules 2 and 4 to the Act
will be determined by the extent of the provision amended or
repealed (section 42(5)).
Schedule 1 –
Application of duty of care
134.The First Schedule specifies the circumstances in which the new
general duty of care will apply. They have been noted and discussed
against the relevant provisions of the Act but in brief a trustee
acting under a power conferred by the Act or the trust instrument
will be subject to the duty in section 1 in the following
circumstances:
·when
exercising a power of investment or of reviewing investments
(paragraph 1);
·when
acquiring or managing land (paragraph 2);
·when
appointing or reviewing the appointment of an agent, nominee or
custodian (paragraph 3);
·in
the compounding of liabilities (paragraph 4);
·when
insuring trust property (paragraph 5) and
·when
dealing with reversionary interests, valuations and audits under
section 22(1) or (3) of the Trustee Act 1925 (paragraph 6).
135.Paragraph 7 makes clear that the duty of care will not apply where
it is clear from a trust instrument that it should not.
Schedule 2 –
Minor and consequential amendments
136.The majority of the amendments in Schedule 2 simply extend the
application of the new general power of investment under section 3
to regimes where the powers of investment were as wide as the
equivalent powers of trustees were allowed to be under the present
law in the absence of express provision in the trust instrument (see
for example paragraphs 3, 4 and 8). These notes refer to a few of
the more significant.
137.Paragraph 1 - Trustee Investments Act 1961 - the provisions of the
Trustee Investments Act 1961 mentioned in paragraph 1(1), which are
replaced by the new power of investment in Part II of the Act, are
repealed by the Act, except in so far as they are applied by or
under any other enactment. Consequently, where (notwithstanding the
provisions in Parts II and III of Schedule 2) an enactment continues
to operate by reference to the Trustee Investments Act 1961, its
effect is preserved. For this purpose it will still be possible
(under section 12 of the 1961 Act) for additions to be made to the
list of investments specified in Schedule 1 to that Act.
138.In brief the provisions mentioned relate to the following matters:
paragraph 1(1) - section 1 (new power of investment of trustees); 2
(restrictions on wide range investments); 5 (certain valuations to
be conclusive for purposes of division of trust fund); 6 (duty of
trustees in choosing investments); 12 (power to confer additional
powers of investment); 13 (power to modify provisions as to division
of trust fund) and 15 (saving for court powers);
139.Paragraph 1(2) – section 3 (relationship between Act and other
powers of investment); Schedules 2 and 3 (supplementary provision);
140.Paragraph 1(3) – section 8 (special cases); 9 (supplementary);
Schedule 4 paragraph 1(1) and section 16(1) to the extent mentioned
(construction of references to section 1 of the Trustee Act 1925
which was replaced by section 1 of the 1961 Act).
141.Paragraph 2 - Charities Act 1993 – sections 70 and 71 of the 1993
Act were enacted to enable the Secretary of State, by secondary
legislation, to expand the investment opportunities of charity
trustees. In view of the new wider powers of investment which will
be available to charity trustees under Part II these provisions are
no longer needed. The amendments of section 86(2) remove references
to sections 70 and 71. Sections 70 and 71 are to be repealed by
Schedule 4 to the Act.
142.Paragraphs 7 - 17 make consequential amendments to the Settled Land
Act 1925. These fall into a number of broad groups. The amendments
in the first group (paragraphs 7 - 9) either grant to trustees of
the settlement (in relation to the investment of capital money) the
general power of investment in section 3, or make provision to
reflect this widening of investment power.
143.The second group of amendments (in paragraph 10) operate on section
75 of the 1925 Act. They amend the section so as to make the
investment (or other application) of capital money under that Act a
matter exclusively for the trustees of the settlement (subject to a
requirement to consult and act in accordance with the wishes of the
tenant for life so far as practicable) or the court. These
amendments permit the trustees to delegate their functions in
accordance with Part IV of the Act, but this is again subject to
restrictions designed to safeguard the life tenant’s right to be
consulted in relation to the investment or application of capital
money.
144.Paragraph 11 inserts a new section 75A into the Settled Land Act
1925. The new provision is closely based on section 10(2) of the
Trustee Act 1925 (which is repealed by the Act), and permits life
tenants or statutory owners (with the consent of the trustees of the
settlement), when selling land, to act as mortgagee for up to two
thirds of the value of the property being sold.
145.The amendments in the next group (paragraphs 12 - 14) repeal those
sections of the Settled Land Act 1925 which concern matters which
will in future be governed by other provisions in the Act (such as
the remuneration of trustees of the settlement).
146.Paragraph 16 concerns the role of an assignee for value of a life
tenant’s estate or interest in the investment of capital money, and
the final group of amendments (paragraphs 15 and 17) implement a
number of changes to the powers both of trustees of the settlement
and life tenants, reflecting some of the changes made to the powers
of trustees by the Act.
147.Paragraphs 18, 21, 23 and 24 amend the Trustee Act 1925 by removing
provisions which are no longer necessary. Paragraph 19 clarifies
that the power of trustees to give receipts extends to investments.
Schedule 3 –
Transitional provisions and savings
148.Paragraph 1 provides that a banker or banking company holding
bearer securities under section 7(1) of the Trustee Act 1925 (which
is to be repealed by the Act) when Part IV of the Act comes into
force will be deemed to be a custodian of those securities under
section 18.
149.Paragraphs 2 and 3 provide that sections 8 and 9 of the Trustee Act
1925 (which are repealed by the Act) continue in effect in relation
to matters occurring before the relevant repeal takes effect (as to
which see section 42). Paragraph 6 provides that section 23(2)
continues to apply to appointments made before the repeal of that
section takes effect.
150.Paragraph 1 lists the sections that are being repealed in the
Trustee Investments Act 1961 and the Charities Act 1993.
151.Paragraph 2 lists repeals of section in other Acts.
Commencement
152.Sections 41, 42 and 43 come into force when the Act is passed. The
remaining sections will come into force on such day or days as the
Lord Chancellor may by Order appoint. The commencement orders may
include transitional provisions and savings.
.
ANNEX A: Glossary of
Terms
·Absolute
Owner: a person owning property for his own benefit.
·Administration
of an estate: the
collection of assets, payment of debts, and distribution to the
beneficiaries of property in the estate of a deceased person.
·Agent: a person appointed by another to act on his behalf, often to
negotiate a contract between the principal and a third person.
·Bare
trustee: is generally a trustee who has no obligation but to hand over
the trust property to the person entitled to it at the latter’s
request. Such a trust is known as a bare trust. The phrase has a
more specialised meaning in the Act (see notes to section 34).
·Beneficial
interest: the rights of a beneficiary in
respect of property held under a trust for
him.
·Beneficiary: a person entitled to benefit from a trust.
·Capital
money: money arising from certain transactions relating to settled
land or land held on trust for sale. It may arise from sale, the
granting of certain leases and similar transactions, borrowing on
the security of a mortgage, and other circumstances in which the
money should be treated as capital of the settlement, e.g. the
proceeds of a fire insurance claim relating to the land. Generally
capital money must be received by the trustees of the settlement,
not the beneficiary. When the money is raised or paid for a
specific purpose (e.g. for improvements authorised by the Settled
Land Act 1925) it must be applied for that purpose. Otherwise, it
is invested and held by the trustees on the same trusts as the land
itself was held.
·Charitable
Trusts:.
see Trusts.
·Charity
Commission: a body, now governed by the Charities Act 1993, generally
responsible for the administration of charities. The Commissioners
are responsible for promoting the effective use of charitable
resources, for encouraging the development of better methods of
administration, for giving charity trustees information and advice
on matters affecting charity, and for investigating and checking
abuses. The commissioners maintain a register of charities and
decide whether or not a body should be registered; an appeal from
their decision may be made to the High Court. Their Annual Reports
(published by the Stationery Office) indicate how the Commissioners
operate and how they are allowing the law of charity to develop.
·CREST: a computer based system for the electronic transfer of and
settlement of trades in securities replacing the former paper based
system of shareholding and transfer with an electronic book entry
system. The system operates under the Uncertificated Securities
Regulations 1995.
·Custodian: is defined as a person who undertakes the safe custody of
some or all of the assets of the trust or of any documents or
records concerning the assets (see section 17(2) of the Act).
·Default
power: a power available to trustees in default of or subject to
other provision in a trust instrument or regulation. The powers
conferred by the Trustee Act 1925 and the Trustee Investments Act
1961 are in general default powers.
·Dispositive
duty: see dispositive powers under powers below.
·Execution: describes the way in which a person signs or seals (in the case of
a corporation) a document and gives it legal effect.
·Fiduciary
relationships: the relationship of trustee and beneficiary is but one of a
number of relationships generally described as fiduciary. It is a
mark of such relationships that one person receives an authority or
is entrusted with a job which he is bound to exercise or perform in
the best interests of another.
·General
Powers of Investment: see
notes to section 3 of the Act.
·Instrument: a formal legal document. A trust instrument is the document
setting out the terms of the trust.
·Interests
in land: rights of ownership of or over land are interests in
land. Interests may be estates, interests or charges. These
may be legal or equitable. See also legal
interests.
·Land: land is defined in the Trustee Act 1925 as land of any tenure, and
mines and minerals, whether or not severed from the surface,
buildings or parts of buildings, whether the division is horizontal,
vertical or made in any other way, and corporeal hereditaments [rights
in property which may be inherited]; also a manor, an
advowson [a right to present a
clergyman to a benefice], and a rent and other
incorporeal hereditaments, and an easement [a
right over land for the benefit of other land, such as a right of
way], right, privilege, or benefit in, over, or derived
from land, (Trustee Act 1925 section 68(6) as amended by the Trusts
of Land and Appointment of Trustees Act 1996 section 25(2) and
Schedule 4). “Land” is defined in Schedule 1 to the Interpretation
Act 1978 as including buildings and other structures, land covered
with water, and any estate, interest, easement, servitude or right
in or over land.
·Legal
interests in land: today, the only legal estates in land in England and Wales are
those for either a fee simple absolute in possession or a term of
years absolute: in broad layman’s terms a freehold or a
leasehold. See Law of Property Act 1925 sections 1(1) and
205(1)(x). The other types of legal interest andcharge are
relatively few (Law of Property Act 1925 section 1(2)). All other
interests are equitable
interests (Law
of Property Act 1925 section 1(3)). In relation to atrust
of land, the trustees hold the legal estate. Third
parties will usually want to acquire the legal interest free of the
rights of the beneficiaries under the trust.
·Measure: a measure is a piece of legislation passed by the General Synod of
the Church of England to which the Royal Assent has been given. It
has the force of an Act of Parliament.
·Nominee: in the context of a nominee for trustees, a nominee is a person
nominated to hold trust property in his own name on behalf of the
trustees. This device is commonly used to facilitate dealings with
the trust assets.
·Personal
property (personalty): all property that does not comprise land.
·Personal
representative: a person entitled to deal with a deceased person’s estate in
accordance with his will or under the rules relating to intestacy.
·Power: in this context, a power is an authority to act in relation to
another’s property. A power may be administrative or
dispositive. An administrative
power is
a power, the exercise of which does not affect the beneficial
interests arising under a trust, such as a power to sell or lease
property. In the present context, adispositive
power is
a power, the exercise of which does affect the beneficial interests
arising under a trust, for instance, a power of advancement and a
power of appointment. A trustee’s power of investment is a power to
invest trust property. A power
of advancement is
a power given to trustees (whether by statute or by express
provision in the trust instrument) to apply some of the capital from
the trust property for the benefit of a beneficiary under the
trust. For instance, in the case of a gift of capital to A on
reaching the age of 30, part of that capital might be used, for
insurance, to buy him a house at an earlier time. A power
of appointment is
a power “given under some settlement or trust authorising the donee
to make an appointment of some or all the trust property.”
·Power
of Attorney: a power of attorney is both the authority given by one person (“the
donor”) to another person (“the donee” or “attorney”) to act for the
donor in a transaction or a series of transactions or in the
management of his affairs and the document by which that authority
is given. Under the law of England and Wales a power of attorney
made by an individual must be executed as a deed (Powers of Attorney
Act 1971 section 1(1)).
·Professional
charging clause: a
provision in a trust instrument authorising the remuneration of a
trustee for his care and trouble often permitting a trustee who is a
solicitor, a literary executor or other professional person to
charge for professional services (and in some cases business
services generally).
·Private
trust: see Trusts.
·Public
trust: see Trusts.
·Settled
land: land held or deemed to be held on trust (usually
referred to as a settlement)
subject to the terms of the Settled Land Act 1925. Trusts of this
kind may now only be created in exceptional circumstances (see
Trusts of Land and Appointment of Trustees Act 1996 section 2 and
Schedule 1). Such trusts were used in relation to land in which two
or more beneficial interests were to exist in succession to one
another. See Settled Land Act 1925 section 117(1)(xxiv).
·Standard
investment criteria: see
notes on section 4 of the Act.
·Statutory
owner: a person having the powers of an immediate beneficiary of settled
land, where the beneficiary himself is under 18 or there is no
immediate beneficiary (for example, in a discretionary settlement in
which no beneficiary has been appointed). The statutory owner is
either the person of full age on whom the powers are conferred by
the settlement; the trustees of the settlement; or, in a settlement
made by will on a beneficiary under 18, the testator’s personal
representatives until the property is vested in the tenant for life.
·Tenant
for life (life tenant): a
person owning land for an equitable interest that subsists for the
whole of his life but terminates on his death. The Settled Land Act
1925 lays down the statutory powers of a tenant for life.
·Testamentary
Trusts: trusts established under a will.
·Trustee
de son tort: a person unconnected with a trust who takes upon himself to act as
a trustee. He is thereafter liable, as if he had been appointed a
trustee.
·Trustee
function of the donor: a trustee
function of
the donor is one the donor has as a sole trustee or one he or she
exercises jointly with fellow trustees.
·Trust
and trustee: a trustee is a person who has property or rights (trust property or
assets) which he holds or is bound to exercise for or on behalf of
another or others, or for the accomplishment of some particular
purpose or purposes. He or she is said to hold the property on
trust for that other or others, or for that purpose or purposes.
·Trust
corporation: a trust corporation is one of certain companies with a large paid
up capital, or one of certain officials. The most commonly
encountered trust corporation is perhaps an executor and trustee
company owned by one of the major banks or financial
institutions. The term is defined in the Trustee Act 1925 (section
68(1) paragraph (18) which definition was extended by Law of
Property (Amendment) Act 1926 section 3).
·Trust
Fund: see section 39(1) of the Act.
·Trust
instrument: the document setting out the terms of the trust.
·Trust
of land: a trust of land is any trust of
property which consists of or includes land subject to exceptions
for settled
land and land
to which the University and College Estates Act 1925 applies (Trusts
of Land and Appointment of Trustees Act 1996 section 1).
·Trust
property or assets: see trust
and trustee.
·Trustee: see trust
and trustee.
·Trustee
function: means the trusts, powers and discretions vested in the donor as trustee (Trustee
Act 1925 section 25(1); Trusts of Land and Appointment of Trustees
Act 1996 section 9(1).
·Trusts: may be private or public (charitable). A private
trust is
a trust for the benefit of an individual or class, irrespective of
any benefit which may be conferred on the public at large. A public
trust is
a trust whose object is to promote the public welfare, even if it
incidentally confers a benefit on an individual or
class. Charitable trusts are public trusts solely and exclusively
for purposes that the law regards as charitable. In this sense, a
purpose is charitable only if it is for the furtherance of religion,
for the advancement of education, for the relief of poverty, or for
other purposes beneficial to the community. Charitable trust is
defined in section 39(1) of the Act.
·Ultra
vires: an act is ultra vires if it is in excess of the powers of the
person doing the act.
·Will: a document by which a person (called the testator) appoints
executors to administer his estate after his death, and directs the
manner in which it is to be distributed to the beneficiaries he
specifies.
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