Trustee investment duties - are they sufficient protection for the beneficiaries?
Mostly arguing yes they are sufficient protection, isn’t much of an argument to say they are not.
Introduction
● Trustee Act 2000 contains duties for trustees. Duties of trustees must be performed.
Failure to perform is a breach of duty which can result in personal liability. The act
contains extensive investment duties:
● Why do beneficiaries need protection? If investments are unsuitable/risky trust fund
could completely dwindle to nthing. Clearly against settlor’s wishes. But also if trustees
can’t invest at all then trust can’t grow with inflation, and also for a trust with a life interest
needs to make income.
Investment duties pre-Trustee Act 2000
● Law used to be very strict and trustees could only pick investments from a restricted list.
● Could not even invest in company shares due to risk the capital would be lost.
● Trustees also could not delegate all of their investment functions to experts, ultimate
decision was with them. Also meant trusts were missing out.
Statutory investment duties post 2000 - why law has improved
● Trustees now have unfettered powers to invest and powers to employ experts to
manage the trust investments.
● S.3 Trusee Act 2000 provides that trustees can make any investment that they could
make if they were absolutely entitled to the assets of the trust.
● Something is an investment if it is expected to produce income or capital growth
(Harries v Church of England Commissioners) trustees can not for example purchase
a depreciating asset like a car - this protects beneficiaries.
● Statutory investment duties: S.4 Suitability: is it appropriate to invest in that company at
all and is the particular investment suitable
● Diversification: 2000 Act recognises not always possible since a large sum of money is
needed to do this. Protects beneficiaries if one company fails and goes into liquidation
● Trustee Act 2000 applies to all trusts whether created before or after the Act came into
force, so existing trusts will also benefit and more beneficiaries protected.
Seeking advice from other people
● Before Trustee Act 2000 was passed, the ability of trustees to delegate was severely
● Advice (S5): trustees must obtain and consider advice from someone they reasonably
believe to be qualified to advise by reason of his ability in and practical experience of
financial matters. Trustee’s failure to obtain and consider advice are breaches of duty.
● S5(3) trustees not not obtain such advise if not necessary in the circumstances of the
case
● Before Trustee Act 2000 was passed the ability of trustees to delegate was severely
restricted. Before trustees could ask for advice but could not delegate actual decisions.
Mostly arguing yes they are sufficient protection, isn’t much of an argument to say they are not.
Introduction
● Trustee Act 2000 contains duties for trustees. Duties of trustees must be performed.
Failure to perform is a breach of duty which can result in personal liability. The act
contains extensive investment duties:
● Why do beneficiaries need protection? If investments are unsuitable/risky trust fund
could completely dwindle to nthing. Clearly against settlor’s wishes. But also if trustees
can’t invest at all then trust can’t grow with inflation, and also for a trust with a life interest
needs to make income.
Investment duties pre-Trustee Act 2000
● Law used to be very strict and trustees could only pick investments from a restricted list.
● Could not even invest in company shares due to risk the capital would be lost.
● Trustees also could not delegate all of their investment functions to experts, ultimate
decision was with them. Also meant trusts were missing out.
Statutory investment duties post 2000 - why law has improved
● Trustees now have unfettered powers to invest and powers to employ experts to
manage the trust investments.
● S.3 Trusee Act 2000 provides that trustees can make any investment that they could
make if they were absolutely entitled to the assets of the trust.
● Something is an investment if it is expected to produce income or capital growth
(Harries v Church of England Commissioners) trustees can not for example purchase
a depreciating asset like a car - this protects beneficiaries.
● Statutory investment duties: S.4 Suitability: is it appropriate to invest in that company at
all and is the particular investment suitable
● Diversification: 2000 Act recognises not always possible since a large sum of money is
needed to do this. Protects beneficiaries if one company fails and goes into liquidation
● Trustee Act 2000 applies to all trusts whether created before or after the Act came into
force, so existing trusts will also benefit and more beneficiaries protected.
Seeking advice from other people
● Before Trustee Act 2000 was passed, the ability of trustees to delegate was severely
● Advice (S5): trustees must obtain and consider advice from someone they reasonably
believe to be qualified to advise by reason of his ability in and practical experience of
financial matters. Trustee’s failure to obtain and consider advice are breaches of duty.
● S5(3) trustees not not obtain such advise if not necessary in the circumstances of the
case
● Before Trustee Act 2000 was passed the ability of trustees to delegate was severely
restricted. Before trustees could ask for advice but could not delegate actual decisions.
