DUTIES OF TRUSTEES AND PERSONAL LIABILITY
Lectures 1-4 (29-01-26 – 06-02-26)
A trustee holds legal title of property on behalf of another and has an obligation to manage and apply that
property as per the terms of the trust
A trustee is also a fiduciary as ‘someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and confidence’ (Bristol
and West Building Society v Mothew [1996])
While a trustee is a fiduciary, a fiduciary will not always be a trustee (does not have to be in
relation to property and effectively denotes a relationship of trust)
Trustee obligations vary from trust to trust but can be found either expressly in the Trust
instrument or as imposed by statute
Broadly split into two categories of (1) the obligation to distribute property and (2) the
obligation to manage trust property
The management of trust property may include powers of investment, powers to sell/realise
assets and powers to reinvest proceeds of sale
Powers of investment
Express powers may detail whether a trustee can or should invest and into what investments,
explicitly in the trust instrument itself
Express investment clauses are given their plain and natural meaning (Re Harari’s
Settlement Trusts [1949])
In the absence of an express investment clause, investment is governed by the Trustee Act 2000
Prior to the TA 2000, trustee investment powers were restricted to a ‘legal list’ considered
by Parliament to be ‘safe’ and ‘secure’ but offering reasonable return (TA 1961)
In order to make investments outside this list, the power had to be expressly contained in
the trust instrument, or the trustee had to obtain the consent of all beneficiaries or apply to
the court to vary their investment powers
However, the TA 2000 overhauled this approach and instated a broad, general power of investment
This general power exists in addition to any powers conferred expressly in the trust
instrument, but can also be expressly excluded by the trust instrument or by legislation (see
s6 and s9 TA 2000)
Section 3 Trustee Act 2000
(1) Subject to the provisions of this Part, a trustee may make any kind of investment that he could make
if he were absolutely entitled to the assets of the trust.
(2) In this Act the power under subsection (1) is called the “general power of investment”.
(3) The general power of investment does not permit a trustee to make investments in land other than in
loans secured on land (but see also section 8).
(4) A person invests in a loan secured on land if he has rights under any contract under which-
(a) One person provides another with credit, and
, (b) The obligation of the borrower to repay is secured on land.
(5) “Credit” includes any cash loan or other financial accommodation.
Section 8 Trustee Act 2000
(1) A trustee may acquire freehold or leasehold land in the United Kingdom-
Includes land despite s3(3) (drafting discrepancy)
(a) as an investment,
(b) for occupation by a beneficiary, or
(c) for any other reason.
The shift to the ‘prudent investor’ approach with this general power of investment does not operate
without restrictions and s1 TA 2000 places the common law duty of care on a statutory footing
Section 1 Trustee Act 2000
(1) Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as
is reasonable in the circumstances, having regard in particular
(a) to any special knowledge or experience that he has or holds himself out as having; and
(b) if he acts as trustee in the course of a business or profession, to any special knowledge or
experience that it is reasonable to expect of a person acting in the course of that kind of business
or profession.
Recognises that a trustee may have a variety of skill and experience so imposes a subjective
test
(2) In this Act the duty under subsection (1) is called “the duty of care”.
Under s1, an ‘exercise (of) such care and skill’ relies on pre-TA 2000 case law
‘A trustee ought to conduct the business of the trust in the same manner that an ordinary
prudent man of business would conduct his own’ (Speight v Gaunt [1883])
Refined in Re Whiteley [1886] to ‘an ordinary prudent man... if he were minded to make an
investment for the benefit of other people for whom he felt morally bound to provide’
(responsibility for someone else, not just yourself, as less likely to take risks in this instance)
However, risk and profit should be balanced as appropriate for the nature of the trust
(Nestle v National Westminster Bank [1993])
A trustee will not be liable for mere ‘errors in judgment’ provided he acted honestly and with
ordinary prudence (Re Chapman [1896])
Trustees also have an obligation of ‘even-handedness’, which requires trustees to balance the
interests of all beneficiaries fairly when making decisions on investments
Does not necessarily mean equally but does require impartiality and a consideration of the
objectives of the trust to ensure it remains suitable to provide for all beneficiaries (Cowan v
Scargill [1985])
Failing to meet this obligation results in a breach of the duty to exercise such care and skill
Lectures 1-4 (29-01-26 – 06-02-26)
A trustee holds legal title of property on behalf of another and has an obligation to manage and apply that
property as per the terms of the trust
A trustee is also a fiduciary as ‘someone who has undertaken to act for or on behalf of another in a
particular matter in circumstances which give rise to a relationship of trust and confidence’ (Bristol
and West Building Society v Mothew [1996])
While a trustee is a fiduciary, a fiduciary will not always be a trustee (does not have to be in
relation to property and effectively denotes a relationship of trust)
Trustee obligations vary from trust to trust but can be found either expressly in the Trust
instrument or as imposed by statute
Broadly split into two categories of (1) the obligation to distribute property and (2) the
obligation to manage trust property
The management of trust property may include powers of investment, powers to sell/realise
assets and powers to reinvest proceeds of sale
Powers of investment
Express powers may detail whether a trustee can or should invest and into what investments,
explicitly in the trust instrument itself
Express investment clauses are given their plain and natural meaning (Re Harari’s
Settlement Trusts [1949])
In the absence of an express investment clause, investment is governed by the Trustee Act 2000
Prior to the TA 2000, trustee investment powers were restricted to a ‘legal list’ considered
by Parliament to be ‘safe’ and ‘secure’ but offering reasonable return (TA 1961)
In order to make investments outside this list, the power had to be expressly contained in
the trust instrument, or the trustee had to obtain the consent of all beneficiaries or apply to
the court to vary their investment powers
However, the TA 2000 overhauled this approach and instated a broad, general power of investment
This general power exists in addition to any powers conferred expressly in the trust
instrument, but can also be expressly excluded by the trust instrument or by legislation (see
s6 and s9 TA 2000)
Section 3 Trustee Act 2000
(1) Subject to the provisions of this Part, a trustee may make any kind of investment that he could make
if he were absolutely entitled to the assets of the trust.
(2) In this Act the power under subsection (1) is called the “general power of investment”.
(3) The general power of investment does not permit a trustee to make investments in land other than in
loans secured on land (but see also section 8).
(4) A person invests in a loan secured on land if he has rights under any contract under which-
(a) One person provides another with credit, and
, (b) The obligation of the borrower to repay is secured on land.
(5) “Credit” includes any cash loan or other financial accommodation.
Section 8 Trustee Act 2000
(1) A trustee may acquire freehold or leasehold land in the United Kingdom-
Includes land despite s3(3) (drafting discrepancy)
(a) as an investment,
(b) for occupation by a beneficiary, or
(c) for any other reason.
The shift to the ‘prudent investor’ approach with this general power of investment does not operate
without restrictions and s1 TA 2000 places the common law duty of care on a statutory footing
Section 1 Trustee Act 2000
(1) Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as
is reasonable in the circumstances, having regard in particular
(a) to any special knowledge or experience that he has or holds himself out as having; and
(b) if he acts as trustee in the course of a business or profession, to any special knowledge or
experience that it is reasonable to expect of a person acting in the course of that kind of business
or profession.
Recognises that a trustee may have a variety of skill and experience so imposes a subjective
test
(2) In this Act the duty under subsection (1) is called “the duty of care”.
Under s1, an ‘exercise (of) such care and skill’ relies on pre-TA 2000 case law
‘A trustee ought to conduct the business of the trust in the same manner that an ordinary
prudent man of business would conduct his own’ (Speight v Gaunt [1883])
Refined in Re Whiteley [1886] to ‘an ordinary prudent man... if he were minded to make an
investment for the benefit of other people for whom he felt morally bound to provide’
(responsibility for someone else, not just yourself, as less likely to take risks in this instance)
However, risk and profit should be balanced as appropriate for the nature of the trust
(Nestle v National Westminster Bank [1993])
A trustee will not be liable for mere ‘errors in judgment’ provided he acted honestly and with
ordinary prudence (Re Chapman [1896])
Trustees also have an obligation of ‘even-handedness’, which requires trustees to balance the
interests of all beneficiaries fairly when making decisions on investments
Does not necessarily mean equally but does require impartiality and a consideration of the
objectives of the trust to ensure it remains suitable to provide for all beneficiaries (Cowan v
Scargill [1985])
Failing to meet this obligation results in a breach of the duty to exercise such care and skill
