What are my duties as a Trustee when it comes to investing the trust assets?
It is often the case that an individual is named as a trustee in a will, and find that they now have a substantial sum of money or assets to deal with. The role of a trustee is to manage the trust assets on behalf of the beneficiaries and at the end of the trust period, distribute those assets correctly and in accordance with the terms of the trust instrument.
Investment of the trust fund is one of the most important aspects of trust administration. It is not often advised simply to hold the fund in cash form, but to invest it in appropriate investments. Section 3(1) of the Trustee Act 2000 (the ‘Act’) gives trustees wide statutory powers of investment: “a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust”, and Section 8 in particular enables trustees to invest in land in the UK. It is noted that such powers are limited by section 4(2) of the Act, which states that the investment must still be a prudent one. It would obviously not be prudent for a trustee to invest in assets where the risk of loss is considerable.
Trustees must take into consideration, when making an investment, the standard investment criteria set out in Section 4(3) of the Act. The criteria dictates the requirements as to suitability and diversification of investments. The trustee must therefore consider whether the investment is suitable for the type of trust (a small family trust may require a conservative approach whereas a large discretionary trust may not) and they must ensure that the assets are diversified, perhaps across different portfolios if the size of the trust allows it.
Such requirements must also be read in conjunction with the trust document, which may specify how in particular the trustees are to deal with the trust assets. They must also balance the needs of the beneficiaries – if for example the trust sets up a life interest for a surviving partner, with the capital to pass to children on the partners death, the trustees must ensure that the assets produce a steady income from the life tenant whilst preserving the capital value of the fund for the children later on.
Trustees should always consider taking advice from an investment manager or someone appropriately qualified to advise on investments (Section 5 of the Act), and they must always keep in mind the most important duty under the Act; the duty of care to the beneficiaries when making investments (Section 1 of the Act).
Should you have any questions on trustees’ duties, please do get in touch with our Private Client department by emailing Laura Sentkovsky at laura@meaby.co.uk.
