Most financial advisers will have encountered, advised on or even set up
trusts for their clients. Some may also have trustees or beneficiaries of
existing trusts as their clients. If so, it is likely that investment
business will have been on the agenda.
Given the substantial assets held subject to trust in the UK and the
continuing establishment of new trusts, it is reasonable to assume that
there will be no diminution in the level of trust assets available for
Obvious gatekeepers to this market are, to a large extent, solicitors and,
perhaps to a slightly lesser extent, accountants.
If financial advisers are looking for a reason to call on trust clients or
any of the suggested gatekeepers about new business opportunities, then the
imminent changes to trustees' statutory powers of investment may be a very
The truth is, of course, that the statutory powers (largely contained in
the Trustee Investments Act 1961) will not be substantially relevant for
most trusts. Why? Well, the statutory direction on what can and cannot be
invested in – subject to the constant requirement for trustees to act in a
fiduciary manner and, where relevant, to treat all beneficiaries fairly and
equally – only has to be referred to if and to the extent that the trust
provisions do not specify investment powers for the trustees. Most modern
trust deeds would specify the powers.
In this respect, the provisions of the Trustee Investments Act are rather
like the intestacy provisions directing the destination of a deceased's
property where there is no will.
This does not mean there are no trustees affected by the statutory
provisions nor does it mean there is not widespread misconception that all
trusts – regardless of their specific powers – are affected by all the
statutory provisions on trustee investment. Good reasons to call, then.
What are the changes proposed and when are they likely to take place? On
July 21, 1999, the Law Commission and Scottish Law Commission jointly
published a report on trustees' powers and duties. The report covers the
Powers of investment.
Duties of care.
Powers of delegation.
Powers to employ nominees and custodians.
Powers to insure the trust property.
Professional charging clauses.
The report recommends reform of the law in England and Wales and in
Scotland governing trustees' powers to invest the trust fund where no
express powers are included in the trust document or will. For England and
Wales, it also recommends a range of reforms intended to facilitate more
effective trust administration concerning collective delegation by
trustees, the use of nominees and custodians, powers of insurance and
remuneration of professional trustees.
The report included the draft Trustee Bill for England and Wales proposing
the implementation of the recommended reforms as well as draft clauses to
amend Section 4 of the Trusts (Scotland) Act 1921 dealing with trustees'
powers of investment in Scotland. It is expected that the Trustee Bill will
be enacted imminently.
In respect of trustees' investment powers, it has long been considered
that the present statutory provisions on trustee investments contained in
the Trustee Investments Act 1961 as amended are out of date and inadequate.
Since 1984, the courts have been willing to extend trustees' investment
powers but, for many, going to court, say, under the provisions of the
Variation of Trusts Act, will have represented too high a hurdle to jump to
secure wider investment powers.
Extended powers of investment have already been put on a statutory footing
for trustees of pension schemes in the Pensions Act 1995. For charitable
trusts, the Charities Act 1992, while relaxing certain restrictions on
trustee investments, strengthened certain trustee duties as regards their
The question of trust variation came up in a relatively recent case heard
by the Jersey Court. Although the variation in this case was not to do with
extending investment powers – one of the main reasons for trust variation
being sought, by the way – it did make clear the rules of variation by
virtue of the agreement of all the beneficiaries under the reasonably well
known case of Saunders versus Vautier (1841).
In the case in question, a non-UK-resident accumulation and maintenance
trust was set up in Jersey for the benefit of the settlors' six children.
The trust assets comprised, among other things, shares in some 49 companies
of an estimated gross value of around £450m.
The trust was set up before 1991 primarily for UK capital gains tax
purposes. The settlors were excluded from benefiting from the trust and
their letter of wishes indicated that the family fortune should remain
intact for the benefit of the family for many years to come. The letter
also gave the impression that the settlors believed they had created a
Following changes to the taxation of capital gains introduced in the
Finance Act 1998, tax advice was obtained and the opinion of several senior
counsel was that the property of the trust should be transferred under one
of the trust powers to a new and separate settlement which was distinct
from the existing one. Application for a variation of the trust was made to
the Jersey Court under Article 43 Trusts (Jersey) Law 1984.
So, now I've hooked you, you will have to wait until next week for the outcome.