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Wider fields for trustee steeds to roam

There are already many opportunities for IFAs in the area of trustee

investments but the introduction of the Trustee Bill 2000 will expand these

considerably.

This particular piece of legislation is innovative in many ways. It

removes many largely unnecessary limits on the way in which trustees can

manage and invest trust funds.

Many of these relaxations will be of direct benefit to IFAs and should

present many business opportunities.

Clause 3 of the bill allows a trustee to “make any kind of investment that

he could make if he were absolutely entitled to the assets of the trust”.

This introduces a useful potential benefit for IFAs since, unless the trust

itself specifically precludes it, the trustees will be able to invest wider

than the limits imposed by the Trustee Act 1961.

Although most modern trusts normally include a wide power of investment

for the trustees, a significant number do not. The more time that has

elapsed since the creation of a particular trust, the more likely it is

that no thought was given to the trustees&#39 investment powers.

Unless the trust document does extend their powers, the Trustee Act 1961

restricts the trustees&#39 powers to invest. For example, life insurance

policies, including investment bonds, would not be available to such

trustees.

However, if Parliament passes the Trustee Bill as drafted, such

difficulties will become history for most trusts, if not all. Any

investments will be acceptable if the trustees could invest in them as

individuals, provided they bear in mind “the standard investment criteria”.

These are contained in clause 4(3), which specifies that the trustees must

ensure the investments are suitable for the trust in question and that they

give due regard to the need for diversification.

Let us consider an example. If a trust has a beneficiary only entitled to

receive income and the trustees have no power to advance capital to this

beneficiary, then the trustees would clearly not be able to invest into a

non-income-producing asset. Neither would they be able to place the whole

trust fund in a deposit savings account, since this would not satisfy the

need for diversification.

Indeed, it would be most unfair to the beneficiaries who would receive the

capital on the death of the income beneficiary, since there would be no

capital appreciation.

Clause 5(1) will be of particular interest to IFAs as this specifies that

“before exercising any power of investment…a trustee must…obtain

and consider proper advice”.

Clause 5(2) states that this also applies when the trustees review the

investments, when they must take proper advice about whether they should

vary the investments.

Clause 5(4) defines “proper advice” as “the advice of a person who is

reasonably believed by the trustee to be qualified to give it by his

ability in and practical experience of financial and other matters”. If an

IFA does not fulfil this description, it is difficult to imagine who would.

Curiously, clause 5(3) says the trustee does not need such advice if they

“reasonably conclude that in all the circumstances it is unnecessary or

inappropriate”. One can only guess at the circumstances envisaged when this

exception would apply – perhaps if the trust assets are small or one of the

trustees is himself an IFA, maybe.

The conclusion is therefore that the trustees will have to take advice not

only when investing but also regularly in all but the most unusual cases.

The bill also contains clauses dealing with, among other things, trustee

remuneration, delegation of powers and appointment of nominees.

It even includes an example of how to apply one of the clauses – this must

be unique in legislation.

The Trustee Bill is a positive move towards removing unnecessary barriers

to trustee administration and investment. If passed, it will rein-force the

role of the IFA, proving a good basis for a long and lasting relationship

between IFA and trustee. This will be valuable for all – trustee, IFA and

beneficiary.

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