What is a Trustee?
Let’s start with the basics before looking closer at the Trustee Act 2000. A trustee is someone who takes responsibility for money or assets set aside in a trust. The duty of care trustee act 2000 is to manage the trust money, use it in the best interest of the beneficiaries, and to obey the rules as set out in the trust agreement. Unless the rules state otherwise, a trustee can not benefit from the trust. The task of acting in the best interest of the beneficiaries is called the trustee’s ‘fiduciary duty’.
Trustees are chosen by the settlor when the trust is established, so are generally people that the settlor feels they can rely on. This is very important because the trustees have vital roles in maintaining the trust and fulfilling it’s objectives.
What did the Trustee Act 2000 do?
The Trustee Act 1925 consolidated the laws on trustee powers and responsibilities. It formed part of the land reform legislation of the 1920s and provided clarification around the legalities of being a trustee.
Most sections of the section of the law was repealed by the Trustee Act 2000, although some areas remain in force today.
In 2001 the Trustee Act 2000 came into force for trusts established under English Law. Trustees have a legal requirement to understand and take into account this legislation.
There are five parts within the Act – we will look at these individually:
Duty of Care
The act requires and imposes a Duty of Care on the trustees to legally ensure the trust arrangement is operated in a suitable way. It is especially important for trustees to ensure that the duties imposed upon them by law or the terms of the trust deed are carried out.
Failure to effectively administer the trust could create a breach of trust. If a breach of trust occurs the beneficiaries could opt to take legal advice against the trusteeship and seek financial compensation.
Typical breaches of Trust include:
- Poor administration of the trust that results in financial loss to the trust and beneficiaries.
- Unequal treatment of different classes of beneficiaries.
- Making unsuitable investment decisions that could be challenged by the beneficiaries.
This part was seen as a significant development compared to the Trustee Investments Act 1961. It enables trustees to make investment decisions as if they are entitled to the trust assets. However, there are certain requirements on the trustee within this part of the act. Trustees must consider the “standard investment criteria” and check that all investments are suitable. Diversification is seen as vital and should be closely considered when making all decisions. There is some criticism of this section because there is no stated definition of what is suitable, and this is difficult to quantify.
Trustees are also obliged to received “proper advice” before making all investment decisions. Again, this is not specified but should be someone qualified to give advice based on financial experience. This judgement is left in the hands of the trustee, meaning it is also somewhat vague in definition.
Acquisition of land
Part three of the act allows trustees to purchase land “as an investment, for occupation by the beneficiaries or for any other reason”. This is an expansion of the permissions given by the Trusts of Land and Appointment of Trustees Act 1996. The “for any other reason” part has been added so gives trustees more freedom to purchase land.
Any land purchased must be located in Great Britain, but once this is purchased they can act as if they are the owner. This means they are able to sell it, lease it or mortgage it.
Agents and delegation
Under the Act, trustees are able to “authorise any person to exercise any or all of their delegable functions as their agent”. These functions are all of the trustee tasks except for distributing assets, disposing of assets, allocating fees and appointing a trustee. When an agent is authorised, there must be a signed policy agreement that specifies how the task should be carried out.
Trustees can be liable for the actions of the agents they nominate and must intervene if the situation requires it. A trustee can be liable for negligence if the agent violates the duty of care from part 1 of the Trustee Act 2000.
The act sets out that trustees are entitled to remuneration if the trust agreement states that this is possible, or if the trustee is acting in a “professional capacity”. This remuneration must be reasonable compared to the work that has been carried out, and the final decision on this lies with the courts.
Does the Trustee Act 2000 apply to executors?
There are sections of the Trustee Act 2000 that refer to executors. More specifically, executors have a duty to exercise care and skill when administering an estate under the law. However, professional executors will be tested more closely against the requirements under the act compared to a lay executor.
Does the Trustee Act 2000 protect beneficiaries?
Yes, part one of the Act ensures that trustees operate with a duty of care and that they must always put the best interests of the beneficiaries before anything else. This means that any decision made by the trustees is required to be carried out with the beneficiaries in mind, thus offering a safeguard to their needs.
What are the specific trustee duties under the Trustee Act 2000?
Under the Trustee Act 2000 the trustees have specific duties that they should ensure are carried out. These include:
- Keeping records, Accounts and completing any required tax returns
- Acting impartially and treating the beneficiaries fairly
- Investing the assets of the trust in a prudent manner
- Distributing the trust assets when required
- Abiding by the terms of the trust
- Paying tax on time
- Ensuring assets within the trust are held in the name of the trust
The act replaced existing powers set out under the Trustee investment Act 1961 with a wider general power of investment. For trusts that do not have wide powers of investment the Trustee 20 00 act provided wider powers.
There are a number of exceptions from the trust law. These exceptions include trusts that are set up under Occupational Pension legislation, Authorised Unit Trusts and some trusts set up under the Charities Act 1993.
The requirements placed on trustees can be onerous and time-consuming. We can help guide you through the complexities of the trustee act and help you comply with your trustee responsibilities.