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 the Trustee Act 2000 is to manage the trust money, use it in the best interest of the beneficiaries, and obey the rules set out in the trust agreement. Unless the rules state otherwise, a trustee can not benefit from the trust. Acting in the beneficiaries’ best interest is the trustee’s ‘fiduciary duty’.
Trustees are chosen by the settlor when the trust is established and 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 its 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 clarified the legalities of being a trustee.
Most sections of the section of the law were repealed by the Trustee Act 2000, although some areas remain in force today.
The Trustee Act 2000 came into force in 2001 for trusts established under English Law. Trustees are legally required to understand and consider 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 suitably. Trustees must ensure that the duties imposed upon them by law or the terms of the trust deed are carried out.
Failure to administer the trust effectively could result in a breach. If this occurs, the beneficiaries could seek legal advice regarding trusteeship and financial compensation.
Typical breaches of Trust include:
- Poor administration of the trust results in financial loss to the trust and beneficiaries.
- Unequal treatment of different classes of beneficiaries.
- Making unsuitable investment decisions that the beneficiaries could challenge.
Investment powers
This part was seen as a significant development compared to the Trustee Investments Act 1961. It enables trustees to make investment decisions as if entitled to the trust assets. However, there are specific 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 vital and should be closely considered when making all decisions. This section is criticised because there is no stated definition of what is suitable, which is difficult to quantify.
Trustees must also receive “proper advice” before making all investment decisions. Again, this is not specified, but someone qualified to give advice based on financial experience should be present. This judgment 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 to give 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 can sell it, lease it or mortgage it.
Agents and delegation
Under the Act, trustees can “authorise any person to exercise any or all of their delegable functions as their agent”. These functions are all trustee tasks except for distributing assets, disposing of assets, allocating fees and appointing a trustee. When an agent is authorised, a signed policy agreement must specify 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.
Remuneration
The act states that trustees are entitled to remuneration if the trust agreement allows it or if the trustee is acting professionally. This remuneration must be reasonable compared to the work carried out, and the courts decide on this.
Does the Trustee Act 2000 apply to executors?
Sections of the Trustee Act 2000 refer to executors. More specifically, executors must exercise care and skill when administering an estate under the law. However, professional executors will be tested more closely against the act’s requirements than lay executors.
Does the Trustee Act 2000 protect beneficiaries?
Yes, part one of the Act ensures that trustees operate with a duty of care and must always put the beneficiaries’ best interests before anything else. This means that any decision the trustees make must be carried out with the beneficiaries in mind, thus safeguarding their needs.
What are the specific trustee duties under the Trustee Act 2000?
Under the Trustee Act 2000, the trustees have specific duties to ensure they are carried out. These include:
- Keeping records and 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 more comprehensive general power of investment. For trusts that do not have broad powers of investment, the Trustee 2000 Act provided more expansive powers.
There are several exceptions to the trust law. These exceptions include trusts 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 you navigate the complexities of the Trustee Act and comply with your trustee responsibilities.
