The Trustee Act 2000 - a major change

The Trustee Act 2000 - a major changeThe Trustee Act 2000 brings in the biggest change to trust law in England and Wales for 75 years.

Stephen Pallister and Zoe Hooper-Smith look at its likely effectsThe Act received the Royal Assent on 23 November 2000 and came into force by statutory instrument on 1 February 2001.

It is deregulatory, and is intended to facilitate the administration of trusts.

It principally gives a set of default powers that apply to trusts unless the trust document specifies differently by exclusion, modification or widening.The Act applies just to England and Wales.

A Bill to reform trustee investment powers should follow in the Scottish Parliament.

It is hoped the Trustee Act will be enacted in the Northern Ireland and the Isle of Man.The Act has implications for anyone whose practice involves trust law.

It will benefit many trusts and charities, modernising the law relating to the powers and duties of trustees.

The legislation will especially aid the administration of many older trusts, intestate estates and home-made wills.

Many such trusts will have a wide investment power that they formerly lacked.The Act does not override any express provision in a trust deed.

However, practitioners should review the terms of pre-existing trusts to ensure that trustees take full advantage of the benefits of the new Act.

Trust precedents should also be looked at in the light of the Act.

Existing precedents can invariably be used without amendment, but practitioners will want to show their documents take the Act into account.Generally, trustees must be made aware of their new powers and duties where applicable.The path to enactmentTrust law reform has been a long time coming.

An attempt was made to reform trustee investment powers in 1997 by an order under the Deregulation and Contracting Out Act, but this was overtaken by that year's election.The Law Commission produced a consultation paper in 1997 on changes to trustees' powers.

The report that followed, Trustees' Powers and Duties in 1999, included a draft bill which in large part constitutes the new Act.What the Act doesThe main changes for trustees are:l The creation of a statutory duty of care.

Trustees must act with such care and skill as is reasonable bearing in mind any special knowledge or experience they have; and, for professional trustees, any special knowledge or experience it is reasonable to expect them to have.This new statutory duty tries to codify what has been the common law, and in practical terms will make little difference.

However, because the Act goes on to lay down important new 'default' powers for trustees, the codified duty is included to specifically apply to those powers, thus protecting beneficiaries.l The creation of a wide power of investment.

The 1961 Trustee Investments Act put considerable restrictions on investment powers of trustees lacking express powers.

The Act replaces this with a new 'general power of investment'.

Trustees will be able to make investments as if they wereentitled to the trust assets.In exercising the power of investment, trustees must take account of the 'standard investment criteria'.

In particular, they must review the trust investments from time to time having regard to the standard criteria, namely: suitability to the trust of the kind of investments proposed or retained; whether the particular investment is suitable; and the need for diversification of the trust investments so far as is appropriate to the circumstances of the trust.An 'investment' is not defined so the term is wide and will cover whatever the common law from time to time determines as such.Unless trustees reasonably conclude it is unnecessary or inappropriate, there is a need to obtain proper advice before exercising any power of investment.

Advice must be taken from a suitably qualified person.The power is retrospective.

So while it will invariably make no difference to well-drafted modern trusts, it will make a big difference for trusts which have arisen on intestacies and many older trusts.l Acquiring land - trustees are given a wide power to buy freehold and leasehold land as an investment or for any other reason.

The Act extends the 1996 Trusts of Land & Appointment of Trustees Act 1996 by enabling land to be purchased anywhere in the United Kingdom, not just in England and Wales.The Act does not provide a power to buy land abroad.

This has been criticised.

However, the Law Commission was against this as a default power because of the complexities that can arise with trusts owning land in civil law countries, particularly in relation to succession issues.l Widening the ability to delegate powers - there is an important extension of trustees' powers to delegate.

The Act differentiates here between ordinary trustees and charity trustees.

The former can basically delegate any of their powers other than those relating to: distribution of the trust assets; whether fees are paid out of income or capital; and appointment of new trustees.Charity trustees, a little differently, are given express powers to delegate functions, including: investment of trust assets; delegation of the implementation of decisions taken by the trustees; and any function connected with raising funds other than by means of a trade.

The Secretary of State may also make an order to add other functions that may be delegated beyond those laid down in the Act.Trustees cannot delegate to a beneficiary.

This change will allow trustees to appoint investment managers where they do not currently have power to do so under the trust deed.Where the agent is managing trust assets, there are special provisions.

There must be a written agreement between the trustees and agent, and the trustees must have a written 'policy statement' for the guidance of the agent and which includes a term that the agent must comply with its terms.

'Policy statement' is not defined but it is not intended that it should be very formal: a letter from the trustees and trustees' minute would suffice.l All trustees will be able to appoint nominees and custodians.

Appointments must be in writing.

The statutory power to use nominees is new.

Appointees must be: persons whose business consists of or includes acting as a nominee or custodian, a body corporate controlled by the trustees, or a solicitors nominee company.l There is a statutory provision allowing a trust corporation or a professional trustee to be paid for services provided to the trust, subject to limitations.

Power exists to extend it to charitable trustees - although that is unlikely to happen in the near future as there is no consensus that they should be paid for professional services.There is a change to the rule that professional charging clauses in wills are gifts for the purposes of section 15 of the Wills Act 1837.

For deaths after 1 February 2000, such a clause will not be void if the person to receive remuneration witnessed the will.

The amount due under the clause to the professional trustee will be an administration expense under s.34(3) of the Administration of Estates Act 1925.Insuring trust propertyThe Act substitutes section 19 of the Trustee Act 1925 and gives trustees the power to insure trust property against all risks of loss or damage and to pay the premiums from the trust fund.

There are certain limitations to this power.The Act is to be welcomed.

As is sometimes the case, one bit of reform can lead to more, and there are signs additional trust law reform may be on the way.

The Law Commission Report The rules against perpetuities and excessive accumulations in 1998 might lead to a bill modernising some of the arcane restrictions in these areas.In addition, during the Bill's progress through Parliament, the Lord Chancellor agreed to the reference of three more areas to the Law Commission: trustee exclusion clauses; rights of creditors against the trust fund; and income/capital apportionment rules.

Let us hope for another Trustee Bill before too long.Stephen Pallister and Zoe Hooper-Smith are solicitors in the tax department at the law firm Pinsent Curtis.

Mr Pallister is also a member of the Law Society's wills & equity committee