The Provisions of the Trustee Act of 2000 - Essay Example

The Role of the Trustee A trustee is the person who holds and administers the proceeds of a trust for the benefit of the beneficiaries, in accordance with the intentions of the testator. A trustee is placed in a position of responsibility and has a fiduciary duty to the beneficiaries of a trust. However, there is also potential for misuse of that power, which is one of the aspects that has been addressed in the Trustee Act of 2000. With the growing influence on equity in English law, the financial and fiduciary responsibilities of trustees are even more vital and the provisions in the recent Act address these needs, especially the need for trustees of charitable funds to invest in a more socially responsible manner. The trustee is the owner of the legal title of property and assets that are held in trust for the benefit of the beneficiaries. As spelt out by Lord Diplock in the case of Gissing v Gissing1, a trustee holds the beneficial interest of claimants as cestui que trust with such testator intention being spelt out in writing2. The powers and duties of the trustees are defined in the deed of trust and they must hold regular meetings to demonstrate that they are fulfilling their duties. Trustees are obliged to act in a financially responsible manner to do their best to advance the interests of the trust and to achieve the intent of the testator3. In the case of charitable trusts, grants or foundations where the class of beneficiaries is wider and where evidential uncertainties may exist, it places even more importance on the individual discretion of the trustees to invest in a manner that will serve to advance the social goals of the organization rather than be concerned with the accumulation of profits. On the whole, trustees have been endowed with the power to exercise their discretion in the matter of investing of the proceeds of the trust and the courts have rarely interfered with the right of the trustees to invest as they see fit.4 An examination into trust law and history, especially for charitable foundations, reveals the fact that it is not easy to explain why trustees have thus far refrained from investing on the basis of ethical choices5. The fiduciary duty of a trustee or a person/s in the position of trustees is set out in the case of Lloyds Bank Limited v Bundy6 wherein there is a special relationship between the trustee and beneficiary which places a fiduciary duty on a trustee’s shoulders to faithfully execute the testator’s will and honor his duties. A trustee will be liable for a breach of that trust. Trustees are obliged to act in an even handed manner without any partiality or undue favoring of one beneficiary over the other7, for example in the case of Re Smith, the courts held that a failure to act impartially constituted a breach of trust. A trustee is not only expected to exercise a duty in care, he/she is also expected to exercise a duty in cautionary investment and balance them between capital and income investments, so that he/she refrains from selecting risky or speculative instruments. Fraudulent activity and breach of trust by trustees was an issue in a recent case8 where a trustee misappropriated trust funds in order to fund premiums on a life insurance policy. Trustees are expected to invest the assets of the trust in such a manner that it will provide the maximum benefit to the beneficiaries and they have been endowed with power accordingly under discretionary trusts. Moreover, recent scandals that have arisen in the world in the case of companies such as Enron have highlighted the need for the trustees of foundations to engage in socially and environmentally responsible investing as opposed to investing that is primarily intended to further business for the organization.9 Most large foundations own shares in several large corporations and according to Brenda Plant, can use the strength of those shares to press for increased attention to social and environmental concerns, through the power of the trustee vote. She clarifies that “to look beyond the investment bottom line does not imply forgetting profits. It involves seeking modes of wealth creation that pursue personal, social and ecological benefits in addition to financial gains.”10 The trustees of a charitable trust or grant are expected to execute their duties in a manner that will not compromise the interests of the trust. This will include responsible investing and a trustee’s negligence of his duties or a failure to keep track of market trends and respond to them appropriately has also made them liable in Courts. For example, in the case of Fales v Canada Permanent Trust11, the trustees were aware that share prices were falling and losses could occur, yet did nothing. Since the courts have held trustees liable in such cases, this only goes to prove that there is a duty of car imposed upon a trustee by virtue of his fiduciary relationship with the beneficiaries of the trust, in spite of the fact that they may be members of a large class of people. However the responsibility to invest responsibly does not only mean that the trustees should ensure that the trust does not face losses, rather, to ensure that their investments benefit a significant section of the public and are therefore socially productive. In recognition of the changing historical and economic scenario, the appointment of trustees in respect to trusts on land has also been revised in such a manner that the procedure of strict succession that had been the rule thus far has been eschewed and provision made for sales and investment of proceeds of land, with more power being allotted to beneficiaries in the choice of trustees and ease in removal of trustees in the event that they are not performing their duties satisfactorily.12 The Trustee Act also permits appointment of a trustee by the Courts in the event that a trustee’s impartiality and duty of care is suspect for any reason.13 This is also the case when there is a potential conflict of interest issue. The provisions of the Trustee Act of 2000 have enhanced the discretionary powers and choices available to trustees. Unlike the regulations that existed before, a trustee now has the prerogative to invest in mixed stocks and can mingle and mix the assets of the trust in order to achieve the maximum benefit. Moreover, under the new Trustee Act, it is now possible for a trustee to seek advice from financial experts such as investment brokers before investing the proceeds of the trust, in order to ensure that optimum investments are made. There are pressing environmental and social issues today that can only be tackled by a redirection of the proceeds of charitable trusts into more socially productive investing. Exclusionary measures that are already being practiced by UK trustees, such as refraining from investing in the shares of companies that harmful products and investment in socially productive causes. Therefore, in conclusion, it may be stated that with the growing role of equity and the need to ensure that the interests of the beneficiaries are served well, the courts are moiré vigilant about examining trustee failure of duty of care as opposed to their lack of interference earlier. Moreover, the vital role of charitable trusts in promoting investment into socially productive causes has been recognized and trustee powers have been enhanced accordingly in these areas. Therefore, the recent developments are likely to prove beneficial in the long term because they allow a greater degree of flexibility to trustees while simultaneously holding them responsible for fraud or violation of their fiduciary duties. Bibliography Books/Articles: * Moffat, Graham Trusts Law: texts and Materials Fourth edition, Butterworths * Plant, Brenda, 2005. Policy Options. July-August. [Online] Available at: http://www.pensionsatwork.ca/english/pdfs/scholarly_works/sw_edition3/Plant.pdf * Study titled: Do UK charities invest responsibly? Conducted by the Just pensions and Charities Aid Foundation in May 2003 Legislation: * Law of Property Act of 1925 * Trusts of Land and Appointment of Trustees Act of 1996. * Trustee Act of 2000 Cases: * Fales v Canada Permanent Trust [1977] 2 SCR 302 * Tempest v Lord Camoys (1882) 21 ChD 571 * Lloyds Bank Limited v Bundy (1975) QB 326 * Re Smith (1971) 16 Dominion Law Reports 130. * Foskett v McKeown and Others (2000) 3 All ER 97 * Gissing v Gissing (1971) AC 886 (HL) Read More