Evaluating Trustee Remuneration

ABSTRACT

The Trustee Act, 2000 essentially establishes the clause of remuneration under section 28 to 33 of the Part V of the Act. The Trustee Act, 2000 has come in force after repealing most of the parts of the Trustee Act, 1925 and the Trustee Investment Act, 1961. Thus, to tighten the scope and nature of the trust law of England and Wales, in respect of the modern society, the clause of remuneration has been added which has been seen as desirable and a great improvement from the existing trust law of land. Herein, this essay elaborates largely on the position of the trustee under the framed legislation and clarifies the position of a professional trustee from a lay trustee. Further, this essay has highlighted in details the question of remuneration and the need to have fixed remuneration in the first place which has made the position of trustees at a more advantaged position. I have used the qualitative methodology to research to find out the prospect of appointment of professional trustees and their service charge under the Trustee Act, 2000 relying largely on all the legislations framed, referring to various precedents and case laws that allows the establishment of the fact.

RESEARCH DIARY

This essay has been formulated relying largely on secondary sources, discussions and documents. However, the Trustee Investment Act, 1961, Section 6 has been instrumental as well as the Trustee Act, 1925, Part II followed by The Trustee Act, 2000, (section 28 to 33 of Part V). The book written by Book by Leolin Price, Trustee Investment Act, 1961, p. 738 to 743 has been fundamental in learning the concepts and framing the analysis of the position of trustees and in light of the developments of the trustee Act, such conclusions have been reached. The power and duties of the trustees have been referred from the reports of the Law Commission as well.

ESSAY PLAN

The essay plan herein consists of the detailed discussion of the position of trustee under the Trustee Investment Act, 1961 and Trustee Act, 1925 i.e. under the old law of trust. Thereafter, we shall discuss the new position of trustees and their power under the newly amended Trustee Act of 2000. In this segment, we shall focus more on the clause of remuneration for the purpose of critical analysis of the essay topic. The same shall be followed up by the nature of professional trustee and how they differ from the lay trustee. Thereafter, we shall discuss the plan of remuneration of professional trustee in respect of the Trustee Act, 2000 and several case laws. We shall conclude the essay with a discussion of the favourable effect of the addition of the remuneration clause in respect of the modern society.

REFLECTION

The abovementioned essay plan herein critically analyses all the segments of trust laws and how the clause of remuneration has come into play. It’s extremely important to have a fair understanding of the basic fundamentals of the trust laws and the reason as to why their position was so uncertain and on shaky grounds even though they serve an extremely crucial role in ascertaining their position. However, this essay shall essentially discuss regarding the effect of the addition of the remuneration clause on the field of trust law and how it shall benefit the other trustees and settlor herein. Also, the further developments have been discussed in the segment of remuneration of the professional trustees, their roles and their advantages in the field of trust law.

INTRODUCTION

Ideally the position of the legislation on a Trustee is to enable them to be a person who is given the title to hold a property on behalf of a person and act as a beneficiary for benefiting others. Therefore, any trust must be governed by Trustees for the proper disposal, protection, and supervision and monitoring of the property. Thus, the trustee is obligated by a fiduciary duty and has a responsibility to act as a fiduciary that enables him to perform very complicated functions that are meant for the proper maintenance of the trust (Moffat, G., Bean, G., and Probert, R., 2009, p.421). The most relevant statutes that deal with the trust and the trustees are The Trustee Investment Act 1961 and the Trustee Act, 2000 outlining the various powers and duties the trustees are bestowed with and the protection regarding the same. It is the primary duty of the trustees to make investments within the property that allows the property to thrive as well benefit the others (Todd, P and Wilson, S (2005). There has been some growth and development from the earlier Act as the assets that were governed under the Trustee Investment Act, 1961 were categorized to allow safe investments (Reed and Wilson 2001) and was meant to entail in investments which were not very large schemed and hazardous in nature. This was excluded even if any provision within the trust agreement allowed for the same as was upheld in the case of Cowan v Scargill. The old legislations were safer in terms of defining boundaries and would accrue in places where the possibility of accruing more profits and higher rate of profit which could be received in the form of an income, only such investments could be made (Watt, 2006). It was rather mandatory for the trustees to function in an unanimous way as was held in the case of Luke v South Kensington Hotel Co (1879) 11 Ch D 121 unless there is any expressed provision stating otherwise. The trustee owed a general care of duty towards the beneficiaries.

THE POSITION OF TRUSTEE UNDER THE TRUSTEE INVESTMENT ACT, 1961 AND THE TRUSTEE ACT, 1925

The position of a trustee under The Trustee Investment Act 1961 and The Trustee Act, 1925 consists of a wide set of powers and duty construed under the ambit of the acts as have been mentioned herein. From making a prudent decision about the investment with the trust money to establish a proper relationship with the beneficiary, the position of trustee is extremely valuable to keep the trust fund secure and safe.

Ibid p.421

As per section 6 of the Trustee Investment Act, 1961(Leolin Price, 1961) (which now stands repealed with Trustee Act, 2000), the investment power conferred to the trustee was huge and trustees were needed to choose diversified investigation scheme for the purpose of making a secure investment plan of a trust fund. Also, it was also suggested by the Act that, the trustee should be guided by a financial analyst for the purpose of making an informed decision. However, the Act has been severely vague regarding the duties of the trustees whatsoever.

As per Part II of the Trustee Act, 1925, the general duties of Trustees were listed from section 12 to 30, which evidently covered a huge extent of duties on part of the trustee. The investment power, the power to assign agents to look after the investments under the Trustee Act, 1925 with no particular segment for the charitable trust, has given the Trustee Act, 1925, the status of being frivolous and weak (The Trustee Act, 1925)

The Trustee Act, 1925 was formed as a part of the land reform legislation and the enactment of the same was in a response to the decline of gratuitous trusteeship. Thus, both of these acts governed an era of UK, where the specific investment of the trust fund was not maintained by these Acts and also, the trustee was not to be paid i.e. a trustee must not benefit from a trust property because of the issue of the conflict of interest. Also, the power of investment of the trustee under the Trustee Investment Act, 1961 was extremely narrow and conservative. The trustee needed to go through an expensive way to get his work done (Wilson & Sarah, 2007)

THE POSITION OF A TRUSTEE UNDER THE TRUSTEE ACT, 2000

The amendment of the Trustee Act of 1925 was long due in England and Wales and even if various suggestions regarding the power, duties, and investment scopes of the trustees were made in the year of 1982, the bill finally came into force on February 1st of 2001.

The Trustee Act, 2000 has made several amendments to the old law under the Trustee Act, 1925 and the Trustee Investment Act, 1961 and repealed several sections under it. However, the new Act of 2000 has made changes in five areas namely – a) the duty of care of the trustees b) investment powers c) Acquisition of land d) agents and delegation e) remuneration (Meakin, Robert, 2001)

Thus, the Trustee Act, 2000 amended most of the Act of 1925, except for section 30 and 31. While, other areas of the amendment was already a part of the previous Acts of 1925, Part V of Act of 2000 (Hudson, 2009) is a whole new addition to the concept of trust law across the United Kingdom which discarded the age old ancient concept that the trustee cannot benefit from the property and/or asset subjected to a trust fund.

Section 28 to 33 of the Trustee Act, 2000 deals with the remuneration of the trustee, if the same has been enumerated under the trust instrument, provided that the trustee is acting under the capacity of professional capacity. In respect to the principles of ‘quantum meruit’(Walker, 2019) section 29 of the Act of 2000, decides that a non-charitable professional trustee is entitled of remuneration, even in the absence of any explicit mention of the same under the instrument of trust whatsoever ( Walker, 2019). Section 30 of the Trust Act, 1925 again states that the trustee shall be paid off from the trust fund itself along with the agents, nominees or custodians who have been involved in the affairs of the trust herein. Also, the Trustee Act, 2000 made a clear distinction between charitable trust and other types of trust funds.

With the imposition of new line of duty, investment power and remuneration, the trust law of England and Wales has taken a step forward in meeting the needs of society and repeal the age-old stereotypes around trust funds. In the previous law, the trustees were needed to act from a complete neutral point of view in order to avoid conflict of interest. However, with the new implications of remuneration for trustees acting in professional capacity has created a new interest for the trustees to act more diligently and take responsibility of the trust fund in a more serious way. The Trustee Act, 2000 has given the trust law of the land of UK more formal accessories and with remuneration clause, many companies will be interested in acting as a trustee whereas only natural persons used to act as trustee before. This will help the trust fund sector to be more investment secure and the trust fund will suffer less damage as well.

THE POSITION OF PROFESSIONAL TRUSTEE UNDER THE TRUSTEE ACT, 2000 AND HOW DOES THEY DIFFER FROM LAY TRUSTEES?

As it can be traced from section 29 of the Trustee Act, 2000, the term ‘professional trustee’ or ‘trustee acting in professional capacity’ (Watt, 2005) has been used by the legislature. The question of remuneration has been inexplicably attached to professional trustee as per the wordings of the Trustee Act, 2000. Before the enactment of the Act of 2000, lay trustees were in charge of the trust funds across UK. Lay Trustees can be defined as the trustees who sit voluntarily on the board of a trust fund.

Who is a professional Trustee?

A professional trustee can be defined as a natural or juristic person acting as a trustee of a trust and the persons shall not have any beneficiary interests in the trust fund they have been appointed to. Professional Trustee (GRA Blog, 2009) is distinguished from a lay trustee in the characteristics that professional trustees are trained for the functions they have been appointed to. They shall carry out the functions of arranging meetings with other trustees, making unanimous decisions, consider the existing investment plans and provide the other trustees with their expert opinion for better asset protection and many other functions along with the lay trustees(GRA Blog (2009). If the professional trustee is not a juristic person but a natural person, the term of remuneration shall be decided only after considering the decision of other trustees on board. Again, for the purpose of remuneration, professional trustees have classification for private trust funds and charitable trust funds herein.

The difference between Professional Trustee and Lay Trustee

As has been commented by the High Court of England and Wales in the case of Brudenell-Bruce -v- Moore and Others 2014] EWHC 3679 (Ch) the sections of the newly amended Trustee Act, 2000 shall only apply for the professional trustees and that lay trustees should act free of charge.

Thus, the professional trustee differs on one of the most important topics of the recent trust laws of England and Laws. As per the Part V of the Trustee Act, 2000, it has been clearly mentioned that only professional trustees shall be entitled of the remuneration, enacted under the law and other trustees of the trust fund shall not be subject to any kind of remuneration of whatsoever form and if the lay trustees are given any kind of remuneration, that shall be considered as the old trust law i.e. it shall create a conflict of interest in the trust asset.

Also, professional trustees are expert at what they do and they are trained corporations or persons who excel at the investment sector. The main aim of the remuneration inclusion under the new trust law has been made with the idea of better investment plans (Watt, G ,2006)

THE CLAUSES OF REMUNERATION OF THE PROFESSIONAL TRUSTEES UNDER THE TRUSTEE ACT, 2000

As per Part V of the Trustee Act, 2000, all the professional trustees are subjected to remuneration unless the trust deed describes otherwise. The rules change accordingly with the type of trust, whether it is private trust or charitable trust. As per section 28 and 29 of the Act of 2000, professional trustees are entitled for the payment of their service as a trustee and the rate of such professional service shall be accorded by the court in function if the same cannot be agreed upon between the parties. The well- established feature of trust law, that the office of trustee is gratuitous in nature as has been decided in the case of Keech v Stanford (1726), Sel Cas Ch 61

has been taken a form of liberty under the Trustee Act, 2000 with the enactment of the Part V of the Trustee Act, 2000. Further, the merits of remuneration of professional trustees do not end with the enactment of the sections under the Act of 2000, rather it builds up on the podium of various case laws that have been decided on the very matter.

The Concept of Fixed Remuneration

The concept of fixed remuneration for the service of the Professional trustee is regarded as the ‘annual payment’ from which tax would be deducted according to the Taxation law of UK. The concept of fixed remuneration has been kept with the spirit in mind that the office of trustee shall not derive benefit from the trust asset, rather this fixed remuneration shall be considered as the bounty received from the settlor.( Justice Hayton David (2016)

In the case of Baxendale v Murphy, the professional trustee appealed for the tax deduction from the remuneration for the service thereof and it had been decided by the functioning court that the remuneration shall be considered as ‘annual fixed remuneration’ which is subject to the Tax Law of UK herein. The same concept of annual fixed remuneration was held by the court in the case of Clapham’s Trustees v Belton, when a fixed amount was paid to an ‘agent’ appointed by the office of the trustee herein. However, in exception to the abovementioned cases, in Dale v IR Commrs, it was held that the whole amount paid as remuneration to the trustee shall be considered as an earned income and no tax shall be deducted herein. Although, this case is an exception and further did not set any kind of precedent. (Justice Hayton David (2016)

The Concept of Charging Clause

As has been mentioned above already, if a trust deed permits the trustee to charge for their service, that remuneration shall not be deducted from the settlement amount pertaining to the trust fund and the same shall be liable to be governed under the Tax law as well. (Justice Hayton David (2016)

The Concept of Settlor as Trustee

If the settlor in a trust fund is also the trustee of the same and charges for remuneration for his/her service, the income of the trust should be taxed as when the settlor is also acting as a trustee pertaining to a particular trust fund, that shall mean that settlor as trustee has retained an interest in the trust property (Justice Hayton David (2016)

THE FAVOURABLE EFFECT OF ENACTMENT OF TRUSTEE REMUNERATION – A CRITICAL ANALYSIS OF THE TRUSTEE ACT, 1925 AND THE ACT OF 2000

Although the basic shape and form of the trust law of England and Wales requires to maintain the gratuitous nature of the trustee, the enactment of remuneration clause under the Trustee Act, 2000 has imposed several favourable environments for the better projection of the trust in UK.

A critical insight of the enactment of Trustee Remuneration under the Trustee Act, 2000

1. One of the utmost importance of the imposition of the remuneration clause is that several corporation of UK with investment expertise and better asset protection shall be interested in the maintaining the trust duty. The presence of professional trustees who charge for their service shall maintain a neutral ground between the settlor and other trustees on board and this shall minimise the allegation of fraud as well.

2. Secondly, the remuneration clause shall counter protect Part I and Part II of the Trustee Act, 2000 which deal with the duty of care on the trustee’s part and the measures of investment. With proper remuneration, professional trustees shall lend their expert comments on better investment suggestions and lay trustees would not have to rely on freelance financial analyst for the purpose of the same.

3. Thirdly, the remuneration clause under the Trustee Act, 2000 does not create an interest in the trust fund but provide with an option of reimbursement for the services they provide as has been mentioned under section 31 of the Trustee Act, 2000. Thus, in this way it upholds the spirit of the trust law of the land as well.

4. Fourthly, before the enactment of the Trustee Act, 2000, the Trustee Investment Act of 1961 created a territory of vague investment ideas that was again dotted by several orthodox constraints. Although the investment segment of the same has been repealed, in exchange of remuneration, better knowledge and expertise shall have the trust law of the land in accordance with the current investment scheme and the wind of the market herein. Thus, the occurrence of loss by the trustee can be mitigated by a great margin.

The Trustee Act of 1925 and Trustee Investment Act of 1961 had the concept of orthodox investment procedure and duties of the trustee engraved in it. The ideas of these two acts were to impose duties unto the trustees without enabling any factor that imposes them with a strict sense of duty to execute it. The vague suggestions and long procedures of these two Acts only hold the growth of the trust law of England and Wales and in the backdrop of the modern times (Justice Hayton David (2016), the provisions of these two Acts made the executions of a trust fund extremely difficult.

If the clauses of the above referred two Acts to be critically analysed, it can be concluded that the Trustee Act, 1925 and the Trustee Investment Act, 1961 are two saplings without any proper source of fertiliser to help them grow, embracing the modern society and survive the environment. These two Acts had all the provisions of investment of trust fund, duties of trustees, power to appoint agents or nominees but imposed the burden of ‘gratuitous nature of the trust fund’ strictly upon the trustees that these Acts did not consider any kind of remuneration attached to it.

As has been discussed above, the remuneration clause enacted by the new amended Trustee Act, 2000, it has acted as the fertiliser to the abovementioned features of the two Acts. The gratuitous nature of the trust fund has also been maintained carefully by providing the term of ‘professional trustee’ under Part V of this Act of 2000. All the sections and chapters of the old law have been repealed by the new Act of 2000 and amended in accordance of the remuneration clause and the inclusion of professional trustee. Thus, it can be concluded that the new addition of the service charge by the professional trustees has acted as the much needed wings to the trust law in UK.

In a nutshell, the remuneration clause under the Trustee Act, 2000 does not only act as a blessing for the professional trustees but for the beneficiary and the trustor as well. This amendment has made the working of the trust fund a lot smoother across UK and the allegation of fraud has been lessened as well.

CONCLUSION

Although the inclusion of the remuneration for the service provided by the professional trustee can seen as something that strictly goes against the basic norm of the trust law of the land, the amendment has rescued the trust law of England and Wales from the chains of the ancient thinking. With the imposition of broader perspective regarding the investment, acquisition of land and duty of care on part of the trustee, remuneration clause is essentially important to keep the structure of the trust law strict and tight. Without the clause of remuneration, the abovementioned clauses and amendments under the Trustee Act, 2000 would have been in vain. Section 28 to 33 of the Trustee Act, 2000 is the finishing touch of a threading without which the whole of the stitching is of no use. From engaging several corporate sector into the position of trustee to lessen the happening of fraud or the mere allegation of fraud, the service charge for professional trustees provide the ultimate finishing touch to the framing of the Trustee Act, 2000.

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Ibid

References

GRA Blog (2009); ‘What is a Professional Trustee’; available at https://www.gra.co.nz/articles-by-the-professional-trustee-team/what-is-a-professional-trustee-do-really-need-one , accessed on 19th May, 2021

Hudson, Alastair (2009). ‘Equity and Trusts’, 6th edn,. p. 31, Routledge-Cavendish.

Leolin Price (1961); The Trustee Investment Act, 1961, Vol. 24, p. 738-743, Wiley.

Meakin, Robert (2001). "The Trustee Act 2000: points in practice for charities". 2nd Edition, p.2 Private Client Business. Sweet & Maxwell.

Moffat, G., Bean, G., and Probert, R.(2009). Trust Law, Text and Materials, (5th revised edn.). Cambridge: Cambridge University Press, p.421

The Trustee Act, 1925 (1925), chapter II, available at https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/introduction, accessed on 19th May, 2021

The Trustee Act, 2000 (2000), Part V, Section 30, available at https://www.legislation.gov.uk/ukpga/2000/29/contents, accessed on 19th May, 2021

The Trustee Act, 2000 (2000), Part V, available at https://www.legislation.gov.uk/ukpga/2000/29/contents, accessed on 19th May, 2021

Watt, G (2005) Trust, 2nd Edition, Oxford University Press, Oxford

Wilson, Sarah (2007). Todd & Wilson's Textbook on Trusts, (8th ed.), p.456, Oxford University Press

The Trustee Act, 2000 (2000), Part V, available at https://www.legislation.gov.uk/ukpga/2000/29/contents, accessed on 19th May, 2021

Walker Moris, (2019) ‘A Quantum Meruit: A remedy for risk takers?’; < https://www.walkermorris.co.uk/publications/disputes-matter-spring-summer-2019/a-quantum-meruit-a-remedy-for-risk-takers/ > accessed on 19th May, 2021

Watt, G (2006) Trusts, 2nd Edition, p.371, Oxford, Oxford University Press.

Cases

Luke v South Kensington Hotel Co (1879) 11 Ch D 121

Brudenell-Bruce -v- Moore and Others, [2014] EWHC 3679 (Ch)

Cowan v Scargill, (1985) Ch 270

Keech v Stanford (1726), Sel Cas Ch 61

Alastair Mark Pullan v David Wilson & 2 Ors [2014], EWHC 126 (Ch)