Analysis of the Trustee Act 2000: Changes

Introduction :

On February 1st, 2001, the Trustee Act of 2000, which obtained royal assent last year, went into effect. The Act fundamentally alters how trustees may and are supposed to manage the trust property. The Trustee Bill 2000, which led to the passage of the Trustee Act 2000, was introduced in the House of Lords in January 2000, and it incorporated the Law Commission's suggestions and recommendations in their 1999 Report entitled "Trustees Powers and Duties." The Act is broken down into six parts, each with forty-three sections and four schedules. The legislation's key thrust is to address five areas of trust law that are considered to be insufficient for managing modern trusts. The trustee's duty of care, the power of investment, the power to appoint candidates and agents, the power to acquire property, and finally, the power to obtain remuneration for work performed as a trustee are the five areas covered. The Remuneration Clause of the Trustee Act of 2000 is effectively established under sections 28 to 33 of Part V of the Act. After repealing much of the Trustee Act of 1925 and the Trustee Investment Act of 1961, the Trustee Act of 2000 went into effect. To tighten the definition and purpose of England and Wales' trust law in light of modern culture, a remuneration provision was introduced, which was deemed beneficial and a significant improvement over the current land trust law.

The General Duty of Care:

Part I of the Act establishes a new statutory obligation of care for trustees while performing their statutory duties, such as investing and appointing agents, nominees, and custodians. Trustees performing similar roles under the trust instrument are included in the general. Section 1 defines the general obligation, which essentially states that a trustee must use fair care and ability in the circumstances, taking into account his particular expertise, experience, or professional status. This general obligation may be omitted in the trust instrument under Schedule 1 of the Act (Trustee Investments, 1996). A subjective aspect exists in the general duty of care, which establishes an objective standard of care. Although a trustee is required to act in a responsible businessman like manner, section 1 expressly demands that the actual trustee's expertise and qualifications be taken into account when implementing the duty of care. There are a few things to note about section 1 of the act's general duty of treatment. To begin with, the general obligation of care is merely an enactment of a rule that has been clarified many times in common law (Investment Powers of Trustees, 1996). In Speight v. Gaunt, for example, Lord Blackburn said that "a trustee adequately discharges his responsibility if he takes in managing trust affairs all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own" (D. Hayton, ‘Developing the Law of Trusts for the Twenty-First Century, 1990). Section 1 of the Act, on the other hand, allows a court to recognize the relevant expertise and experience of the particular trustee. The question is whether this subjective aspect reduces the quality of care expected of a lay trustee who does not have the same level of experience as a responsible businessman (Equity 2nd Ed, 1936). It's unlikely that it lowers the quality of care; what it seems to mean is that reasonableness must be judged in the context of various trustees. Of course, expecting a trained trustee to exercise the same level of care and expertise as a lay trustee would be ludicrous. A lay trustee, on the other hand, cannot be required to practise the same level of care and ability as a skilled trustee. However, this does not imply that a lay trustee has a low obligation of care; he must exercise the same level of care and ability as anyone in a similar position. To put it another way, reasonableness must now be assessed in view of all of the trust's circumstances.

Secondly, and related to the first argument, the general duty of care clearly states that a professional trustee has a higher duty of care than a regular trustee. Prior to the Trustee Act of 2000, there was no doubt in many people's minds that a competent trustee had a higher duty of care than a reasonable business person. However, in terms of case law, the situation was far from straightforward, with much uncertainty centred on the issue of whether a paid trustee or a professional trustee owed a higher obligation of care. A ‘paid trustee is required to exercise a higher level of diligence and expertise than an unpaid trustee, and a bank that advertises itself primarily in the public press as taking care of administrations is under a special obligation,' Harman J explained in one case (The Development of the Prudent Man Rule for Fiduciary Investments in the Twentieth Century, 1951). Although it is undeniable that a professional trustee owes a higher obligation of care due to his or her expertise, ability, and experience (Re Whiteley, 1886), not all paying trustees are professional trustees. Harman J was envisioning a competent trustee rather than a paying trustee. The general duty of care in section provides for a higher standard of care from a licenced trustee without actually requiring a higher standard of care from a paid trustee who also happens to be a lay trustee (Re Waterman's Will Trust, 1952). While a lay trustee may be compensated for his services, the level of treatment expected of him is determined by the facts of the case, taking into account his unique expertise and experience (Bartlett v. Barclays Bank Trust Co Ltd, 1980).

Who is a Professional Trustee?

A professional trustee is a natural or legal individual who acts as a trustee of a trust and who has no beneficiary interests in the trust fund to which they have been named. Professional trustees (GRA Blog, 2009) are differentiated from lay trustees by the fact that they have been prepared for the roles to which they have been named. Along with the lay trustees, they will be responsible for scheduling meetings with other trustees, making consensus decisions, reviewing current investment plans, and providing expert advice to the other trustees for better asset security, among other things (GRA Blog) (2009). If the competent trustee is a natural person rather than a juristic person, the term of remuneration will be determined only after the decision of the other trustees on the board. Professional trustees have separate classifications for private trust funds and charitable trust funds for remuneration purposes.

Trustees powers of investment and delegation:

The issues at hand concern the trustee's investment powers and the delegation of those powers by the trustee. The trustees' investment responsibility is not to obtain a specific result, but to invest the fund responsibly and equitably (Todd and Watt, 2007). The Trustee Act of 2000 establishes a structure for trustee investment powers. Section 1 of the trustee Act 2000 reformulated the conventional standard of a responsible man of business, which was formulated in Speight v Gaunt (1883) 9 App Cas, as an obligation to exercise such care and ability as is appropriate in the circumstances (Hanbury and Martin, 2005). It is still valid, however, that trustees must avoid risky investments (Hanbury and Martin, 2005).

A trustee has broad powers to invest in any form of investment they see fit, but they also have a responsibility to exercise caution when making such decisions. Tim and Tom have extensive investment powers, but they must exercise caution when using them; if they violate their confidence in this regard, they will be personally liable to compensate the beneficiaries for any losses incurred. The beneficiaries, Carol, David, and Eleanor, would have to prove that they invested poorly and that the trust fund has suffered a quantifiable loss as a result of the inappropriate investment. Even if it were accepted that the trustees had invested recklessly and that the trust fund had suffered a loss, proving that the trustees' recklessness was the cause of the loss would be a major challenge (Todd and Watt, 2007).

The Trustee Act of 2000 replaces the Trustee Investment Act of 1961, which established an old investment scheme. The following is taken from the notes to the 2000 Act: ‘'The law regulating trustee powers and duties, especially relevant provisions of the Trustee Act 1925 and the Trustee Investment Act 1961, has not kept pace with the changing social and economic position that trusts now play. Fundamental improvements in the conduct of investment business over the last ten years, such as the implementation of the CREST structure on the London Stock Exchange, have brought this disparity into sharp focus. The condition has deteriorated to the point where it is generally believed that it is extremely difficult for trustees working under the terms of trust instruments that make no clear provisions for investment powers to fulfil their paramount obligation to act in the beneficiary's best interests (Trustee Investment Act citied in Watt, 2006).

The court held in Nestle v Westminster Bank Plc (1996) 10 (4) TLI 11 that the bank should conduct frequent assessments of the investments under its supervision, and that the appellant had failed to prove that the bank's breaches of duty had resulted in a loss to the fund and that the appeal was dismissed on that basis. The court held in Bartlett and Others v Barclays Bank Trust Co Ltd (No 1) (1980) Ch 515 that the trustees had violated their trust by failing to properly supervise one of the trust instruments, among other things. ‘'What the wise man of business would not do is concern himself with receiving such information on the company's affairs as a shareholder normally receives at annual general meetings," Brightman J said. Since he has the power to do so, he would go much further to ensure that he has enough knowledge to make responsible decisions from time to time, either to let things go as they are or to interfere if he is

The trustee should seek proper advice from someone who is fairly considered by the trustee to be competent to provide it based on his knowledge and experience in financial and other matters relating to the proposed investment. In this situation, Tim and Tom sought Ingvar's advice. Ingvar is an entrepreneur who specializes in bringing frozen fish into the United Kingdom. Due to his limited experience with financial and other matters related to the proposed investment, it is highly unlikely that Ingvar is eligible to provide proper investment advice.

Trustees may choose to assign investment authority to a specialist, such as an investment manager who is licensed under financial services legislation (Hanbury and Martin, 2005). Trustees do not assign roles specified in Section 11 of the Trustee Act 2000. The trustee's investment powers are not included in the list, which means that the trustees, Tom and Tim, will delegate their investment powers to Ingvar. When investment powers are delegated, however, the agent must meet the requirements for standard investment standards and the obligation to periodically evaluate the investments.

The trustees must delegate investment authority through a written agreement or evidence in writing. The agreement between the trustees, Tom and Tim, and Ingvar was made orally in this situation. Furthermore, the trustees must prepare a policy statement outlining how the roles they are delegating should be carried out in the trust's best interests, and the agent must agree to follow it (Hanbury and Martin, 2005). Unless the trust instrument specifies otherwise, delegated trustees must keep the agreements under scrutiny, including any policy statements. Generally, trustees are not responsible for the actions of agents to whom they have assigned investment responsibilities unless they failed to follow the contractual duty of care when appointing and reviewing the arrangements (Hanbury and Martin, 2005). The trustees' duty of care extends to the selection of the individual who will act on their behalf, the terms on which they will act, and the preparation of a policy statement when asset management functions are delegated (Hanbury and Martin, 2005). In this situation, it seems that Tom and Tim, the trustees, did not follow the contractual duty of care when appointing Ingvar. The appointment was also made orally. The appointment should have been written down or at least recorded in writing. The trustees have neglected to review their contract with Ingvar. The trustees should have prepared a policy statement outlining how the roles they are delegating should be carried out in the trust's best interests, and the agent would agree to follow it. This was not accomplished.

The theory of Fixed Remuneration:

The definition of fixed remuneration for professional trustee services is known as an "annual payment" from which tax is withheld in accordance with UK tax law. The idea of fixed remuneration was created with the intention that the office of the trustee would not benefit from the trust asset, but rather that this fixed remuneration would be considered the settlor's bounty. (Justice David Hayton) (2016)

In the case of Baxendale v Murphy, the specialist trustee sought a tax deduction from the remuneration for their services, and the operating court determined that the remuneration should be considered as "annual fixed remuneration," which is subject to UK tax law. The court held the same principle of annual fixed remuneration in the case of Clapham's Trustees v Belton, where a fixed fee was charged to an "agent" named by the trustee's office. In contrast to the preceding cases, it was held in Dale v IR Commrs that the whole sum charged as remuneration to the trustee shall be considered earned income and no tax shall be deducted. This case, however, is an outlier that did not provide any precedent. (Justice David Hayton) (2016).

The Theory of Charging Clause:

As previously stated, if a trust deed allows the trustee to charge for their services, the remuneration will not be excluded from the trust fund's settlement sum and will be subject to taxation. (Justice David Hayton) (2016)

The Theory of Settlor as Trustee :

When the settlor of a trust fund is also the trustee of the same and receives remuneration for his or her services, the trust's income should be taxed as when the settlor is also acting as a trustee pertaining to a specific trust fund, that means the settlor as trustee has retained an interest in the trust property (Justice Hayton David) (2016)

Is it possible for professional trustees and executors to charge a fee for their services?

In most cases, a lay trustee is not entitled to compensation. The general rule of trust law is that a trustee should not gain or profit from their position; in the recent case of Brudenell-Bruce -v- Moore and Others [2014] EWHC 3679, the High Court reaffirmed that lay trustees should act without charge (Ch).

What distinguishes the role of a professional trustee from that of lay trustees?

As you would imagine, the approach to specialist trustee services varies. Professional trustees are kept to a higher standard of care and are required to have a higher degree of knowledge/skills than lay trustees, so they could be entitled to compensation.

Trustees have the right to be reimbursed for costs incurred as trustees, but they do not have the right to be paid for their services, subject to the following exceptions:

While the trustee is acting in a professional capacity, Section 28 of the Trustee Act 2000 allows an express charging provision to be included in the trust document. If the trust specifically allows for remuneration payments, a skilled trustee can bill the trust for their services.

Section 29 Trustee Act 2000 – If no provision for such charges was made in the trust contract, a competent trustee (or trust corporation) could be entitled to obtain "fair remuneration" for their services. This is contingent on having written approval for such remuneration from the other trustees.

These two provisions of the Trustee Act only extend to trustee remuneration if the trust deed or records do not have an alternative charging clause or other provision about trustee remuneration.

What do recent court cases have to say about this?

In Alastair Mark Pullan v David Wilson & 2 Ors [2014] EWHC 126 (Ch), the High Court found the remuneration of professional trustees.

In this case, the complainant argued that the competent trustee's charge-out rates were disproportionately high and unfair. The trustee (defendant) had applied to their position as trustee the charge-out rates that would be required in their career (accountancy and tax). Simple administrative work requiring only basic skills was paid at the same pace.

The claimant's appeal was rejected because the defendant's remuneration rates had been known to them for over two years and they had not questioned them during that time.

The prices were unreasonable in relation to some of the jobs, according to the court. The applicant, on the other hand, was barred from contesting the remuneration because they had failed to query these earlier.

The court can only use a trustee's regular charging rates (those that are consistent with their profession) as a starting point. The reasonableness of the trustee's charges in relation to the job performed as trustee may be examined by the court.

Since there was a delay in filing a lawsuit in this case, the court was unable to scrutinise the remuneration rates as thoroughly as it normally would.

Conclusions

The trust's experience has shown that it is a concept of enormous versatility and that it has no trouble adjusting to changes in social and economic circumstances in society. It has a place in almost every aspect of life, and it is because of this that legislators are constantly under pressure to amend the concepts and doctrines of trust law to represent the various contexts in which it now operates. The provisions of the Trustee Act of 2000 reflect the fact that the trust currently operates in circumstances that are vastly different from those that existed at the turn of the twentieth century. While trust remains important in the family context, it is increasingly being replaced by a commercial context in which trustee needs are somewhat different from those of trustees managing family trusts. Furthermore, not only have the roles of the trust shifted but so have the strategies of asset management in complex financial markets. The new legislation is a welcome change in the modern law of trusts, as the case for it has been made for the past 20 years or so. Continue your journey with our comprehensive guide to The Standard of Duty Expected from Trustees.

References:

Cambridge: Cambridge University Press, p.421

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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 Moffat, G., Bean, G., and Probert, R.(2009). Trust Law, Text and Materials, (5th revised edn.). 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, 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

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

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)

Keech v Stanford (1726), Sel Cas Ch 61

Baxendale v Murphy (1923), 9 TC 76

Clapham’s Trustees v Belton (1954), 37 TC 26

Dale v IR Commrs (1945), 34 TC 468