Contents

Chapter 7
Investment

Indicative draft provision – investment duty and standard of care

7.16We include below an indicative draft of the duty to invest prudently and the standard of care for investment. It is important to note that these two provisions are closely related to the power to invest provision, which would be modelled on the current section 13A, and would give effect to R14(1). That provision would give trustees the power to invest the trust funds in any property. This has not yet been drafted.

23 Duty to invest prudently
(1) When investing trust property, a trustee must invest prudently.
(2) For the purposes of subsection (1), a trustee invests prudently if the trustee complies with the standard of care set out in section 26.
26 Standard of care for power of investment
In the exercise of a power of investment, a trustee must exercise the care and skill that a prudent businessperson would exercise in managing the affairs of others, having regard in particular—
(a) to any special knowledge or experience that the trustee has or holds the trustee out as having; and
(b) if a person acts as a trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that business or profession.

Commentary

Clause 12 of the Bill states that clause 23 is a default duty (see Appendix A). Clause 11 provides that a default duty is one that the trustee must perform unless it is modified or excluded by the terms of the trust. Clause 26 replaces sections 13B and 13C of the Trustee Act 1956. It provides for a situation where trustees may have held themselves out as having special skills or experience or belong to a profession or business that may mean that they could reasonably be expected to make special knowledge or skills above and beyond those of an ordinary but prudent person of business. These two provisions apply when a trustee is exercising a power of investment. The power of investment provision has not been drafted, but like section 13A of the Trustee Act 1956, which it replaces, it will give a trustee a default power to invest in any property. That power could be overridden or modified by the terms of the trust.