Contents

Summary

Part 3 Trustees

Trustees’ powers

27Rather than having the current statutory default provisions that restrict and confine the powers of trustees in ways that are now considered undesirable and are seldom followed in trust deeds, we propose in chapter 6 powers provisions that broadly empower trustees. Within the scheme of the new Act, the statements of the duties on trustees and the standard of care for the exercise of powers will guard against the inappropriate use of powers by trustees. The new Act will better reflect modern deed drafting and so will be much more useful.

28This chapter also includes a reform to the age of majority in trusts, changing it from 20 years to 18 years, so that it better accords with the general law. We recommend modernisation of the statutory powers to appoint agents and delegates, and new powers to appoint custodians and nominees.

29Chapter 6 also discusses our recommendation to introduce a statutory default standard of care for trustees when exercising a power of management or administration. This reflects the current law but provides greater clarity. Indicative draft provisions of the standard of care are included (see Appendix A, clauses 22 and 25).

Investment Top

30In chapter 7 we recommend some minor changes to the current provisions in Part 2 of the Trustee Act. These changes are intended to address existing uncertainty over the coverage of some provisions, deal with specific, relatively self-contained issues, or repeal provisions that are now historical and unnecessary. The duty to invest prudently and the standard of care pertaining to investment remain fundamentally unchanged. Clauses 23 and 26 in the indicative draft provisions illustrate how these obligations fit within the broader framework of duties and powers (see Appendix A).

31Chapter 7 also includes three more significant reforms relating to investment. The objective of these reforms is for the legislation to better support modern portfolio investment.

Distinction between capital and income

32To better facilitate total return investment and allow trustees to invest funds without regard to whether the return is technically “income” or “capital”, we recommend that trustees should have discretion to determine whether any return is to be treated as income or capital for the purposes of distribution. The key point here is that investment decision-making should be separated from distributional issues to allow trustees to adopt a total return investment policy. The default provisions in the new Act should not require trustees to select investments with regard to their legal category rather than overall return. Within the parameters of their duty of prudence, trustees should be able to maximise the total gain to the trust portfolio.

Apportionment of receipts and outgoings

33The current rules on the apportionment of receipts and expenses on the basis of whether they are classified as income or capital should also be replaced. Determining the correct apportionment in some situations under current rules is difficult and can require complex calculations of very small sums of money. Again the reform proposed here gives trustees discretion to apportion receipts and outgoings. When exercising that discretion trustees are bound by their underlying duties to ensure they maintain a fair balance between the interests of all beneficiaries.

Use of investment managers

34A new provision should be introduced to enable trustees to appoint investment managers and give them authority to make investment decisions.

Appointment and removal of trusteesTop

35In chapter 8 we address the provisions relating to the appointment and removal of trustees, an area where great practical improvement can be made. The areas covered are:

36The provisions in the Trustee Act regarding these areas are of limited usefulness. They commonly require that an application is made to court to effect a change of trustees, even where the change is straightforward and uncontested. Our recommendations modernise the statutory provisions and make them clearer and more comprehensive. They also provide options that avoid the need to apply to court by empowering other persons to effect a change of trustees. Where there is a risk that such a process could be abused, we recommend safeguards involving the notification of beneficiaries and the oversight of the Public Trust.

Custodian and advisory trusteesTop

37Custodian and advisory trustees are included in the Trustee Act, but the provisions relating to them contain ambiguity. In chapter 9, we recommend that these provisions be updated to be modern and comprehensive. In order to avoid confusion, we recommend that advisory trustees are renamed “special trust advisers” because they are not actually trustees at law.