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Trustee Investments

What is it?

You may be an experienced trustee somewhat aware of your responsibilities or a new trustee unaware of the statutory obligations you have. Trusts are generally set up to protect wealth built up during the lifetime of the settlor for their chosen beneficiaries, which are often their families but may also include charities and philanthropic interests.

The wealth of the trust must be carefully managed with due consideration for it’s immediate and later beneficiaries.

“In the case of a power of investment, as in the present case, the power must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the prospects of yield of income and capital appreciation both have to be considered in judging the return from the investment.”

(Cowan v Scargill) [1984 3 WLR 501]

An in interpretation of the judgement is that trustees should ensure the trust assets achieve the best rate of return regardless of their or their beneficiaries moral, political and social views. Trustees need to carefully consider the appropriateness of diversification although they may not have a duty to diversify. It would however be good practice to explain why any particular investment strategy was taken as per Part 1 Section 1, Duty of Care of the Trustee Act 2000.

In a nutshell, trustees have a duty of care invest the trust assets, regularly review it, ensure that review is done by a competent professional and it’d be good practice if that review is confirmed in writing as per the Trustee Act 2000.

Why is it important?

If trustees fail in their statutory responsibilities, they could face a claim by a disgruntled beneficiary in later years. This has happened before, consider the Nestle Vs National Westminster Bank Plc (NatWest) case. Nestle is the surname of the female appellant – Edith Georgina Corpe Nestle not the global chocolate company.

In another nutshell, Ms Nestle’s grandfather who died in 1922 left money in trust for his lineage. Ms Nestle had become a co-trustee and subsequently found out that NatWest didn’t use the full extent of their investment powers and had opted to keep the investments in low risk assets. Ms Nestle argued if they had diversified their investments, she would’ve been left with a lot more than the c£269K she ultimately inherited.

Now, although Ms Nestle’s claim failed, the judge still maintained the professional trustee (NatWest) should have familiarised itself with the trust deed and had they done so they would have known the scope of their investment powers. The claim ultimately failed because Ms Nestle was unable to prove her loss. If you’re interested in reading the judgment, you can access it here:

Facts: Nestle (a man, NOT the company Nestlé) left money under his will for his granddaughter. She was expecting a lot more money to be left for her as he was a rich man. She subsequently found out that the bank did not use the full scope of its investment powers it had left the money in safe trustee stock when in fact the trust instrument had given them the power to invest in potentially more profitable investment

Held: The trustee (bank) should have familiarised itself with the trust instrument; if they did they would have known scope of its investment power. However, as she was unable to prove loss – because she was unable to say that if the bank had invested less conservatively she would have made more money or come up with a reasonable figure of what the property should be worth – her claim failed

How we Help?

We’re experts in trust administration as well as trustee investments. We can review your trust, its management to date and review your underlying investment.

Although trusts are not regulated by the Financial Conduct Authority (FCA) the underlying investments if they are classed as specified investments could be. Therefore, a restructure of the trust assets may be useful to bring in regulatory protection.

Some pensions are also held under trust which include Small Self-Administered Pension Schemes (SSAS), Qualifying Non-UK Pension Schemes (QNUPS) and Defined Benefit Pension Schemes.

Common trusts include:

  • Life Interest Trusts

  • Discretionary Trusts

  • Discounted Gift Trusts

  • Loan Trusts

  • Gift Trusts

  • Probate Trusts

  • Family Trusts

We can assist professionals who don’t have the relevant expertise inhouse as well as lay trustees.

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    ADL has been a delight to work with. Extremely knowledgeable about the subject of IHT, but also how this technically fits into the bigger picture and wider wealth planning.
    - Rob, Independent Financial Adviser