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Trustee Duties: Investment - Coggle Diagram
Trustee Duties: Investment
investments, objectives and strategy
objectives
bs interests
circumstances
of individual Bs
time
trust will last for- short or long-term
size
of trust fund
tax position
of trust and Bs
Key points
need to balance Bs interests
e.g. if life tenant and remainderman
often, one form of return comes at expense of other- an investment that produces good rate of income usually produces low capital growth and vice versa
length of trust
longer ts have to invest, the more risk the can afford to take.
greater risk= greater return
Ts might want to take more risks at start of trust and then start to 'de-risk' the trust fund as the life tenant gets older
these less risky investments keep trust fund safe and secure for the remainderman
size of trust
the larger the trust fund, the great opportunity to buy mix of investments (
diversification
)
diversification means that if some investments lead to loss of fund, it can be compensated by profit made in other investmnets
larger fund means Ts can take more risk as can buy safer investments too as a way of secuirt
investment types
investment= something expected to produce an
income return/capital return or both
shares
income= dividend payments
capital= rise in value of shares
should spread investments in shares across companies operating in
diff lines of business
and
parts of world
blue chip companies
safer to invest in but lower return than those in emerging geographic markers
PLC on stock exchange
private limited companies (less info on financial state of company and less opp to buy/sell shares
bonds
income= coupon (interest running on loan to gov/company)
primarily income-making investment
capital= when bond sold on secondary markets
gilts
(loans to uk gov) safe and secure as little chance of gov defaulting on loan
property (real estate)
income= rent if let
capital= rise in property values
rise in property values is lower and steadier than other forms so secure investment
expensive asset to purchase
cash-in bank
income= interest
capital= no capital growth
balanced portfolio should have some cash but long-term- should only have cash in small % in investment portfolio
not investments
- buying 'run-around' car-
cars depreciate in value over time and do not produce income. might produce capital return in long-term but risky
betting on horses
unsecured loans
(ts not allowed to make them unless trust doc expressly says they can)
express provisions in declaration of trust
settlor may e
xpressly identify in dec of trust which forms of investments
the ts can purchase and those they cant
s can also insert e
xclusion clause
to exclude ts liability for losses arising out of the investment choices they do make
if no express provision, TA 2000 sets out powers and duties of ts when investing trust property
authorised investments
general power of investment
(S.3 TA)- t can m
ake any kind of investment the could make if they were absolutely entitled to the assets of the trust, apart from investments in land
which are limited by s.8.
s.8- t can acquire freehold/leasegold land in the
UK
either:
(a) as an
investment
; or
(b) for the
occupation of b
; or
(c) for a
ny other reason
duties when purchasing investments
statutory duties
when purchasing or reviewing investments, the ts must have regard to the '
standard investment criteria'
Step 1- suitability of investments
(a) is the asset class suitable?
consider other assets
is that class compatible with trusts purpose, bs interests and risk tolerance
(b) is the specific investment suitable?
consider size of trust fund and size of proposed investment, risks of company/ markets, time-scale for investments, bs interests and tax implications
Step 2- need for diversification
more than one type of asset class, more than one sector means less impact by loss
reviewing investments
ts must review investments from
time-to-time a
nd should refer to the standard investment criteria
when to review depends on each
situation and the time passed on the trust
e.g. early days managing long-term trust, review investments every 6 months
if economic downturn then ts should review investments asap
selecting an adviser
ts consider proper investment advice from someone the ts reasonably believed is
qualified to give advice
, unless unnecessary (where one of ts is qualified financial adviser)
ts must act reasonably when selecting adviser
the decision of the investments is the ts alone- not the adviser
overarching duty of ts-
exercise such care and skill as is reasonable in circumstances
higher standard for prof trustees (solicitors)
non-statutory duties
(a) ts act impartially between bs
balance needs of all bs when
choosing investments (life tenant- income and remainder b- cap appreciation)
compensation
for another b when allows one b to use trust property
(b) secure best return for bs (
not highest as too much risk)
Financial considerations
must take precedence over other factors unless the trust instrument or circumstances dictate otherwise
(c) ethical or moral consideration in investments
Trustees are
generally not allowed to let their own ethical or moral views influence investment decisions.
However, there are
exceptions
:
a. Comparable Ethical Investment
Trustees may invest in ethical concerns if the return is as good as, or better than, a less ethical option.
b. Charitable Trusts
Trustees of charitable trusts may avoid investments that:
Conflict with the charitable purposes of the trust.
Risk alienating the trust’s donors or supporters.
Example: A health-focused charity may avoid investing in tobacco companies.
c. Settlor's Instructions
If the settlor specifies in the trust deed that investments in certain sectors are to be avoided (e.g., fossil fuels or arms), trustees must comply.
These instructions must be clearly expressed in the trust document.
delegation
permissible delegation
Trustees may delegate investment responsibilities to:
A
third party
, such as an
independent financial adviser.
One of their
own
number, provided the chosen trustee is suitably qualified.
Trustees
cannot delegate investment functions to a beneficiary
renumeration
Third-party agents
may be paid reasonable remuneration for their services.
ts liability
ts not liable for agents acts/defaults unless
the ts themselves breached their duties during the delagation process -->
ts can claim
compensation
from the agent for the losses their investment decisions caused to the trust fund (who might have insurance)
asset management functions
t needs to comply with processes when delegating investments):
ts engage agent through
formal written agreement
agreement must contain
policy statement
(outlining trusts investment goals and guiding principles)
clause
requiring agent to comply with PS
agent must comply with same stat and non-stat investment duties
as ts
the
ts must reg review
the arrangements under which agent acting- might need to update policy statement or bring retainer to end
ts must select suitably qualified person
to whom their asset management functions will be delegated
use reasonable skill and care