The trustee’s power of administration with particular focus on investment issues in the current financial climate

Abstract

“The suddenness, and severity, of the current financial malaise has left many asking what has happened, and why nobody saw it coming. Some of those nursing investment losses might be looking for someone to blame.” - Oxford Journals, Volume 15, Issue 2, Credit Crunch and Trustee Investment. This dissertation seeks to address these issues in the context of trusts and the powers of trustees. Proper structuring and scrupulous administration are the optimal way of protecting the trust and its assets. Potential grounds for attack are kept at a minimum through good trust administration and record keeping. The trustee has obligations regarding the management of the trust, and these duties are very important and should be followed with utmost care and diligence. Trustees are required by law to take appropriate advice before exercising their power of investment and to review the investments periodically. It is therefore important that trustees have a good working knowledge and understanding of what their responsibilities are in relation to assets. Failure to do so could have significant consequences, particularly for professional trustees. Each trustee is under a statutory duty of care and professional trustees are under a higher duty of care when exercising their power of investment. Trustees are very likely to have discharged their duty if they have retained suitably qualified investment advice, and maintained an ongoing review of this investment advice either by entering into a discretionary mandate with suitable investment managers, or appointing experts to advise them. Even then, despite professional investment advice to trustees, complaints will arise - whether for good cause or not. This is especially so in a falling market. A trustee needs to consider every action to be taken by him within the applicable time-frames. These claims, which are brought by trustees on behalf of the trust, will be based on contractual and tortuous principles. The current financial crisis is leaving trustees exposed to a serious skills deficit and the demands placed on trustees are more challenging than ever resulting in growing numbers of lay trustees feeling out of their depth and not adequately skilled to perform their job properly. This financial crisis has been a hard time for trustees, beneficiaries and investment advisers to the same degree. It has shown a great need for trustees to have an essential knowledge and understanding of investment issues. The issue of the review of trust investments has, over the past recent years, become very sensitive and relevant. There is a greater focus on the duties of trustees when confronted with the risks encountered by them due to the current unstable climate.