11.06.25

The duties of care owed by a Trustee are extensive and originate from common law, legislation and from the provisions of the Trust deed itself.

Trustees can be personally liable for breaching the terms of the Trust or failing to abide by their duties of care. Trustees must therefore consider and protect the interests of the Trust Beneficiaries, present and future. Ensuring that the Trust assets are invested diligently is of vital importance in ensuring that the Trustees are compliant with their obligations.

In this piece we’ll consider what investment powers and Trust duties the Trustees have, how Trustees can ensure that they are fulfilling their Trust duties, and how the Renaissance Group can help.

What investment powers do Trustees have?

Trustees have wide powers of investment under the Trustee Act 2000 (Trustee Act). Under section 3 of the Act, Trustees have power to ‘make any kind of investment that he could make if he were absolutely entitled to the assets of the Trust’. Section 8 creates a wide power to acquire land for investment, occupation or any other reason.

The Trust deed may give the Trustees an express power to invest in certain assets. Some will incorporate the Society of Trust and Estate Practitioners (STEP) Standard Provisions, which include a wide power investment that is similar to the section 3 power.

However, the Trust deed may also restrict the Trustees’ power of investment under section 3 and section 8. The Settlor may choose to restrict the type of assets the Trustees can invest in, or they may restrict the nature of the investments the Trustees can make, perhaps due to ethical considerations which require that the Trustees do not invest in certain commodities or industries.

Trustees should familiarise themselves with the terms of the Trust deed to ensure that they understand what specific investment powers they have, and make sure they manage the Trust investments accordingly.

Trustees’ duties of care: investment

Trustees owe a duty of care to the Beneficiaries of the Trust, requiring them to act in the best interests of the Beneficiaries. This can be a difficult balancing act, particularly when trying to balance the interests of income and capital for Beneficiaries. Where the class of Beneficiaries is not yet closed, this can extend to considering the interests of unborn Beneficiaries, which can be extremely challenging. The Trustees must be careful to ensure they choose appropriate investments which accommodate the requirements of the Beneficiaries.

Trustees also have a number of duties of care under the Trustee Act to consider. Importantly, section 4 requires that Trustees must consider the suitability and diversification of Trust investments. Ensuring that the Trustees have considered the needs of the Beneficiaries and the nature of the Trust when making investments is paramount to ensuring that they are compliant with section 4. If the Trustees fail to diversify the Trust investments where it is inappropriate to do so, they may be personally liable to compensate the Beneficiaries for any loss arising as a result of their breach of duty.

Section 4 also requires that Trustees review the Trust investments from time to time, emphasising the need to have continual regard for the interests of the beneficiaries on an ongoing basis, and consider whether the investments remain suitable.

Appointing an investment manager

Importantly, section 5 of the Trustee Act imposes a duty on Trustees to seek investment advice from a suitably qualified adviser unless unnecessary or inappropriate to do so. Trustees should therefore appoint an investment manager to manage the investment of the Trust funds. Appointing a regulated professional adviser ensures that the Trust investments are managed diligently by someone with the relevant expertise. An adviser can advise the Trustees on the most suitable investment strategy that best suits their specific Trust, with consideration for the requirement to diversify the investments, the needs of the Beneficiaries, the length of the Trust period and any tax implications.

In deciding to appoint a professional investment adviser, the Trustees should consider the proposals of 1 or 2 advisers before choosing who should be appointed to ensure that the adviser is appropriate. This process is often referred to as a beauty parade procedure. In considering who would be the most suitable adviser, the Trustees may have regard to a number of factors, including professional management fees and specialism in Trust investments. The Trustees should also document their decision as to who they have chosen to appoint and the reasons why the appointment was made to ensure that they are keeping a good record of their decision making.

Appointing an adviser ensures that an appropriate investment strategy is chosen. In some cases, it is possible for the Trust’s investments to be managed on a fully discretionary basis whereby the portfolio is bespoke to the Trust’s needs and the entire portfolio is managed by the adviser. This ensures maximum flexibility where there are fluctuations in the market as the investment manager can act quickly to buy and sell holdings to accommodate rapidly changing market conditions.

Investment Policy Statements

Trustees are permitted to delegate their investment management functions to a professional adviser under section 15 Trustee Act. In order to ensure they are not liable for the actions of the investment manager, they will need to have an Investment Policy Statement (IPS) in place. An IPS is a written agreement between the Trustees and the investment adviser setting out the aims and the parameters of the Trust investment agreement, including the investment objectives, the length of the Trust period, and any investment restrictions conferred by the Trust deed.

Importantly, the IPS also sets out the benchmarks that the Trustees will monitor the investment performance against. There are a number of different benchmarks that can be used to measure performance, such as the Managed Performance Indices or the Consumer Price Index. The Trustees should review the investment performance regularly against their chosen benchmarks in order to maintain compliance with their duty of care.

How can we help?

Renaissance Trust act as a corporate Trustee of numerous Trusts and is well versed in maintaining compliance with the relevant duties. Our specialist team can assist Trustees with all aspects of Trust administration and compliance, including the preparation of Investment Policy Statements. Trustees may also be required to obtain a Legal Entity Identifier (LEI) when investing, as explored in our previous blog. This is something we can assist Trustees in obtaining for their Trust if required.

If you would like support or advice, please contact us for a discussion with a member of our specialist team.

Additionally, Renaissance Financial, our dedicated financial services company, provides tailored financial advice for families, individuals, Trustees, Deputies and Attorneys in relation to investment and wealth management services – including, retirement and Inheritance Tax Planning, as well as the financial management of Trusts.