Amanda Edwards, September 2010
Amanda Edwards TEP is an Associate in the Private Client and Tax department at Boodle Hatfield LLP.
The work of trustees would be extremely difficult if it were not possible for them to involve other people in administrative and management tasks or to allow for matters to be dealt with during their absence. There are two quite distinct forms of delegation by trustees: collective delegation and individual delegation.
- Collective delegation is where trustees delegate certain functions, as a collective body, to agents. A simple example of collective delegation is where trustees instruct an estate agent to sell a trust property.
- Individual delegation happens when an individual trustee, who is unable to act for a period (perhaps because of absence abroad), delegates his powers and discretions to another.
Each of these two forms of delegation has common law rules, which have been significantly extended by statute, in recognition of the need for trustees to have clear powers to delegate in the interests of the smooth running of their trusts. Ideally, of course, such powers would be contained in the trust instrument.
Collective trustee delegation
Under Trustee Act 2000 (TA 2000), trustees are given wide ranging powers to authorise any person ‘to exercise any or all of their “delegable functions” as their agent’ (s11(1) TA 2000). There are, however, restrictions on such delegation covering ‘non-delegable’ functions, which are broadly: functions relating to the distribution of assets; decisions as to whether fees should be paid out of income or out of capital; powers to appoint trustees; and powers of delegation under any other statute.
Broadly, these restrictions prevent trustees from handing over to agents decisions that affect the entitlement of beneficiaries to the trust fund and from delegating their own powers of delegation. The rules for charitable trusts are more restrictive in that no function is delegable unless expressly set out in s11(3) TA 2000.
Although trustees may authorise ‘any person’ (other than a beneficiary) to be their agent, they must comply with the duty of care under TA 2000 Sch 1. para 3, or they may be liable for any act or default of the agent. Trustees of land may collectively delegate to a beneficiary entitled to an interest in possession by a power of attorney under s9(1) Trusts of Land and Appointment of Trustees Act 1996.
One of the most significant changes brought in by the TA 2000 permits trustees to delegate discretions relating to asset management, which is particularly useful in allowing them to take advantage of modern investment discretionary management services. Otherwise, trustees are obliged to take advice and then give instructions to a broker for each sale or purchase of an investment. There are certain conditions (set out in s15 TA 2000) to such delegation to an investment manager: a) the terms must be in writing or evidenced in writing; b) the trustees must provide a written policy statement: and c) the investment manager must confirm that he will comply with the policy statement.
There are also requirements for the trustees to keep the policy statement and compliance with it under review and to monitor the investment manager’s performance.
Separate powers allow trustees to appoint nominees (s16 TA 2000) and custodians (s17 TA 2000). Nominees simply have their name on the legal title to trust assets whereas custodians look after the trust assets, typically the documents or other evidence of the trustees’ title. The same person may be both nominee and custodian. The appointee must be in a business, which includes acting as a nominee/custodian, a corporate body controlled by the trustees or a solicitor’s nominee company (recognised under section 9Administration of Justice Act 1985).
Individual trustee delegation
In contrast to collective delegation, an individual trustee may delegate ‘the execution and exercise of all the trusts, powers and discretions’ vested in him as trustee by statute or by the trust instrument, under s25 Trustee Act 1925 (TA 1925), except for the power of delegation under s25 itself. This power also extends to personal representatives. There are certain conditions set out in s 25 TA 2000:
- The form of the power must be as set out in s25(6) TA 1925 and must be expressed to be made under s25(5) TA 1925. The functions can only be delegated for a maximum of 12 months.
- Written notice must be given within seven days of delegation to each of the other trustees
- The trustee remains liable for ‘the acts and defaults of the donee as if they were the acts or defaults of the donor’.
In addition, s1 Trustee Delegation Act 1999 allows an individual trustee who also has a beneficial interest in the land to delegate his trustee powers to the other trustee(s) of the land. Typically, this arises in joint home ownership scenarios.
The main aim of these statutory powers to delegate is to strike a balance between administrative convenience and security for the trust property.