Trustees are generally granted the powers to invest through the terms of the respective trust instrument and via this mechanism the trustees become bound by a number of duties and responsibilities underpinned by the force of law. These laws come in a number of forms: case law / precedents, statutes and regulations.
Trusts themselves are an ancient institution and case law and precedents have been passed down through the ages thereby forming the bedrock for trustees and how they need to act and behave. In the recent case of JP Morgan v Springwell (2008) it was determined that professional trustees will be judged by higher standards and will find any claims they make against an investment manager harder to stick than will a private individual. Furthermore, it was found that trustees must be keenly aware of their own potential liability for failing to review the performance of investment managers. Statutes and Regulations vary the world over and are always evolving and ever tightening the investment environment for trustees. For instance, the UK Trustee Act 2000 introduced a new “duty of care” for trustees to uphold and this has been similarly applied in a growing number of other jurisdictions.
Legal issue to bear in mind
• In the last 30 years all the major trust jurisdictions have introduced legislation impacting directly on trustees and their investment responsibilities
• The new “duty of care” imposes a responsibility on trustees to continuously monitor investments and they need to demonstrate clearly how they constantly and effectively exercise this duty
• Professional trustees are judged by higher standards than ordinary investors or amateur trustees
• Most of the major trust jurisdictions are now regulated and trustees are thereby subject to an elevated level of practise, duty and accountability
• The growing number of cases coming before the courts is a clear indicator that beneficiaries and their advisors are increasingly litigious
• The volatility of the markets and the sophisticated nature of many investments further exposes trustees to legal redress
• The introduction of FATCA in 2014 imposes further obligations and complications on trustees
Support is on hand
The legal and litigious backdrop is a stark one for trustees, but help is on hand.
To learn more, please Request a Trust Investment Review.