Charities and Powers of Trustees

The Trustee Act 2000 introduced additional powers and duties for trustees relating to investments, property and land, delegation and insurance.

The additional powers give trustees much wider discretion to manage and administer trusts, almost as if they were their own, but having strict regard to the purpose of the trust instrument.

Those powers most likely to affect trustees of charities are as follows:

Trustees Powers of Investment

A general power of investment was put into place which is additional to any other powers given to trustees, but subject to any restrictions imposed by the trust documents. It permits trustees "to make any kind of investment that he could make if he were absolutely entitled to the assets of the trust". The only investments that are not permitted are those whose terms of issue confine them to private individuals, investing in their own capacity, such as individual savings accounts, personal equity plans and venture capital trusts.

There are, however, a number of safeguards to ensure that the general power of investment is exercised responsibly. Firstly, trustees remain subject to their fundamental duties to act in the best interest or present and future beneficiaries and to avoid any conflict of their duties as trustees and their personal interests. Secondly, the act requires the trustees exercise reasonable skill and care and that they take "proper" advice on investments from a professional adviser.

Finally, there is a standard investment criteria that must be adhered to and a requirement that trust investments are reviewed periodically to determine whether they should be varied to keep in line with the standard investment criteria. The standard investment criteria are:

• the suitability of investments for the trust; and
• the need for diversification

The suitability duty is similar to that placed on financial advisers and relates to the types of investment proposed and to the features of the particular example of that investment being considered, including its tax treatment. To determine an investments suitability, consideration must be taken of the size and risk profile of the investment and the extent of the need to diversify by adding complimentary investments to the portfolio, as a means of risk control.

Trustees Power to Appoint Agents

The Act permits trustees to authorise an agent to exercise any of the trustees delegated functions (as described above). The agent is subject to the same duties as the trustee, therefore if an agent is appointed to exercise the trustees powers of investment, they must adhere to the standard investment criteria.

Additionally, if a trustee appoints an agent to carry out asset management functions the following apply:

• the agreement must be in writing; and
• the trustees must have prepared a return policy statement and the agreement with the agent require the agent to comply with the policy statement.

The policy statement gives guidance to the agent as to how he should carry out the functions delegated and this is governed by the purpose of the trust.

If an agent has been appointed to carry out any delegated functions, the trustees must review the arrangement with the agent and that the agent is carrying out the function properly.

For futher information about the Powers of Trustees of Charities, contact Aaron Spencer of any member of the Charity Law team.

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