Learn the overriding duties of trustees in relation to investments.
Trustees must invest the trust fund
Trustees have a duty of care towards beneficiaries and must act in their best interests
Trustees must consider whether there is a need to diversify
The need for trustees to invest the trust fund
Trustees can access a wide range of potential investments. Which particular product, or combination of products, is used depends on the specific requirements of each trust.
Trustees must invest the trust fund. Assets must be acquired (or retained) to produce a financial return for the trust. Stone v Stone (1869) 5 Ch App 74
Trustees’ duty of care
Trustees have a duty of care.
“The duty of the trustee is not to take such care only as a prudent man would take if he had only himself to consider, the duty is rather to take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide.”
(re Whiteley) (1886) 33 ChD 347
And on further appeal to the House of Lords
“Business men of ordinary prudence may, and frequently do, select investments which are more or less of a speculative character; but it is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended by hazard.”
1887 12 App Cases 727
Trustees must clearly avoid risk.
Trustees’ investment objectives
The duty of the trustees in relation to investment is to use their powers in the best interests of current and future beneficiaries.
“In the case of a power of investment, as in the present case, the power must be exercised so as to yield the best return for the beneficiaries, judged in relation to the risks of the investments in question; and the prospects of yield of income and capital appreciation both have to be considered in judging the return from the investment.”
(Cowan v Scargill) [1984 3 WLR 501]
Trustees should obtain the best rate of return regardless of their own, or the beneficiaries’, political, social or moral views.
In a later case the Court held that investment involved “…seeking to obtain the maximum return by way of income or capital growth which is consistent with commercial prudence.”
Trustees need to consider diversification of the trust investments but they do not have an absolute duty to diversify.