22.3 Trustees' Duties: Care, Investment and Advancement

Duty of care

Trustee Act 2000 (TA 2000) s.1 requires a trustee, when the statutory duty applies, to exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience they have or hold themselves out as having, and, if they act as trustee in the course of a business or profession, to the knowledge and experience it is reasonable to expect of a person acting in that kind of business or profession. A solicitor-trustee or a bank trustee is therefore judged more strictly than an unpaid sibling. The duty applies to the functions listed in Schedule 1, including investment, acquisition of land, appointment of agents, nominees and custodians, insurance, and compounding liabilities. The instrument may exclude or modify it (Schedule 1 paragraph 7), subject to the irreducible core of honesty discussed in 22.4.

s.1 does not replace every older case. The manner of exercising a discretion (whom to benefit, whether to advance) is still reviewed as a fiduciary exercise of power. After Pitt v Holt [2013] UKSC 26, a decision is not void merely because the trustees got the tax facts wrong. It is voidable if, in reaching it, they breached their duty — typically by failing to consider what they ought to have considered, often by not taking proper advice. Inadequate deliberation plus a breach of duty is the test, not a free-standing preference for a different outcome.

Duty to invest and investment powers

TA 2000 s.3 confers a general power of investment: a trustee may make any kind of investment that they could make if they were absolutely entitled to the assets, subject to the instrument. Land is carved out of s.3 and given a dedicated power in s.8 to acquire freehold or leasehold land in the United Kingdom as an investment, for occupation by a beneficiary, or for any other reason. That UK limit matches the FLK2 exclusion of foreign assets.

When investing, trustees must apply the standard investment criteria in s.4: suitability to the trust of the kind of investment and of the particular investment, and diversification so far as appropriate to the trust. They must review the portfolio from time to time and consider whether to vary it. Under s.5 they must obtain and consider proper advice about how the criteria apply, unless they reasonably conclude that it is unnecessary or inappropriate to do so. A modest trust holding a single house that the settlor required to be retained may reasonably skip a full wealth-management report; a large mixed fund may not. Proper advice is advice from a person the trustees reasonably believe is qualified by ability and practical experience.

The statutory duty of care applies to all of this. Cowan v Scargill [1985] Ch 270 remains the starting point for a private trust: trustees must invest in the best financial interests of the beneficiaries. Personal political or ethical preferences of the trustees do not override that default. The instrument can authorize an ethical screen. Charity trustees have a wider latitude where an investment would conflict with the charity's purposes (Butler-Sloss v Charity Commission [2022] EWHC 974 (Ch)); do not import that charity analysis into an ordinary family trust without a clause. Nestle v National Westminster Bank plc [1993] 1 WLR 1260 warns that underperformance against an index is not, without more, a breach. The claimant must show that no reasonable trustee, applying the criteria and using proper care, would have held the portfolio. Hindsight is not the standard.

Statutory powers of maintenance and advancement

These are the everyday powers for trusts with minors or postponed capital. Both yield to a contrary intention in the instrument (TA 1925 s.69(2)). Both were reshaped by the Inheritance and Trustees' Powers Act 2014, in force 1 October 2014.

s.31 TA 1925 (maintenance) lets trustees apply income for the maintenance, education or benefit of a beneficiary who is a minor. Surplus income during minority is accumulated. The 2014 Act widened the discretion: trustees are no longer tied to the old rigid proviso that they must have regard to age, requirements and other available income and must take only a proportionate slice from each of several funds. Once the beneficiary reaches 18, if their interest in the income is still contingent, the trustees must pay the income to them until the interest vests or fails. A beneficiary with a vested right to income who is 18 takes that income as of right, not as an object of s.31 discretion.

s.32 TA 1925 (advancement) lets trustees pay or apply capital for the advancement or benefit of a person with an interest in capital. Since 1 October 2014 they may advance the whole of the beneficiary's presumptive share, not merely one half. "Advancement or benefit" is wide: Pilkington v IRC [1964] AC 612 accepted a resettlement that rearranged beneficial interests for tax reasons as a benefit. The payment must be a real benefit to that beneficiary, not a disguised gift to a parent (Re Pauling's Settlement Trusts [1964] Ch 303). A person with a prior life or other interest must, if of full age, consent in writing. The sum is brought into account (hotchpot) when the beneficiary becomes absolutely entitled, so they are not paid twice.

A client-shaped example

Two school friends, Amal (a solicitor) and Ben (a teacher), are appointed trustees of a will trust of a London flat and a share portfolio for the testator's daughter at 25, with income to the widow for life. Five friends were named; only the first four can act in relation to the land (s.34), and in any event a second trustee or a trust corporation is needed before they can give a good receipt on a sale (LPA 1925 s.27). If Amal remains in Dubai for fourteen months, s.36 lets the continuing trustee (or a nominated appointor) replace her. Investment of the portfolio needs s.4 suitability and diversification and, almost certainly, s.5 advice; Amal's professional status raises the s.1 standard. They may apply income under s.31 for the daughter's school fees during minority. They may, with the widow's written consent, advance the daughter's entire presumptive share under s.32 towards a house, bringing it into account at 25. They may not, without authority, buy the flat themselves: that is the previous section's self-dealing rule.