Trustee's Investment Powers And Duties

INTRODUCTION

It is very important that a trustee is aware of his or her

powers and duties before investing the trust fund. The powers and

duties of a trustee are set out in the Trusts (Jersey) Law 1984, as

amended, (the "Law") and the terms of

the particular trust. The trustee has an obligation to, so far as

is reasonable, preserve and enhance the value of the trust property

such that some form of investment is essential. In addition, the

beneficiaries may have a requirement to income which can only be

satisfied by investing the trust fund.

TRUSTEE'S INVESTMENT POWERS

It is often the case that the terms of the trust instrument will

give the trustee very wide investment powers. However, if the trust

instrument does not contain provisions dealing with the investment

of the trust fund, the trustee is given such powers by the scope of

Article 24(1) of the Law.

Article 24(1) states:

Subject to the terms of the trust and subject to the

trustee's duties under this Law, a trustee shall in relation to

the trust property have all the same powers as a natural person

acting as the beneficial owner of such property.

The wide investment powers set out in Article 24(1) are subject

to the terms of the trust and therefore express provisions in the

trust instrument can operate so as to reduce the scope of a

trustee's investment powers.

DUTIES WHICH APPLY TO A TRUSTEE WHEN EXERCISING INVESTMENT

POWERS

The wide powers of investment in Article 24(1) are subject to

the trustee's duties under the Law. Even if the trustee is

using investment powers set out in the trust instrument rather than

the statutory powers, Article 21(2) of the Law which states that,

"subject to this Law, a trustee shall carry

out and administer the trust in accordance with its

terms" (emphasis added), makes it clear that

notwithstanding any investment powers given to the trustee in the

trust instrument the trustee must still comply with the duties

imposed by the Law.

The trustee's core duties

Article 21(1) of the Law states:

"A trustee shall in the execution of his or her duties

and in the exercise of his or her powers and discretions

?

1. act ?

   (a) with due diligence,

   (b) as would a prudent person,

   (c) to the best of the trustee's ability and skill;

   and

   (d) observe the utmost good faith."

   In the context of trustee investments, the duty to act "as

   would a prudent person" was referred to in the English case of

   Re Whiteley; Whiteley v Learoyd [1886-90] All ER Rep Ext

   1806:

   "The duty of a trustee is not to take such care only as

   a prudent man would take if he had only himself to consider; the

   duty rather is to take such care as an ordinary business man would

   take if he was minded to make an investment for the benefit of

   other people for whom he felt morally bound to

   provide."

   A trustee must act "to the best of the trustee's

   ability and skill" and a higher standard will be required of a

   person holding himself or herself out as a professional trustee. In

   Midland Bank Trust Company (Jersey) Limited v Federated Pension

   Service [1995 JLR 352] it was said that:

   the scope of duties imposed on trustees and the

   performance of those duties to be expected of trustees must vary

   according to the category of trustee concerned...This arises under

   art. 17(1) of the 1984 Law [now Article 21(1)]. It was most clearly

   stated by Brightman, J. in a much-quoted passage in Bartlett v.

   Barclays Bank Trust Co. Ltd.

   In the case of Bartlett [1980] 1 All ER 139, Brightman

   J said:

   I am of opinion [sic] that a higher duty of care is

   plainly due from someone like a trust corporation which carries on

   a specialised business of trust management...a professional

   corporate trustee is liable for breach of trust if loss is caused

   to the trust fund because it neglects to exercise the special care

   and skill which it professes to have.

   The duty to preserve and enhance the trust fund

   Article 21(3) of the Law states that:

   "Subject to the terms of the trust, a trustee shall

   ?

1. so far as is reasonable...