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The Trustee Delegation Bill
Paul R
Saunders, ACIB, TEP Senior Technical Manager
Barclays Bank Trust Company Limited
(From Issue 7, April 1999)
The text of the Trustee Delegation Bill (the Bill) is available on
the Parliamentary, Public Bills website under http://www.parliament.the-stationery-office.co.uk/pa/pabills.htm. That site also contains explanatory notes upon the
Bill and details of amendments tabled for debate.
The Bill received its Third Reading in
the Lords on 9th March, and was passed to the Commons on that date. The only change made to it is the incorporation of
the text of s. 25 Trustee Act 1925, as amended,
into clause 5.
The provisions of the Bill seek to
remedy the “mischief” identified in Walia
v. Michael Naughton Limited [1985] 3 All ER 673 (Walia), and to tidy the rules relating to the
delegation of trustee functions.
Clause 1 - provided there is no restriction in the
instrument creating the trust, a trustee with a qualifying interest (i.e. a beneficial
interest in land, the capital proceeds of a conveyance of land, or income from land) may
delegate his trustee functions for an indefinite period by power of attorney (a Clause 1
Power). Such delegation is valid only whilst
the donor has a qualifying interest in the trust in question. It does not matter whether the
trustee is the sole, or a joint, trustee. The
power of delegation also extends to dealings with any stocks and shares representing the
capital proceeds of a conveyance of land, provided the donor has a beneficial interest in
such proceeds. This clause is based upon the
principle of trusts of land, introduced by the Trusts
of Land and Appointment of Trustees Act 1996.
Clause 2 provides
that a statement by the attorney, in the form prescribed in the Bill, shall be conclusive
evidence of the attorney’s authority, although only in favour of a
“purchaser” (as defined by Part I Law of
Property Act 1925).
Clause 3 amends s. 10 Powers of Attorney Act 1971 to permit a
trustee with a qualifying interest to delegate his trustee functions under that section
(i.e. a Clause 1 Power will be made under s.10
Powers of Attorney Act 1971). This
effectively reverses the decision in Walia.
Clause 4 deals with the controversial s. 3(3) Enduring Powers of Attorney Act 1985 (s.3(3)). This
is preserved for enduring powers of attorney (EPAs) registered before the date of
commencement of the Bill (the Commencement Date), or submitted for registration within 1
year of that date, until such time as they are revoked or the registration cancelled or
“finally refused”. s. 3(3) will be repealed for all other EPAs granted
before the Commencement Date, with effect from the first anniversary of that date, and for
all EPAs granted after the Commencement Date.
Clause 5 substitutes a new s. 25 Trustee Act 1925. This new section applies only to powers granted
after the Commencement Date, and introduces a new prescribed form of power for delegation
by a single trustee (the new s. 25 (6)). The Explanatory Notes for this clause confirm the
intention “to protect beneficiaries from excess delegation”.
Clause 6 repeals s. 2(8) Enduring Powers of Attorney Act 1985 (the 1985 Act), thus permitting a power granted under s. 25 Trustee Act 1925, but after the Commencement
Date, to be an EPA.
Clause 7 reinforces the rule that only two (or
more) trustees, or a trust corporation, may give a valid receipt for capital monies,
although retains the present situation in those cases where s. 3(3) is preserved by clause 4, above.
Clause 8 introduces into s. 36 Trustee Act 1925 provision for the
appointment of a trustee, or additional trustee, by an attorney of a power registered
under the 1985 Act. This is regardless of whether the power is made
under clause 1 or the amended s. 25, provided
that it was granted after the Commencement Date.
Clause 9 then amends s. 22 Law of Property Act 1925, to permit the
attorney under a registered EPA to deal with a legal estate without the need to appoint a
new trustee or discharge the incapable trustee, where the attorney is entitled to act for
the incapable trustee.
Clause 10 clarifies the extent of the
attorney’s authority to act where the donor holds a qualifying interest, and
introduces the general rule that the attorney’s authority will have effect only so
far as a contrary intention is not expressed in the power of attorney under which he is
appointed.
The Bill permits the unrestricted
delegation of trustee functions where the trustee has a qualifying interest (including
stocks and shares, but not other forms of investment such as unit trusts, representing the
capital proceeds of a conveyance of land). When
proposing the Second Reading of the Bill, Lord Falconer of Thoroton confirmed it is aimed
at the “mischief” identified in Walia. However, it will apply to all trustees who have a
qualifying interest. If there are other
trustees of the same trust who do not have such an interest, they may not grant a Clause 1
Power.
Example : Where a person makes an inter vivos
settlement of land, appointing himself and the life tenant as trustees, the life tenant
will be able to grant a Clause 1 Power. However,
the settlor may only delegate his trustee functions under s. 25 Trustee Act 1925 (a s. 25 Power).
his may give rise to conveyancing
difficulties. Clause 2 aims to simplify the
situation, although only operates in favour of a “purchaser”. Accordingly, there will remain occasions where a
conveyancer may need to investigate the beneficial interests.
The fact that reference to stocks and
shares is also included in clause 1 would tend to imply that the Bill extends beyond Walia type situations. If limited only to Walia, as indicated in the Lords, there would
appear to be no reason for the inclusion of any reference to stocks and shares. Upon the sale of property held by co-owners the
trusts will usually determine and therefore do not govern the investment of the sale
proceeds.
If the ability to grant a Clause 1
Power is to be limited to the joint ownership of property (as in Walia), then it should be available only where the
trustees are, between them, absolutely entitled to the whole of the qualifying
interest. In these circumstances, all
the trustees should be able to grant a Clause 1 power, whether or not they have a
qualifying interest.
The Bill preserves the provisions of s. 3(3) for EPAs either registered as at the
Commencement Date, or submitted for registration within a year of that date. However, there remains genuine doubt as to the
true circumstances under which s.3(3) may be
applied, and this should be clarified. Either
s. 3(3) should be limited only to the Walia type situation, or it should apply to all
trustees (including all other trustees of land, as well as trustees of personalty). The provisions of clause 4 do not appear to assist
in this respect.
The Bill makes no substantial changes
to the ability of trustees of personalty trusts, or trustees of land without a qualifying
interest, to delegate their authority by a s. 25 Power.
Such power, if granted after the Commencement Date, may be a valid EPA. No doubt the form of such power should comply
with the EPA Prescribed Form Regulations current at the time it is granted, as well as the
form set down in the new s. 25 (6) Trustee Act 1925.
As such powers will cease to be valid after 12 months, many will have lapsed before
any question of registration under the 1985 Act
can arise. Even for those that are capable of
being registered, the attorney (and other trustees) will need to act promptly to retire
the incapable trustee before the s. 25 Power lapses.
Trustees may therefore still have regular recourse to the courts to retire a
mentally incapable trustee and, if required, appoint another in his place.
If, upon registration of a s. 25 Power
enduring power, the attorney’s authority continued for a statutory period (say 6
months), during which the attorney would be able to exercise all of the trustee functions
of the donor, this may avoid the concern expressed in the preceding paragraph. However, by the end of this period, the attorney
must retire his principal and, if required, join in the appointment of a replacement
trustee. There would be no need to create a
sanction for failure to comply with this time scale as, should its authority be invoked,
the court has discretion over costs and could direct that they be paid by any party whose
actions have directly given rise to the need for the application to court.
It would appear that where a trustee
with a qualifying interest wishes to delegate their trustee functions by an enduring
power, they may only do so under the new s. 25
Trustee Act 1925. This would appear to
dilute part of the stated aim of the Bill.
By restating the twelve month rule, the
Bill reinforces the view that trustees should not delegate their authority indefinitely. However, there is nothing to prevent a trustee
from habitually delegating the exercise of his trustee functions by a series of s. 25
Powers. A maximum period of, say, 5 years
might be introduced during which a trustee may delegate his trustee functions in this way. After the five-year period, and subject to the
attorney confirming the situation by statutory declaration, the attorney could retire the
trustee. If the trustee is a sole trustee,
the attorney would need to appoint two new trustees in his place. Where the trustee was one of two trustees, the
attorney should join in the appointment of the replacement trustee. There is no reason why the attorney should not be
(one of) the replacement trustee(s).
Should the Bill
also include provision for proof of copies of powers created under it, similar to those of
s. 3 Powers of Attorney Act 1971 or s. 7(3) and (4) of the 1985 Act?
Various aspects of
trustee delegation have been considered in recent years and one, in particular, needs to
be addressed - the ability for trustees to place trust assets in the name of a nominee
without committing a breach of trust. The
need for this is more pressing following the introduction of CREST.
In addition,
trustees should be permitted to delegate investment management of the trust portfolio to a
regulated investment manager (i.e. one authorised under the Financial Services Act 1986 or other relevant
legislation). This could be achieved by the
extension of s. 23 Trustee Act 1925. Private trustees, in recognition of the level of
expertise now required to effectively manage a trust portfolio, are turning more and more
to professionals to directly manage the investments.
Whilst this should only benefit the trust in most cases, a trustee who currently
does this may be at considerable risk as such delegation is outside of his authority, and
beneficiaries are becoming more litigious. Investment
managers are unlikely to accept an appointment under a s. 25 Power, in view of the need
for this to be renewed annually.
Provisions
relating to both of the above should be incorporated into the Bill.
The Bill is, or
has the potential to be, an important development in relation to trust law. However, there has been no significant public
discussion of its provisions. A similar
situation arose with the Trusts of Land and
Appointment of Trustees Act 1996, and the industry did not appreciate the true effect
of that Act until after it had reached the Statute Book.
The provisions of the Bill seek to cure the “mischief” identified in Walia. Whilst
the Bill may address this issue (although not fully) it creates a new “mischief”
for trustees, generally, where one of their number has a qualifying interest.
The Trustee Delegation Bill should be subjected to
further public scrutiny before it is enacted.
Paul Saunders ACIB, TEP,
is
a member of the Private Trusts Committee and is the TACT representative on the Trust Law
Committee working party.
This article represents the
writer’s personal interpretation and views upon the Trustee Delegation Bill, and not
those of any organisation with which he might be associated.
This article is an updated version of that which first appeared in the Solicitors’ Journal of 19th February (1999) 143 SJ 168 - and is published with their kind permission.
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