Investment of the trust fund

By Tolley in association with Mary Fraser

The following Trusts and Inheritance Tax guidance note by Tolley in association with Mary Fraser provides comprehensive and up to date tax information covering:

  • Investment of the trust fund
  • The legislation
  • Duty of care
  • Investment skills of the trustees

Trustees have responsibility for the administration of any assets of which they are trustees. The nature of the assets may be specified in the trust deed, or may be a matter of entrusting a specified amount of cash to the trustees for a purpose set out in the deed; the settlor may provide that the trustees invest in a particular sector, for example in ethical investments.

It will be necessary to consider the overall purpose of the trust. A common example of this is a trust comprising shares in a family company to protect the company against future generations who may have no business sense or interest in the business. It may be there to protect a beneficiary against an unfortunate marriage, where divorce is expected.

The trustees have a duty to act in the best interests of the beneficiaries. However, if the provisions in the trust deed conflict with this, it may have an impact upon the decisions of the trustees. For example, if the trust were created to preserve the shareholding in the family company, it would not be prudent to diversify the holding.

Alternatively, the trust may be there to protect children of a first marriage after the re-marriage of a parent or to provide for a widow or widower following the death of the settlor. In the first situation, the trustees would be look for investments that offer capital growth; in the second, income would be a primary consideration.

Another factor to be considered would be the impact of taxation upon the choice of investments, considered in the Choosing investments guidance note.

The legislation

Most of the legislation relating to investment of the trust fund is contained in the Trustee Act 2000, although, if the trust fund comprises land, the Trusts of Land and Appointment of Trustees Act 1996 could also apply. In some cases, the Trustee Investment Act 1961 would still apply. This Act was very restrictive and will only apply to trusts formed after 3

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