trustees new powers to appoint agents, nominees and custodians; to insure trust property; and to pay professional trustees. The new powers apply only to the extent that there are no contrary provisions in the trust instrument; otherwise they apply to existing trusts as well as those created after the Act came into force.
A modern framework for trustee investment
Trustees now have a modern framework for the investment of trust assets, compatible with current trading and settlement rules for stocks and shares, computerised clearing systems and the employment of discretionary fund managers. The sweeping away of the restrictions of the Trustee Investment Act 1961 is especially welcomed. Although 'investment' is not defined in the Act, there is an underlying assumption that investment includes investment for capital growth as well as income. Subject to the general rules of suitability and diversification it should become possible to make wider use, in older trusts, statutory trusts and home-made wills lacking a wide investment power, of non-income-producing assets such as life insurance single premium investment bonds. The range of risk-graded, smoothed yield with-profits funds and specialised investment funds available under such bonds will be particularly suitable for many trustees. And there will often be a consequent saving in trust administration time where the trust fund is invested in life insurance products, as they are non-income-producing assets.
Summary
- the restrictions of the Trustee Investment Act 1961 are swept away
- but 'suitability' is still an important issue; where the beneficial interest is purely an income interest and the trustees have no discretionary power over income or capital, insurance contracts are unlikely to be appropriate
- trustees will need to comply with the new duty of care,
- and take proper advice.
Following the change to the taxation of distributed dividend income of discretionary and accumulation and maintenance trusts, there is a growing awareness of the advantages of investment bonds as trust assets. An Independent Financial Adviser can help, both by being able to recommend non-income-producing assets, and as a person to whom discretionary investment powers are delegated.
All existing trusts should be reviewed, and trustees should re-examine their actions and investment policies to ensure they comply with the Trustee Act.
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The current government have given no sign that they intend to implement the reform of inheritance tax promised while in opposition. And with inheritance tax receipts rising steadily, why should they? When Labour came in to power the yield from inheritance tax was £1.558bn. In 2000/2001 the projected yield is £2.3bn - a 10% pa compound increase over the four tax years. Although inheritance tax is often referred to as an avoidable tax affecting only a small number of estates, it is clear that a significant number of clients are failing to implement planning strategies. With the anticipated growth in personal wealth and inheritances, the upward trend in the inheritance tax take is likely to continue unless more clients are persuaded to give serious consideration to making full use of available reliefs and exemptions.