OPERATIONAL GUIDANCE

TRUSTEE ACT 2000

OVERVIEW OF THE ACT AND TO WHOM IT APPLIES

OG 86 A1-24 October 2001

Purpose: This guidance provides background to the making of the Trustee Act 2000 and outlines how the new provisions apply to charities and their trustees.
Please note: throughout this OG series, "the Act" refers to the Trustee Act 2000, not the Charities Act 1993.

Divisional responsibility

For action:

All operational divisions

For information:

All operational divisions

Contents

1. Why the Act came into force and to whom it applies
2. Payments to trustees

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

The law

Refer to a lawyer

Refer to an accountant

1. Why the Act came into force and to whom it applies

1.1 General background
1.2 Charities that already have these powers
1.3 How the Act applies to charities
1.4 Provisions for Schemes under section 24 and 25 of the Charities Act 1993

1.1 General background

The statutory powers and duties of trustees have, until now, been largely defined by the Trustee Act 1925 and the Trustee Investments Act 1961. This legislation had not kept pace with the evolving economic and social nature of trusts and, in many cases, no longer gave trustees the powers they needed to administer trusts effectively.

In 1999 the Law Commission and the Scottish Law Commission reported to Parliament about powers and duties of trustees. The report highlighted defects in the existing law governing the way trustees made investments and in what they were allowed to invest. It went on to make recommendations for change. These recommendations form the basis for the Trustee Act 2000 and principally include:

• changes to trustees' powers of investment;

• new powers of delegation;

• new powers for the appointment of agents, nominees and custodians; and

• appropriate safeguards for the operation of the new powers including a duty to take proper advice in relation to investments and a statutory duty of care.

The Act received the Royal Assent on 23 November 2000 and came into force on 1 February 2001.

A copy of the Act itself can be found on the HMSO web site at www.legislation.hmso.gov.uk/acts.htm

1.2 Charities that already have these powers

Some charities will already have wider powers than those now contained in the Act. These charities may continue to use those constitutional powers rather than looking to the Act. An example of this might be an unincorporated charity, such as a village hall, which has power to appoint nominees to hold property. It is unlikely that such a charity would wish to use the powers of the Act to appoint nominees; so far as is relevant to the present discussion these powers only permit the appointment of a professional nominee who would expect to be paid for their services.

1.3 How the Act applies to charities

Whilst our interest in the Act is primarily in connection with charities, we should be aware that the legislation provides also for non-charitable trusts such as private trusts, family trusts, pension schemes and other investment funds.

The Act itself is concerned with the actions of trustees and not the organisation they represent. It will not however apply to the trustees of all types of charities.

The Act potentially applies to all charities whose property is held on a trust, except that the provisions relating to investment and land acquisition, to delegation and to the use of nominees and custodians do not apply to common deposit funds, and non-pooling scheme common investment funds. See section 1.4 below. They do, however, apply to pool charities (See OG 49).

The Act does potentially apply to the charity trustees of :

• charitable trusts, including those administered by bodies incorporated under Part VII of the Charities Act 1993, or its statutory predecessor;

• charitable unincorporated associations; and

• charities governed by charter;

• charities governed by Act of Parliament or other legislation (subject to what is said below about incorporated bodies);

• charities governed by Scheme; and

• pool charities.

The powers will be exercised by the charity trustees in all cases.

The Act does not apply to the corporate property of charitable companies and other charities incorporated by or under legislation - such property is not held on trust. In some cases it may be difficult to determine whether particular property of such incorporated bodies is held on a trust or is held as corporate property.

Legal advice should be taken where this is or may be an issue.

The duties imposed by sections 4 (standard investment criteria including a review duty) and 5 (advice) in relation to investment apply generally to the powers of investment of charities which are affected by Part II of the Act, whether the trustees are exercising the general power of investment under the Act or some other general power of investment or otherwise, and cannot be excluded.

If the powers of delegation, and appointing nominees and custodians, which are conferred by the Act, are actually used rather than separate powers in the governing document, the review duties in section 22 cannot be excluded.

Although the directors of charitable companies will not, in relation to the corporate property of the company, directly acquire the wider powers contained in the Act, their members will be able to change their memoranda and articles of association so as to confer corresponding powers. Our prior consent under section 64(2) of the Charities Act 1993 will be required to changes relating to powers of investment and insurance, but not to changes relating to powers of delegation or to the use of nominees/custodians unless this involves a change to the objects clause. Guidance on alterations to governing documents for charitable companies can be found in OG 47.

There may also be circumstances where a charitable (or other) company itself is the trustee of an unincorporated charity or trust. In these circumstances the company, as a trustee, becomes subject to the provisions of the Act (except as mentioned above).

1.4 Provisions for Schemes under sections 24 and 25 of the Charities Act 1993

Whilst the Act applies to the trustees of charities whose governing documents are Schemes, not all parts of the Act will apply to Schemes made under sections 24 (other than pooling Schemes) and 25 of the Charities Act 1993 (or under corresponding provisions of the Charities Act 1960). These relate to Common Investment Funds (CIFs) -see OG 49 A1, section 3.2 and Common Deposit Funds (CDFs) - see OG 49 A1, section 6.

The parts of the Act that do not apply to the trustees of these charities are:

• Part II - Investment;

• Part III - Acquisition of Land; and

• Part IV - Agents, Nominees and Custodians.

The rest of the Act does apply including the statutory duty of care set out in Part I (which schedule 1 extends to any power of investment).

2. Payments to trustees

2.1 Remuneration for professional services
2.2 Payment of administrative expenses

The Act also includes a power for the Secretary of State to make regulations for remuneration of charity trustees. Such remuneration would extend only to payment for professional services supplied by a trustee. At present there is no intention to introduce such regulations, and our policy on remuneration remains as set out in our publication CC 11 – Payment of Charity Trustees. Where it is expedient in the interests of the charity - for example where the services might otherwise have to be supplied at greater cost to the charity by an agent who is not a charity trustee - authority should be provided by us, where necessary.

One provision of Part V of the Act will, however, affect charities. Section 28 effectively does away with the common law presumption which had the effect of ensuring that professional trustee charging clauses were always construed narrowly against those seeking to take advantage of them. So, only if such a clause made very explicit provision for payments to extend to charging for services not strictly of a professional nature, could the professional trustee charge for them. This constructional bias will no longer apply, although, in practice, most professional trustee charging clauses either explicitly allow or explicitly prohibit such charging, so the change will be of limited significance. In the case of a charity the removal of the bias is subject to the condition in sub-section (3), ie:

(it) applies to a trustee of a charitable trust who is not a trust corporation only:

• if he or she is not a sole trustee; and

• to the extent that a majority of the other trustees have agreed that it should apply to him or her.

Within the previous statutory provision authority was given for trustees to claim their expenses of administration from the trust fund. However, this authority was capable of restriction or exclusion by the trust instrument. Section 31 of the Act gives authority for the trustees to claim expenses, but there is no corresponding provision for those expenses to be restricted or excluded. The trustees' ability to claim for such expenses, incurred on or from 1 February 2001, therefore becomes a right.

The following words and phrases are defined in the Glossary of Terms:

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•
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trustees
common investment fund
common deposit fund

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