Trustees can delegate certain administrative and investment responsibilities, but ultimate accountability remains with them. Shaun Moore, Tax and Trust Specialist at Quilter, explains the key rules around trustee delegation and highlights what paraplanners should consider when capacity or succession issues arise.
Trustees are responsible for administering a trust and must exercise their powers in the best interests of the beneficiaries.
However, there are circumstances where trustees can delegate certain functions to others, and it’s important to understand both the opportunities and limitations of delegation when supporting clients and trust administration.
The principal legislation governing trustee delegation in England and Wales is the Trustee Act 2000.
This modernised trust administration by allowing trustees to delegate a range of administrative and investment functions to agents, nominees and custodians.
When can trustees delegate?
Trustees acting together can appoint agents to carry out delegable functions, such as managing investments, collecting income, dealing with property management matters and undertaking other administrative tasks.
Investment management is one of the most common forms of delegation, allowing trustees to appoint a discretionary investment manager to manage trust assets on their behalf.
However, not all trustee powers can be delegated. Trustees cannot generally delegate dispositive decisions, such as deciding which beneficiaries should benefit, how much they should receive, or whether discretionary distributions should be made.
These remain core responsibilities that the trustees must exercise personally.
Importantly, even where delegation is permitted, trustees retain responsibility for selecting suitable agents, setting appropriate terms and reviewing the agent’s performance on an ongoing basis. A trustee cannot simply delegate and disengage.
Delegation by an individual trustee
Separate rules apply where an individual trustee is temporarily unable to act. Under section 25 of the Trustee Act 1925, as amended by section 5 of the Trustee Delegation Act 1999, a trustee can delegate their functions to an attorney using a power of attorney.
This is commonly used where a trustee is travelling abroad, ill, or otherwise unavailable.
An important point for paraplanners is that this type of delegation is generally limited to a maximum period of 12 months, although a fresh delegation may be granted if appropriate. A prescribed form is also provided within the legislation.
It is important to note; a lasting or enduring power of attorney does not cover trustee duties except in a few limited scenarios relating to land transactions.
This means that the majority of trustee duties can not be executed by an attorney appointed to manage personal affairs.
What happens if a trustee loses mental capacity?
A trustee who loses mental capacity cannot continue to perform the duties of the office effectively. Unlike some other appointments, a trustee does not automatically cease to act simply because they have become incapable.
Action will normally be required to remove and replace them. Any (12 month) trustee delegation in place ceases and an attorney appointed via a lasting or enduring power of attorney can’t act in most situations as discussed above.
The trust deed should always be checked first, as it may contain express provisions dealing with the removal and replacement of trustees.
If it does not, section 36 of the Trustee Act 1925 provides a statutory mechanism for appointing a replacement trustee where an existing trustee is incapable of acting.
The power will usually be exercised by the person nominated in the trust deed or, failing that, by the continuing trustees.
Where capacity issues arise, prompt action is important. An incapacitated trustee can delay trust decisions, investment reviews and beneficiary distributions.
Where replacement is required, the correct statutory or trust deed provisions should be followed and the appointment of the new trustee is properly documented, normally via deed.
For paraplanners, reviewing trustee appointments regularly and considering succession arrangements at outset can help avoid administration difficulties later and ensure the trust continues to operate effectively if a trustee becomes unable to act.
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