Trustees: appointment, duties, powers, and liabilities - Del...

Learning Outcomes

This article outlines the principles governing the delegation of duties and powers by trustees. You will learn about the general rule requiring trustees to act personally, the specific statutory exceptions that permit delegation, the duty of care trustees must exercise when delegating, and their potential liability for the actions of their agents, nominees, or custodians. This knowledge is essential for applying the relevant legal principles to SQE1 assessment questions concerning trust administration.

In addition, you will be able to distinguish between individual delegation by power of attorney under the Trustee Act 1925 (including its period, notice requirements, and liability consequences) and collective delegation under the Trustee Act 2000 (including the asset management regime and policy statements). You will understand the scope of delegable administrative functions versus core fiduciary or dispositive functions that must remain with the trustees, and you will be able to analyse typical delegation arrangements in practice (appointment of investment managers, nominees, and custodians) and identify compliance, oversight, and liability issues.

SQE1 Syllabus

For SQE1, you are required to understand the rules governing the delegation of trustee duties and powers, including when delegation is permitted and the consequences of breach, with a focus on the following syllabus points:

• The general principle that trustees must act personally and cannot delegate their decision-making functions.
• The statutory exceptions allowing delegation under the Trustee Act 1925 (s 25) and the Trustee Act 2000 (ss 11–27), including the asset management regime in s 15 and the review duty in s 22.
• The distinction between delegable administrative functions and non-delegable dispositive or fiduciary discretions.
• The duty of care trustees owe when selecting, appointing, and supervising agents, nominees, and custodians.
• The extent of a trustee's liability for the acts or defaults of their delegates.
• Practical requirements for appointing agents, nominees, and custodians (terms of appointment, written agreements, and policy statements), and the prohibition on appointing beneficiaries to act as agents in a way that creates conflicts.
• The differences in liability between delegation by power of attorney (Trustee Act 1925, s 25: strict liability for the attorney’s acts) and delegation to agents under the Trustee Act 2000 (s 23: fault-based liability where trustees breach the statutory duty of care).
• Special rules for trusts of land where trustees may delegate certain management functions to beneficiaries with interests in possession (Trusts of Land and Appointment of Trustees Act 1996, s 9) and the oversight required when using this route.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which statutory provision allows an individual trustee to delegate their functions by power of attorney for a maximum period?
   1. Trustee Act 2000, s 11
   2. Trustee Act 1925, s 25
   3. Trustee Act 2000, s 15
   4. Trustee Act 1925, s 36
2. Under the Trustee Act 2000, which of the following functions can trustees NOT delegate to an agent?
   1. Collecting rent from trust property.
   2. Deciding whether to distribute trust income or capital.
   3. Instructing a solicitor regarding trust administration.
   4. Managing trust investments based on an agreed policy.
3. When trustees delegate functions under the Trustee Act 2000, what is the extent of their liability for the agent's actions?
   1. They are strictly liable for all acts and defaults of the agent.
   2. They are liable only if the agent acted fraudulently.
   3. They are liable only if they breached their duty of care in selecting or supervising the agent.
   4. They are never liable for the agent's actions.

Introduction

Trusteeship involves significant responsibilities and requires personal attention from those appointed. The fundamental principle is that a trustee, having been chosen for their judgment and integrity, cannot delegate their office or duties to others. This rule reflects the personal nature of the trust relationship and the reliance placed upon the trustee by the settlor and beneficiaries. However, practical administration often necessitates assistance. Consequently, both statute and, occasionally, the trust instrument provide exceptions allowing trustees to delegate certain functions under specific conditions, while still retaining overall responsibility for the trust's administration.

Key Term: Delegation
The act by which a trustee authorises another person to exercise some or all of the trustee's functions.

Delegation must be approached with care. Trustees remain answerable for ensuring that any delegation is permitted, properly documented, and appropriately supervised. Statutory frameworks now recognise the modern needs of trust administration, permitting trustees to employ professional agents (including investment managers), and to appoint nominees and custodians, provided they meet the applicable duty of care and keep arrangements under review.

The General Rule: Trustees Must Act Personally

The role of a trustee is one of personal trust and confidence. Trustees are expected to exercise their own judgment and discretion in managing the trust affairs. They cannot, as a general rule, delegate their decision-making powers or the execution of the trust to others. This principle is often summarised by the maxim delegatus non potest delegare (a delegate cannot delegate). If a trustee improperly delegates their duties and a loss occurs as a result, they may be personally liable for breach of trust.

At general law, trustees may employ agents for purely ministerial tasks (such as collecting income, maintaining records, or arranging routine payments), but they must not give away their discretions or fiduciary judgments. Any broader delegation must be grounded in explicit authority, whether given by the trust instrument or by statute.

Statutory Powers of Delegation

Modern trust administration acknowledges that trustees cannot reasonably be expected to carry out every task themselves. Statute provides specific exceptions to the general rule against delegation.

Delegation by Power of Attorney (Trustee Act 1925, s 25)

Section 25 of the Trustee Act 1925 allows an individual trustee (but not a trust corporation) to delegate any of their trusts, powers, and discretions to any person (including a co-trustee or a trust corporation) by power of attorney.

Key Term: Attorney
The person appointed by an individual trustee under a power of attorney to exercise that trustee’s trusts, powers, and discretions for a limited period.

Key features of this power:

• Duration: The delegation cannot exceed 12 months.
• Notice: Written notice must be given to all co-trustees and any person with the power to appoint new trustees within seven days of granting the power of attorney.
• Liability: The delegating trustee remains liable for all acts or defaults of the attorney as if they were their own acts or defaults. This imposes a high level of responsibility on the delegating trustee.
• Scope: The power is available to individual trustees for temporary coverage (e.g., absence, illness, or other short-term needs). It may be used to delegate to a professional trust corporation or a co-trustee, but the delegating trustee must still ensure overall compliance with the trust and statute.

Key Term: Trust Corporation
A corporate trustee authorised by its constitutional documents to act as trustee and often engaged professionally to administer trusts and estates.

This power is useful for temporary absences, such as holidays or short-term illness, but the trustee retains full responsibility for the attorney's actions. It is distinct from collective delegation under the Trustee Act 2000 and has a markedly different liability regime.

Collective Delegation (Trustee Act 2000)

The Trustee Act 2000 provides trustees (acting collectively) with wider powers to delegate certain functions to agents, nominees, and custodians. This allows trustees to employ professionals for tasks requiring specialised skills.

Key Term: Agent
A person authorised by the trustees to exercise certain functions on their behalf.

Key Term: Asset Management Functions
Functions relating to investing trust assets, acquiring property to be subject to the trust, managing property held on trust, and disposing of trust property or interests in it.

Delegation to Agents (TA 2000, s 11)

Section 11 allows trustees to authorise any person to act as their agent to exercise any of their "delegable functions".

Delegable functions are defined as any function except:

• Any function relating to whether or how the assets of the trust should be distributed (e.g., deciding which beneficiaries receive payments under a discretionary trust).
• Any power to decide whether fees or costs should be paid out of income or capital.
• Any power to appoint a new trustee.
• Any power conferred by any other enactment or the trust instrument which permits the trustee to delegate any of their functions or to appoint a person to act as a nominee or custodian.

Essentially, core dispositive discretions and the power to appoint trustees cannot be delegated to agents under this section. Administrative and management functions, however, generally can be. Trustees may, for example, appoint an investment manager to manage the portfolio within a defined policy, instruct a solicitor to handle litigation or conveyancing arising in trust administration, or appoint a property manager to oversee leases and rent collection.

Appointment of Nominees and Custodians (TA 2000, ss 16-20)

Trustees also have powers to appoint nominees and custodians:

Key Term: Nominee
A person appointed by the trustees in whose name trust property (other than land or bearer securities) is registered, but who acts on the direction of the trustees.

Key Term: Custodian
A person appointed by the trustees to undertake the safe custody of some or all of the assets of the trust or the documents of title relating to such assets.

These appointments allow for efficient management, particularly of investments, but require careful selection and supervision by the trustees. Appointments should be documented, with clear terms setting out the scope of the role, reporting obligations, fees, and any limits on sub-delegation. Typically, a custodian will be a firm carrying on a business of safekeeping financial instruments; a nominee may be corporate or individual and is often used to facilitate pooled or managed investment services.

Special Rules for Asset Management (TA 2000, s 15)

When delegating asset management functions (which include investment decisions, acquisition of property, and managing/disposing of property), trustees must comply with additional requirements under section 15:

• Policy Statement: The delegation agreement must be in writing (or evidenced in writing) and must include a written policy statement prepared by the trustees giving guidance on how the functions should be exercised in the best interests of the trust.
• Agreement Compliance: The agreement must include a term requiring the agent to comply with the policy statement.
• Ongoing Oversight: Although s 15 deals with the formation of the arrangement, trustees must also monitor the arrangement under s 22; they should ensure reports are received at agreed intervals and meaningful performance review takes place.

Key Term: Policy Statement
A written document prepared by trustees that sets out guidance and parameters for an asset manager’s exercise of delegated functions in the best interests of the trust (required by TA 2000, s 15).

This ensures that investment managers or other asset managers operate within clear parameters set by the trustees.

Additional practical controls and restrictions

The statutory scheme sits alongside good practice:

• Trustees should verify that any agent carrying on regulated investment business is appropriately authorised or exempt under the regulatory regime applicable (e.g., authorised by the Financial Conduct Authority for investment management).
• Trustees should include reporting and audit rights in the appointment and require periodic performance review against the policy statement.
• Trustees should avoid appointing beneficiaries as agents where this would create a conflict of interest or undermine impartial administration. A beneficiary should not be appointed to exercise trustee functions in a way that advances their own interests at the expense of others.

Key Term: Duty of Care
The duty of a trustee, under section 1 of the Trustee Act 2000, to exercise such care and skill as is reasonable in the circumstances, having regard in particular to any special knowledge or experience they have or hold themselves out as having, and, if acting professionally, to the knowledge or experience reasonably expected of such a professional.

Worked Example 1.1

The trustees of the Sharma Family Trust wish to delegate the management of the trust's share portfolio (£500,000 value) to an investment management firm. They provide the firm with verbal instructions regarding the investment objectives. The firm subsequently makes investments that result in a significant loss. Are the trustees potentially liable?

Answer:
Yes, the trustees are potentially liable. While delegating investment functions is permitted under the Trustee Act 2000, section 15 requires the agreement to be in writing (or evidenced in writing) and must include a written policy statement giving guidance. Failure to provide a written policy statement is a breach of the trustees' duties regarding delegation. This breach may lead to liability if it caused or contributed to the loss (e.g., if the agent acted outside the verbal instructions which should have been formalised in the policy).

Worked Example 1.2

Trustees appoint an agent to collect rent from trust properties. They select the agent carefully and provide clear written instructions. However, they do not check the agent's performance for two years. During this time, the agent fails to collect significant amounts of rent and eventually becomes insolvent. Can the beneficiaries hold the trustees liable for the lost rent?

Answer:
Yes, potentially. Although the trustees may have complied with their duty of care in selecting the agent and setting the terms, they likely breached their duty under section 22 of the Trustee Act 2000 to keep the arrangements under review. A failure to monitor the agent's performance for two years could be considered unreasonable. If this lack of review allowed the losses to occur or escalate, the trustees could be liable for the loss caused by their breach.

Worked Example 1.3

The trustees of a discretionary trust appoint their adult child (who is also one of the class of discretionary beneficiaries) to act as “investment agent” to manage a portfolio of listed securities. No policy statement is prepared; the child invests heavily in a single speculative stock and later distributes gains to themselves.

Answer:
This arrangement is defective and raises serious conflicts. It is improper to appoint a beneficiary to exercise trustee functions where this creates a conflict of interest, and trustees must act impartially between beneficiaries. The absence of a written policy statement under s 15 further breaches the statutory regime. The trustees are at risk of personal liability under s 23 because they failed to exercise reasonable care in the selection and oversight of the agent and allowed a conflicted appointment. Any self-distribution by the beneficiary-agent is a non-delegable dispositive decision and would be void; trustees must retain decisions about whether and how assets are distributed.

Worked Example 1.4

Trustees appoint a regulated investment manager with an appropriately drafted policy statement. The manager seeks to hold the trust’s shares through the firm’s nominee and have custody through a third-party custodian. The trustees agree but do not specify reporting frequency or require express compliance with the policy statement in the appointment paperwork.

Answer:
Appointment of a nominee and custodian is permissible under TA 2000, ss 16–20, but trustees must define the terms of appointment carefully and ensure the agent is obliged to comply with the policy statement. Failing to include explicit compliance and insufficient reporting obligations is poor practice and may amount to breach of the s 1 duty of care in setting the terms. If losses arise because the manager or custodian acts outside prudent parameters, trustees may be liable under s 23 for failing to exercise reasonable care in setting and supervising the arrangements.

Duty of Care in Delegation

When delegating functions, appointing nominees or custodians, trustees must comply with the statutory duty of care under section 1 of the Trustee Act 2000.

This duty applies specifically to:

• The selection of the agent, nominee, or custodian.
• Determining the terms of the appointment.
• Preparing the policy statement for asset management delegation (TA 2000, s 15).
• Keeping the arrangements under review (TA 2000, s 22).

The duty of care is sensitive to the trustee’s status: a professional trustee is held to a higher standard than a lay trustee. Regardless of status, trustees should consider the suitability and competence of any proposed agent or custodian (for example, by checking authorisation and track record in investment management or safekeeping), anticipate and mitigate conflicts of interest, and ensure that appropriate information flows and oversight are built into the appointment.

Reviewing Delegation Arrangements (TA 2000, s 22)

Trustees are not permitted to simply delegate and forget. Section 22 imposes a duty on trustees to keep under review the arrangements under which the agent, nominee, or custodian acts and how those arrangements are being put into effect. If circumstances make it appropriate, trustees must consider whether to revise or replace the arrangements and, if necessary, intervene.

In practice, this means agreeing reporting schedules (e.g., quarterly investment reports and annual custodial audits), reviewing performance against benchmarks, checking compliance with the policy statement, and acting promptly where performance or compliance is unsatisfactory.

Worked Example 1.5

Trustees of a family trust appoint an experienced property manager to handle tenancies, repairs, and rent collection. The manager’s contract includes performance indicators and quarterly reporting. After several quarters of poor collection rates and unapproved expenditure, the trustees warn the manager but take no further action for another year. The trust’s net rental income declines markedly.

Answer:
The trustees are at risk of liability for breach of s 22. They should have intervened sooner to revise or replace the arrangement once performance concerns were evident. If a timely intervention would likely have prevented or reduced the loss, the trustees may be liable to make good the loss attributable to their delay.

Liability for Agents, Nominees, and Custodians (TA 2000, s 23)

Section 23 of the Trustee Act 2000 provides a significant protection for trustees regarding the actions of their delegates. A trustee is not liable for any act or default of an agent, nominee, or custodian unless the trustee failed to comply with their duty of care under section 1 when:

• Entering into the arrangements for the appointment; or
• Keeping the arrangements under review (as required by section 22).

This means that if trustees exercise the required duty of care in selecting, appointing (including setting terms and preparing any required policy statement), and reviewing their delegates, they will generally not be liable for losses caused solely by the delegate's own act or default. However, if the trustees breach their own duties in the delegation process, and that breach causes loss, they remain liable.

The liability position contrasts with Trustee Act 1925, s 25 (power of attorney), where the delegating trustee remains liable for the attorney’s acts and defaults as if they were the trustee’s own. Trustees should therefore match the route of delegation to the situation: s 25 may be ideal for short-term personal absence; s 11 and related provisions are designed for ongoing administration by professional agents where the trustees retain policy control and review.

Key Term: Attorney Liability (s 25)
Under TA 1925, s 25, the delegating trustee is liable for the attorney’s acts and defaults as if they were the trustee’s own.

Key Term: Agent Liability (s 23)
Under TA 2000, s 23, trustees are liable for delegates’ acts or defaults only where the trustees fail to exercise the statutory duty of care in appointment or review.

Exam Warning

Do not confuse the liability rule under the Trustee Act 2000 (s 23) for agents, nominees and custodians (liability only if trustee breaches duty of care in appointment/review) with the liability rule under the Trustee Act 1925 (s 25) for attorneys (trustee remains liable for all acts/defaults of the attorney). These are distinct statutory provisions with different consequences.

Further practical points under the Trustee Act 2000

A few additional features are useful for solving scenarios:

• If trustees authorise two or more persons to exercise the same function as agent, joint action may be required to maintain appropriate controls, and the trustees should avoid arrangements that obscure accountability.
• Failure by trustees to act strictly within the limits of their statutory powers in authorising or appointing agents, nominees or custodians does not necessarily invalidate the authorisation (TA 2000, s 24), but trustees may still face personal liability for any resulting losses if they have breached the duty of care.
• Trustees of land may, in some circumstances, delegate management functions to beneficiaries under TOLATA 1996, s 9, but must still exercise the duty of care in deciding whether and how to do so, and should ensure clear terms and oversight.

Key Term: Trustees of Land Delegation (TOLATA 1996, s 9)
Trustees of land may delegate certain management or administrative functions relating to land to adult beneficiaries beneficially entitled to an interest in possession, subject to appropriate safeguards.

Worked Example 1.6

A sole individual trustee of a will trust plans a six-month trip abroad and appoints an attorney under TA 1925, s 25. The attorney mishandles trust funds while the trustee is away. The trustee argues that the TA 2000 regime should protect them from liability because they exercised care in choosing the attorney.

Answer:
The TA 2000 protection does not apply to appointment of attorneys under TA 1925, s 25. Under s 25, the delegating trustee remains liable for the attorney’s acts and defaults as if they were the trustee’s own. The trustee should consider whether a trust corporation could be appointed as co-trustee or whether professional agents could take on particular tasks under TA 2000, with an asset management policy and review processes, rather than relying on s 25.

Selecting suitable agents, nominees and custodians

Trustees should:

• Assess the prospective agent’s competence, authorisation, capacity, and track record.
• Consider conflicts of interest, including prohibiting conflicted appointments (e.g., appointment of a beneficiary as an agent for asset management functions is problematic).
• Set clear terms: scope of authority, compliance with the policy statement, reporting schedule, fee structure, and termination provisions.
• Ensure arrangements include audit rights, incident reporting obligations, and controls on sub-delegation.
• Check that safekeeping arrangements (custody) are appropriate, including segregation of assets, reconciliation processes, and robustness of the custodian’s systems.

Key Term: Appointment Terms
The written terms setting out scope, authority, reporting, fees, compliance with the policy statement, and termination rights for agents, nominees, and custodians.

Key Point Checklist

This article has covered the following key knowledge points:

• Trustees generally must act personally and cannot delegate their office or duties.
• Statutory exceptions permit delegation under specific circumstances.
• Trustee Act 1925, s 25 allows individual trustees to delegate by power of attorney for up to 12 months, but the trustee remains liable for the attorney's acts.
• Trustee Act 2000 allows collective delegation of certain functions to agents, nominees, and custodians.
• Core dispositive functions (like distribution decisions) and trustee appointments cannot be delegated to agents under TA 2000, s 11.
• Delegation of asset management requires a written agreement incorporating a policy statement (TA 2000, s 15).
• Trustees owe a statutory duty of care (TA 2000, s 1) when selecting, appointing, and reviewing delegates, including setting clear terms.
• Trustees must keep delegation arrangements under review and intervene where appropriate (TA 2000, s 22).
• Trustees are generally not liable for a delegate's defaults unless they have breached their own duty of care in the appointment or review process (TA 2000, s 23).
• Appointing a beneficiary as agent for core management functions is unsafe and likely improper due to conflicts of interest.
• Trustees should ensure agents engaged in regulated activities are appropriately authorised and include robust reporting and audit rights in appointments.

Key Terms and Concepts

• Delegation
• Agent
• Nominee
• Custodian
• Duty of Care
• Attorney
• Trust Corporation
• Asset Management Functions
• Policy Statement
• Appointment Terms
• Trustees of Land Delegation (TOLATA 1996, s 9)
• Attorney Liability (s 25)
• Agent Liability (s 23)