Trustee Investment Powers UK (2026): The Trustee Act 2000, Standard Investment Criteria, and Delegation

The Trustee Act 2000 (TA 2000) fundamentally reformed trustees' investment powers, replacing the restrictive Trustee Investments Act 1961 with a broad general power: (1) THE GENERAL POWER OF INVESTMENT (TA 2000 s.3): trustees of any trust (unless the trust instrument expressly restricts their powers) have the same power to invest trust funds as if they were the beneficial owner of those funds. This is a very broad power — it allows trustees to invest in: (a) stocks and shares (quoted and unquoted); (b) bonds and gilts; (c) property (including land); (d) collective investment schemes (unit trusts, OEICs, investment trusts); (e) cash deposits; (f) alternative investments (where appropriate); (2) THE POSITION BEFORE 2000 — TRUSTEE INVESTMENTS ACT 1961: before TA 2000, trustees were restricted to a narrow 'legal list' of investments (primarily government securities and similar). The 1961 Act was widely criticised as too restrictive and was replaced by TA 2000; (3) RESTRICTION BY TRUST INSTRUMENT: the general power under TA 2000 s.3 applies unless the trust instrument restricts or excludes it. Many professionally drafted trusts include wider investment clauses that replicate or expand upon the TA 2000 position — or occasionally restrict investment to specific asset classes (e.g. ethical funds only); (4) WHAT THE POWER DOES NOT AUTHORISE: the general power of investment does not authorise investments that are: (a) prohibited by the trust instrument; (b) made in breach of the standard investment criteria (see Q2); (c) made without appropriate advice (unless reasonably unnecessary — see Q2); (5) LAND AS AN INVESTMENT: TA 2000 s.8 gives trustees power to invest in land in the UK — acquiring freehold or leasehold land. This must still comply with the standard investment criteria. The trustees can hold land as an investment or for any other reason consistent with the trust purposes.

Before making or retaining any investment, trustees must apply the STANDARD INVESTMENT CRITERIA under TA 2000 s.4: (1) THE TWO CRITERIA: trustees must have regard to: (a) SUITABILITY: whether the investment is appropriate for the trust — taking into account the nature of the trust, the beneficiaries' circumstances, the expected duration of the trust, and the risks involved. A long-term discretionary trust for young grandchildren can take on more risk than a short-term trust for an elderly life tenant. Cash and near-cash investments may be unsuitable for a trust expected to grow over 20 years; (b) DIVERSIFICATION: the need to diversify the trust's investments so far as appropriate — spreading investment across asset classes, geographies, and sectors to reduce concentration risk. Holding all trust funds in a single share or sector is generally a breach of this criterion unless there are compelling trust-specific reasons; (2) THE DUTY TO OBTAIN AND CONSIDER ADVICE: before exercising the investment power, trustees must obtain and consider 'proper advice' (TA 2000 s.5) unless it is reasonably unnecessary in the circumstances: (a) PROPER ADVICE: advice from a person reasonably believed to be qualified to give it — typically an FCA-authorised financial adviser or investment manager; (b) WHEN UNNECESSARY: the advice requirement may be dispensed with for small or simple trusts where the cost of advice is disproportionate to the investment size; (3) THE DUTY TO REVIEW: trustees must REGULARLY REVIEW the trust investments (TA 2000 s.4(2)). Reviews must apply the standard investment criteria afresh — an investment that was suitable at inception may become unsuitable over time. There is no fixed review period but annual reviews are standard practice; (4) HIGHER STANDARD FOR PROFESSIONAL TRUSTEES: professional trustees (solicitors, trust corporations, accountants acting as trustees) are held to a higher standard than lay trustees. A professional trustee is expected to exercise the skills of a reasonably skilled professional in that role — the objective test in Bartlett v Barclays Bank [1980].

Trustees may delegate investment functions to an agent (usually a professional investment manager) under TA 2000 Part IV: (1) THE POWER TO DELEGATE (TA 2000 s.11): trustees may delegate any of their functions to an agent, except certain core trustee functions such as: (a) decisions about the distribution of trust capital or income to beneficiaries; (b) decisions about whether to appoint or remove a trustee; (c) decisions about whether to delegate; these non-delegable functions reflect the fundamental nature of the trustee role — the trustee cannot divest themselves of all responsibility; (2) DELEGATION TO AN INVESTMENT MANAGER: trustees can delegate day-to-day investment management to a professional investment manager. The delegation must be: (a) IN WRITING — evidenced by a written agreement (the 'investment management agreement' or 'IMA'); (b) INCLUDE POLICY STATEMENT — the agreement must include a statement of the trustees' investment policy. This ensures the investment manager acts within parameters set by the trustees; (c) IN ACCORDANCE WITH THE AGENCY AGREEMENT — the trustees must act in accordance with the terms of the agreement; (3) TRUSTEES' CONTINUING DUTY TO REVIEW (TA 2000 s.22): even after delegation, trustees must KEEP THE ARRANGEMENT UNDER REVIEW. They must: (a) monitor the investment manager's performance; (b) assess whether the arrangement remains appropriate; (c) intervene if the manager is deviating from the policy statement; (d) terminate the arrangement if it is no longer suitable; (4) INDEMNITY — NOT EXCUSED FROM LIABILITY: delegation does NOT excuse trustees from liability if the investment manager fails to follow the policy statement or acts negligently — unless the trustees: (a) acted with reasonable care in selecting the agent; (b) acted with reasonable care in drafting the policy statement; (c) fulfilled their duty of ongoing review; (5) COST OF INVESTMENT MANAGEMENT: trustees can pay investment managers' fees from the trust fund. Trust instruments typically include an express power to do so. TA 2000 s.32 also implies a power to pay reasonable remuneration to agents.

The ethical investment question — whether trustees can or must take ESG (Environmental, Social, and Governance) factors into account — has evolved significantly in recent years: (1) THE TRADITIONAL POSITION — COWAN v SCARGILL [1985]: the leading case on trustee investment duties, Cowan v Scargill, held that trustees must invest in the best financial interests of the beneficiaries. Millet J (as he then was) stated that ethical or political considerations could not override the trustee's duty to maximise financial returns. Trustees could not refuse to invest in certain industries on ethical grounds if to do so reduced returns; (2) THE MODERN POSITION — EVOLUTION OF THE LAW: subsequent case law and the Charity Commission's updated guidance have significantly refined the Cowan v Scargill position: (a) BISHOP OF OXFORD v CHURCH COMMISSIONERS [1992]: trustees can adopt an ethical investment policy if: (i) the investment strategy is consistent with the purposes of the trust; (ii) the policy is unlikely to cause significant financial detriment; (iii) beneficiaries would be alienated by investment in conflicting industries (reputational risk); (b) NEST v THE PENSION REGULATOR (PENSIONS ACT 2008): pension trustees must have a Statement of Investment Principles that considers ESG factors; (3) WHEN ESG FACTORS CAN VALIDLY BE CONSIDERED: trustees can take ESG factors into account where: (a) the trust instrument expressly permits or requires ethical investment; (b) investment in certain sectors would damage the trust's reputation or conflict with its charitable purposes; (c) there is no significant financial detriment from the ethical restriction; (4) TRUST INSTRUMENT PROVISIONS: a testamentary trust or lifetime trust can include an EXPRESS ETHICAL INVESTMENT CLAUSE directing trustees to avoid certain sectors (tobacco, armaments, fossil fuels) or to invest in ESG funds. Where such a clause exists, trustees must follow it — it forms part of the standard investment criteria for that trust; (5) ESG AND MODERN PORTFOLIO THEORY: financial research increasingly suggests that well-selected ESG-screened portfolios can match or outperform conventional portfolios over the long term. This makes the argument that ESG investing necessarily sacrifices returns less compelling — a relevant factor for trustees assessing the standard investment criteria.

Trustees who breach their investment duties are personally liable to make good the loss to the trust. However, there are several defences and protections: (1) LIABILITY FOR BREACH OF INVESTMENT DUTIES: trustees are personally liable (jointly and severally with co-trustees) for losses arising from: (a) failing to apply the standard investment criteria; (b) failing to obtain proper advice; (c) failing to review the portfolio; (d) delegating to an unsuitable agent; (e) failing to review the investment management arrangement; (2) THE PRUDENT INVESTOR STANDARD: the duty of care under TA 2000 s.1 requires the trustee to exercise 'such care and skill as is reasonable in the circumstances' — taking account of: (a) any special knowledge or experience the trustee has or holds themselves out as having; (b) if the trustee acts in a professional capacity, the care and skill reasonably expected of a professional in that capacity; (3) DEFENCES: (a) SECTION 61 TRUSTEE ACT 1925: the court may relieve a trustee from liability if they acted honestly and reasonably and ought fairly to be excused. This is a discretionary power — the court considers all the circumstances. Courts have excused non-professional trustees who relied in good faith on professional advice; (b) TRUSTEE EXONERATION CLAUSE: trust instruments often include an exoneration clause — protecting the trustee from liability for mere negligence (but not fraud or wilful default). These clauses have limited effect for professional trustees; (c) CONSENT OF BENEFICIARIES (SAUNDERS v VAUTIER): if all adult and capacitous beneficiaries consent to the investment decision, the trustee is not liable for loss arising from it; (d) LIMITATION: claims against trustees for breach of investment duty are subject to a 6-year limitation period (s.21(3) Limitation Act 1980) — running from the date of the breach; (4) CO-TRUSTEE LIABILITY: each trustee is personally liable for the investment decisions made during their period of trusteeship. A trustee who dissents from an investment decision must record their dissent in writing — failure to dissent makes them jointly liable; (5) INSURANCE: trustees can take out professional indemnity insurance from the trust fund. This does not remove liability but provides practical protection.