Trustee Investments Act 1961
Encyclopedia
The Trustee Investments Act 1961 (c 62) was an Act
of the Parliament of the United Kingdom
that covers where trustees can invest trust funds. Given the Royal Assent
on 3 August 1961, it removed the "Statutory Lists" system and replaced it with sets of specific investment areas. The Act was heavily criticised for the way it set these areas out, particularly the requirement that trusts trying to invest in multiple areas would need to be permanently divided. A 1997 Law Commission
paper called its terms "overly cautious and restrictive", suggesting that some trusts were under-performing as a result. The passing of the Trustee Act 2000
effectively nullified the 1961 Act's terms in relation to trustee investment, and the 2000 Act is now the principal piece of legislation in this area.
, along with land. It did not take into account the deprecation of currency or inflation, meaning that if the trustees invested in stocks and shares they were at risk of losing money simply because of the falling value of the pound sterling. As a result, even though the income from a trust might remain nominally constant, the real value of that income could be much reduced over the lifetime of the trust. This was recognised by lawyers, who had been advising their clients to structure trusts in such a way as to allow their trustees to invest in wider areas than the Statutory Lists. In 1952 the report of the Nathan Committee advocated reform, and the government published a White Paper
on "Government Policy on Charitable Trusts in England and Wales" in 1955, which proposed a reform of the Statutory Lists system. This came about under the Variation of Trusts Act 1958
, which allowed trustees to apply to the courts to widen their investment powers, a process that was expensive and slow.
A statement in the House of Lords
on 13 May 1959 promised further reform, and a detailed White Paper was published in December. In November 1960 a Bill based on that report was introduced in the House of Lords, where it was much scrutinised by solicitors and barristers (particularly at the Committee stage) owing to its complexity. The Bill received its Royal Assent
on 3 August 1961, and passed into law as the Trustee Investments Act 1961.
, National Savings Certificates
and similar "small" investments, which could be bought at a Post Office and did not require the trustee to seek advice before investing. The second set included debenture
s in certain British companies and gilt-edged securities, with the trustee expected to seek written advice from a person he believed was qualified to give it before investing. "Wide range" investments included unit trusts and shares in certain British companies, and shares in building societies.
If trustees wished to invest in "wide range" investments, they were required to have the trust fund valued and divided into two parts – three quarters of the value in one part, and a quarter in the other. The quarter was to be invested in "wide range" investments, while the remainder was restricted to "narrow range" investments. The valuation had to be done by "a person reasonably believed by the trustee to be qualified to make it". This division of funds was permanent, and the quarter and three quarters became distinct units. The permanence of the division was the Act's most controversial section.
called it "overly cautious and restrictive", and suggested that some trusts were under-performing because of the difficulty of complying with the Act's provisions. The Trustee Act 2000
repealed most of the 1961 Act and now serves as the principal piece of guidance on trustee investments.
Acts of Parliament in the United Kingdom
An Act of Parliament in the United Kingdom is a type of legislation called primary legislation. These Acts are passed by the Parliament of the United Kingdom at Westminster, or by the Scottish Parliament at Edinburgh....
of the Parliament of the United Kingdom
Parliament of the United Kingdom
The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body in the United Kingdom, British Crown dependencies and British overseas territories, located in London...
that covers where trustees can invest trust funds. Given the Royal Assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
on 3 August 1961, it removed the "Statutory Lists" system and replaced it with sets of specific investment areas. The Act was heavily criticised for the way it set these areas out, particularly the requirement that trusts trying to invest in multiple areas would need to be permanently divided. A 1997 Law Commission
Law Commission (England and Wales)
In England and Wales the Law Commission is an independent body set up by Parliament by the Law Commissions Act 1965 in 1965 to keep the law of England and Wales under review and to recommend reforms. The organisation is headed by a Chairman and four Law Commissioners...
paper called its terms "overly cautious and restrictive", suggesting that some trusts were under-performing as a result. The passing of the Trustee Act 2000
Trustee Act 2000
The Trustee Act 2000 is an Act of the Parliament of the United Kingdom that regulates the duties of trustees in English trust law. Reform in these areas had been advised as early as 1982, and finally came about through the Trustee Bill 2000, based on the Law Commission's 1999 report "Trustees'...
effectively nullified the 1961 Act's terms in relation to trustee investment, and the 2000 Act is now the principal piece of legislation in this area.
Background
Prior to the 1961 Act, the areas trustees could invest in were based on the Trustee Act 1925, which set up a "Statutory Lists" system. The list contained only those investments available at the Post OfficeRoyal Mail
Royal Mail is the government-owned postal service in the United Kingdom. Royal Mail Holdings plc owns Royal Mail Group Limited, which in turn operates the brands Royal Mail and Parcelforce Worldwide...
, along with land. It did not take into account the deprecation of currency or inflation, meaning that if the trustees invested in stocks and shares they were at risk of losing money simply because of the falling value of the pound sterling. As a result, even though the income from a trust might remain nominally constant, the real value of that income could be much reduced over the lifetime of the trust. This was recognised by lawyers, who had been advising their clients to structure trusts in such a way as to allow their trustees to invest in wider areas than the Statutory Lists. In 1952 the report of the Nathan Committee advocated reform, and the government published a White Paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...
on "Government Policy on Charitable Trusts in England and Wales" in 1955, which proposed a reform of the Statutory Lists system. This came about under the Variation of Trusts Act 1958
Variation of Trusts Act 1958
The Variation of Trusts Act 1958 is an Act of the Parliament of the United Kingdom that governs the courts' ability to vary the terms of trust documents. Prior to the 1950s, the courts were willing to approve "compromise" agreements as to what terms meant, not only when they were disputed but also...
, which allowed trustees to apply to the courts to widen their investment powers, a process that was expensive and slow.
A statement in the House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
on 13 May 1959 promised further reform, and a detailed White Paper was published in December. In November 1960 a Bill based on that report was introduced in the House of Lords, where it was much scrutinised by solicitors and barristers (particularly at the Committee stage) owing to its complexity. The Bill received its Royal Assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
on 3 August 1961, and passed into law as the Trustee Investments Act 1961.
Act
The Act replaced the old Statutory Lists system of investments with two sets of "narrow range" investments and a set of "wide range" investments, both covered in the first Schedule of the Act. The first set of "narrow range" investments included Defence BondsWar bond
War bonds are debt securities issued by a government for the purpose of financing military operations during times of war. War bonds generate capital for the government and make civilians feel involved in their national militaries...
, National Savings Certificates
National Savings and Investments
National Savings and Investments , formerly called the Post Office Savings Bank and National Savings, is a state-owned savings bank in the United Kingdom. It is an executive agency of the Chancellor of the Exchequer...
and similar "small" investments, which could be bought at a Post Office and did not require the trustee to seek advice before investing. The second set included debenture
Debenture
A debenture is a document that either creates a debt or acknowledges it. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note...
s in certain British companies and gilt-edged securities, with the trustee expected to seek written advice from a person he believed was qualified to give it before investing. "Wide range" investments included unit trusts and shares in certain British companies, and shares in building societies.
If trustees wished to invest in "wide range" investments, they were required to have the trust fund valued and divided into two parts – three quarters of the value in one part, and a quarter in the other. The quarter was to be invested in "wide range" investments, while the remainder was restricted to "narrow range" investments. The valuation had to be done by "a person reasonably believed by the trustee to be qualified to make it". This division of funds was permanent, and the quarter and three quarters became distinct units. The permanence of the division was the Act's most controversial section.
Aftermath
The Act was considered a bad one, since it required a "very conservative investment policy for trustees". The powers given to investment trustees were restrictive and narrow, and the trustees were expected to go through expensive and complicated procedures to exercise them. The Act was criticised almost immediately for its complexity and outdatedness. A 1997 paper by the Law CommissionLaw Commission (England and Wales)
In England and Wales the Law Commission is an independent body set up by Parliament by the Law Commissions Act 1965 in 1965 to keep the law of England and Wales under review and to recommend reforms. The organisation is headed by a Chairman and four Law Commissioners...
called it "overly cautious and restrictive", and suggested that some trusts were under-performing because of the difficulty of complying with the Act's provisions. The Trustee Act 2000
Trustee Act 2000
The Trustee Act 2000 is an Act of the Parliament of the United Kingdom that regulates the duties of trustees in English trust law. Reform in these areas had been advised as early as 1982, and finally came about through the Trustee Bill 2000, based on the Law Commission's 1999 report "Trustees'...
repealed most of the 1961 Act and now serves as the principal piece of guidance on trustee investments.