Professional trustees owe heavy obligations to beneficiaries which generally cannot be delegated to others. However, an important High Court ruling has sanctioned the widespread practice of employing independent financial advisers (IFAs) to assist in the complex business of generating investment returns in the 21st century.
Three solicitors in a country practice were appointed trustees of a will trust created on the death of a wealthy chicken farmer. The trust’s principal asset was about £3.3 million generated by property sales. The trustees appointed a reputable firm of IFAs to perform the day-to-day task of investing the money.
The trust fund suffered heavy losses in the period from 2000 to 2002 after the so-called ‘tech bubble’ burst. The beneficiaries – the farmer’s two children – sued the trustees, claiming that they had breached their duties and delegated their asset management role to the firm without authority. The beneficiaries submitted that the fund had been invested largely in volatile equities, although a low to medium risk profile should have been employed, and valued their claim at over £1.4 million.
The Court ruled that certain breaches of duty had been established against the trustees. In dismissing the beneficiaries’ claim, however, it found that they had failed to prove that those breaches caused them any actual loss. The trustees had acted honestly and reasonably and the Court would in any event have relieved them of any liability for the breaches pursuant to Section 61 of the Trustee Act 1925.
The trustees had exercised supervision and control over the strategy and pattern of the fund’s investment. Given the complexity of modern investment choices, they were not obliged to personally make, or be involved in the making of, each individual decision. Arguments that they had impermissibly delegated their investment duties to the firm were therefore rejected.
Contact Sydney Mitchell on 0808 166 8827 on Contentious Probate matters, or Dean Parnell (d.parnell@sydneymitchell.co.uk) on Professional Negligence matters. 0121 698 2200
On General Probate matters, contact one of the Wills, Trust & Probate Team or Ravi Sandhu r.sandhu@sydneymitchell.co.uk
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