Tuesday 9th December 2008:The Law Reform Commission’s Report on Trust Law: General Proposals will be formally launched by the Hon Mrs Justice Mary Finlay-Geoghegan, judge of the High Court, at the Commission’s offices at 6pm this evening.
Background to the Report
This Report completes a major part of the Law Reform Commission’s review of the law of trusts. A trust is usually created when a person transfers assets to another person or persons - called the trustee(s) – to be held for the beneficiaries of the trust. A typical example of a trust is one created to transfer assets (such as houses, shares or other valuables) to be held by the trustees on trust for the person’s children (whether under age or a vulnerable adult). Another example is a trust created for charitable purposes. The Commission’s review of trust law is intended to lead to a modern legislative code concerning the duties, responsibilities and powers of trustees, in particular how they deal with and protect the trust assets. The result would be to replace the Trustee Act 1893, the main legislation concerning the duties and powers or trustees, with a modern legislative code. The Report makes 99 recommendations for reform and also contains a draft Trustee Bill 2008 (running to 44 sections) to implement these recommendations. In 2006, the Commission also published a Report on Charitable Trusts, and a number of recommendations in that Report have been incorporated into the Charities Bill 2007, currently being debated in the Oireachtas. The Report published today contains proposals that will apply to all trustees and will complement the provisions in the Charities Bill 2007.
Among the main recommendations in the Report are:
1. A general statutory duty of trustees to act in good faith and a duty of care.
The Commission recommends that the new legislative code for trustees should contain a clear statement that the office of trustee is a fiduciary position (like a company director), who must carry out his or her duties honestly and in good faith for the benefit of the beneficiaries, and that this duty cannot be avoided or limited. This duty is based on the current understanding of the office of trustee, but the Commission’s recommendation would reinforce this. The Commission also recommends that there should be a general statutory duty of care, involving a requirement to act with objective ‘reasonable care and skill’, but which also takes into account any special knowledge or experience the trustee may have. This duty would also clarify the scope of the existing duty of care of trustees, both for trustees with no specific qualifications and those who have specific expertise. This is especially relevant to professional trustee corporations (corporate trustees), who are paid for their services, and whose expertise should be reflected in a different standard compared to individual trustees who are often acting for no pay at all.
2. Powers to borrow, to buy and sell - and to invest (including ethical investments)
The Report also recommends that trustees should be given clearly stated powers to borrow, and to buy and sell property, provided they comply with their duty to act in good faith. As to investments, the Commission recommends that the current arrangements in the law, under which trustees can invest in “authorised securities” specified by the Minister for Finance, should be retained and updated. There would be a clear statement (based on the existing law) that trustees must: (a) take into account the nature of the liabilities of the trust in deciding on investments, (b) have an appropriate diversity of investments; (c) ensure an appropriate liquidity of investments; and (d) review investments every year. The Commission recommends that the issue of whether trustees must follow an ethical or socially responsible investment policy should remain a matter for the terms of individual trusts and should not be specified in legislation.
3. Delegation of functions
The ability of trustees’ to delegate certain administrative functions can be essential to the. The Commission recommends that trustees’ powers of delegation be expanded, in order to allow trustees to delegate a wider range of functions than is currently permitted, to ensure that trust is carried out efficiently. Again, this is also subject to the general statutory fiduciary duty and the duty of care.
The Law Reform Commission is an independent statutory body whose main role is to keep the law under review and to make proposals for reform. To date, the Commission has published over 140 documents containing reform proposals, available at www.lawreform.ie. Most of these proposals have led on to reforming legislation. The Report, which contains the Commission’s final recommendations and a draft Trustee Bill 2008, will be available on the Commission’s website on the afternoon of the launch, 9th December 2008.