Clause 37: Authorised unit trusts

125.     Clause 37(1) provides that the new statutory powers of investment, acquisition of land and to appoint agents, nominees and custodians in Parts II - IV of the Bill do not apply to trustees of authorised unit trusts. An authorised unit trust is a unit trust scheme declared by order of the Secretary of State to be such for the purposes of the Financial Services Act 1986 (Financial Services Act 1986 s 207(1)). A unit trust scheme is a collective investment scheme under which the property in question is held on trust for the participants (Financial Services Act 1986 s 75(8)). A collective investment scheme is broadly speaking an arrangement with respect to any property which is intended to enable the persons taking part to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income (Financial Services Act 1986 s 75(1)). The Secretary of State will only issue an order declaring a unit trust to be an authorised unit trust if he is satisfied that the scheme and, in particular, the trust deed complies with the requirements of regulations made as to - amongst other matters - the powers and duties of the manager and the trustee of the scheme (Financial Services Act 1986 ss 78 and 81). Authorised unit trusts therefore have no need of the new powers conferred by Parts II - IV of the Bill. An authorisation order under section 78 of the Financial Services Act 1986 Act can be revoked under section 79 of that Act.

Clause 38: Common investment schemes for charities etc

126.     Clause 38 provides that trustees managing common investment and common deposit schemes under the Charities Act 1993 do not have the powers conferred by Parts II-IV of the Bill with the exception of trustees managing pooling schemes made under section 24 of that Act. Common investment and common deposit funds enable different charities to pool resources for investment purposes. The funds may only be established by order of the court or the Charity Commissioners under sections 24 and 25 of the Charities Act 1993 respectively. Such schemes may make specific detailed provision for all matters connected with the fund. The powers conferred by Parts II-IV are therefore unnecessary, with the exception noted above.

Clause 39: Interpretation

127.     Clause 39 sets out several of the definitions used in the Bill.

Clause 40: Minor and consequential amendments etc

128.     Clause 40 gives effect to Schedules 2, 3 and 4 to the Bill. Schedule 2 to the Bill contains consequential amendments to a number of enactments. The need for such amendments arises, in most cases, by virtue of the introduction of the general power of investment in Part II of the Bill and the power to acquire land in Part III. Schedule 3 contains transitional and saving provisions. Schedule 4 lists the repeals to be effected by the Bill.

Clause 41: Power to amend other Acts

129.     Clause 41 empowers a Minister of the Crown to make further amendments of Acts of Parliament in consequence of or in connection with Part II or III of the Bill (powers of investment and acquisition of land respectively). The power is exercisable by statutory instrument subject to the negative resolution procedure. However, where it is proposed to exercise the power in relation to a local, personal or private Act, the making of any such instrument must be preceded by consultation with any person who appears to the Minister to be affected by any proposed amendment. It is likely that this power will be exercised, in particular, in respect of local and private legislation containing provisions which operate by reference to the Trustee Investments Act 1961. The phrase 'Minister of the Crown' means the holder of an office in Her Majesty's Government in the United Kingdom, and includes the Treasury, the Board of Trade and the Defence Council (Ministers of the Crown Act 1975 s 8(1)). The power under clause 41 will come into force when the Bill is passed (clause 42(1)) and may be exercised in relation to Acts which extend beyond England and Wales (clause 41(1)).

Clause 42: Commencement and extent

130.     Clause 42 provides that with the exception of itself and clauses 41 and 43 (which come into force when the Bill is passed) the provisions of the Bill will come into force on such day or days as the Lord Chancellor may by order appoint (clause 42(1) and (2)). Such commencement orders may include transitional provisions and savings (clause 42(3)).

131.     Clause 42(4) limits the extent of the Bill to England and Wales only. This is subject to two qualifications. First, as mentioned, an order may be made under clause 41(1) amending an Act extending beyond England and Wales. Second, the extent of consequential amendments and repeals (other than to the Charities Act 1993 and the Trustee Investments Act 1961) made in Schedules 2 and 4 to the Bill will be determined by the extent of the provision amended or repealed (clause 42(5)).

Schedule 1 - Application of duty of care

132.     The First Schedule specifies the circumstances in which the new general duty of care will apply. They have been noted and discussed against the relevant provisions of the Bill but in brief a trustee acting under a power conferred by the Bill or the trust instrument will be subject to the duty in clause 1 in the following circumstances:

• when exercising a power of investment or of reviewing investments (paragraph 1);

• when acquiring or managing land (paragraph 2);

• when appointing or reviewing the appointment of an agent, nominee or custodian (paragraph 3);

• in the compounding of liabilities (paragraph 4);

• when insuring trust property (paragraph 5) and

• when dealing with reversionary interests, valuations and audits under section 22(1) or (3) of the Trustee Act 1925 (paragraph 6).

133. Paragraph 7 makes clear that the duty of care will not apply where it is clear from a trust instrument that it should not.

Schedule 2 - Minor and consequential amendments

134. The majority of the amendments in Schedule 2 simply extend the application of the new general power of investment under clause 3 to regimes where the powers of investment were as wide as the equivalent powers of trustees were allowed to be under the present law in the absence of express provision in the trust instrument (see for example paragraphs 3, 4 and 8). These notes refer to a few of the more significant.

135. Paragraph 1 - Trustee Investments Act 1961 - the provisions of the Trustee Investments Act 1961 mentioned in paragraph 1(1), which are replaced by the new power of investment in Part II of the Bill, are repealed by the Bill, except in so far as they are applied by or under any other enactment. Consequently, where (notwithstanding the provisions in Parts II and III of Schedule 2) an enactment continues to operate by reference to the Trustee Investments Act 1961, its effect is preserved. For this purpose it will still be possible (under section 12 of the 1961 Act) for additions to be made to the list of investments specified in Schedule 1 to that Act.

136. In brief the provisions mentioned relate to the following matters: paragraph 1(1) - section 1 (new power of investment of trustees); 2 (restrictions on wide range investments); 5 (certain valuations to be conclusive for purposes of division of trust fund); 6 (duty of trustees in choosing investments); 12 (power to confer additional powers of investment); 13 (power to modify provisions as to division of trust fund) and 15 (saving for court powers);

137. Paragraph 1(2) - section 3 (relationship between Act and other powers of investment); Schedules 2 and 3 (supplementary provision);

138. Paragraph 1(3) - section 8 (special cases); 9 (supplementary); Schedule 4 paragraph 1(1) and section 16(1) to the extent mentioned (construction of references to section 1 of the Trustee Act 1925 which was replaced by section 1 of the 1961 Act).

139. Paragraph 2 - Charities Act 1993 - sections 70 and 71 of the 1993 Act were enacted to enable the Secretary of State, by secondary legislation, to expand the investment opportunities of charity trustees. In view of the new wider powers of investment which will be available to charity trustees under Part II these provisions are no longer needed. The amendments of section 86(2) remove references to sections 70 and 71. Sections 70 and 71 are to be repealed by Schedule 4 to the Bill.

140. Paragraphs 7 - 17 make consequential amendments to the Settled Land Act 1925. These fall into a number of broad groups. The amendments in the first group (paragraphs 7 - 9) either grant to trustees of the settlement (in relation to the investment of capital money) the general power of investment in clause 3, or make provision to reflect this widening of investment power.

141. The second group of amendments (in paragraph 10) operate on section 75 of the 1925 Act. They amend the section so as to make the investment (or other application) of capital money under that Act a matter exclusively for the trustees of the settlement (subject to a requirement to consult and act in accordance with the wishes of the tenant for life so far as practicable) or the court. These amendments permit the trustees to delegate their functions in accordance with Part IV of the Bill, but this is again subject to restrictions designed to safeguard the life tenant's right to be consulted in relation to the investment or application of capital money.

142. Paragraph 11 inserts a new section 75A into the Settled Land Act 1925. The new provision is closely based on section 10(2) of the Trustee Act 1925 (which is repealed by the Bill), and permits life tenants or statutory owners (with the consent of the trustees of the settlement), when selling land, to act as mortgagee for up to two thirds of the value of the property being sold.

143. The amendments in the next group (paragraphs 12 - 14) repeal those sections of the Settled Land Act which concern matters which will in future be governed by other provisions in the Bill (such as the remuneration of trustees of the settlement).

144. Paragraph 16 concerns the role of an assignee for value of a life tenant's estate or interest in the investment of capital money, and the final group of amendments (paragraphs 15 and 17) implement a number of changes to the powers both of trustees of the settlement and life tenants, reflecting some of the changes made to the powers of trustees by the Bill.

145. Paragraphs 18, 21, 23 and 24 amend the Trustee Act 1925 by removing provisions which are no longer necessary. Paragraph 19 clarifies that the power of trustees to give receipts extends to investments.

Schedule 3 - Transitional provisions and savings

146. Paragraph 1 provides that a banker or banking company holding bearer securities under section 7(1) of the Trustee Act 1925 (which is to be repealed by the Bill) when Part IV of the Bill comes into force will be deemed to be a custodian of those securities under clause 18.

147. Paragraphs 2 and 3 provide that sections 8 and 9 of the Trustee Act 1925 (which are repealed by the Bill) continue in effect in relation to matters occurring before the relevant repeal takes effect (as to which see clause 42). Paragraph 6 provides that section 23(2) continues to apply to appointments made before the repeal of that section takes effect.

Schedule 4 - Repeals

148. Paragraph 1 lists the sections that are being repealed in the Trustee Investments Act 1961 and the Charities Act 1993.

149. Paragraph 2 lists repeals of section in other Acts.

FINANCIAL EFFECTS OF THE BILL

150. None are expected.

EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER

151. None are expected.

SUMMARY OF THE REGULATORY APPRAISAL

152. A Regulatory Appraisal has been carried out from which it was concluded that the provisions in this Bill will not impose any additional costs on business, charities or voluntary bodies. The main thrust of the Bill is deregulatory. Those points on which it further regulates the behaviour of trustees are, in general, clarification of existing ambiguities.

EUROPEAN CONVENTION ON HUMAN RIGHTS

153. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). Mr David Lock, Parliamentary Secretary at the Lord Chancellor's Department, has made the following statement:

In my view the provisions of the Trustee Bill [H.L.] are compatible with the Convention rights.

COMMENCEMENT

154. Clauses 41, 42 and 43 come into force when the Bill is passed. The remaining clauses will come into force on such day or days as the Lord Chancellor may by Order appoint. The commencement orders may include transitional provisions and savings.

ANNEX A

GLOSSARY OF TERMS

Absolute Owner: a person owning property for his own benefit.

Administration of an estate: the collection of assets, payment of debts, and distribution to the beneficiaries of property in the estate of a deceased person.

Agent: a person appointed by another to act on his behalf, often to negotiate a contract between the principal and a third person.

Bare trustee: is generally a trustee who has no obligation but to hand over the trust property to the person entitled to it at the latter's request. Such a trust is known as a bare trust. The phrase has a more specialised meaning in the Bill (see notes to clause 34(1)).

Beneficial Interest: the rights of a beneficiary in respect of property held under a trust for him.

Beneficiary: a person entitled to benefit from a trust.

Capital money: money arising from certain transactions relating to settled land or land held on trust for sale. It may arise from sale, the granting of certain leases and similar transactions, borrowing on the security of a mortgage, and other circumstances in which the money should be treated as capital of the settlement, e.g. the proceeds of a fire insurance claim relating to the land. Generally capital money must be received by the trustees of the settlement, not the beneficiary. When the money is raised or paid for a specific purpose (e.g. for improvements authorised by the Settled Land Act 1925) it must be applied for that purpose. Otherwise, it is invested and held by the trustees on the same trusts as the land itself was held.

Charitable Trusts:. see Trusts.

Charity Commission: a body, now governed by the Charities Act 1993, generally responsible for the administration of charities. The Commissioners are responsible for promoting the effective use of charitable resources, for encouraging the development of better methods of administration, for giving charity trustees information and advice on matters affecting charity, and for investigating and checking abuses. The commissioners maintain a register of charities and decide whether or not a body should be registered; an appeal from their decision may be made to the High Court. Their Annual Reports (published by the Stationary Office) indicate how the Commissioners operate and how they are allowing the law of charity to develop.

CREST: a computer based system for the electronic transfer of and settlement of trades in securities replacing the former paper based system of shareholding and transfer with an electronic book entry system. The system operates under the Uncertificated Securities Regulations 1995.

Custodian: is defined as a person who undertakes the safe custody of some or all of the assets of the trust or of any documents or records concerning the assets (see clause 17(2) of the Bill).

Default power: a power available to trustees in default of or subject to other provision in a trust instrument or regulation. The powers conferred by the Trustee Act 1925 and the Trustee Investments Act 1961 are in general default powers.

Dispositive duty: see dispositive powers under powers below.

Execution: describes the way in which a person signs or seals (in the case of a corporation) a document and gives it legal effect.

Fiduciary relationships: the relationship of trustee and beneficiary is but one of a number of relationships generally described as fiduciary. It is a mark of such relationships that one person receives an authority or is entrusted with a job which he is bound to exercise or perform in the best interests of another.

General Powers of Investment: see notes to clause 3 of the Bill.

Instrument: a formal legal document. A trust instrument is the document setting out the terms of the trust.

Interests in land: rights of ownership of or over land are interests in land. Interests may be estates, interests or charges (although an estate is simply a special kind of interest). These may be legal or equitable. See also equitable interests and legal interests.

Land: land is defined in the Trustee Act 1925 as land of any tenure, and mines and minerals, whether or not severed from the surface, buildings or parts of buildings, whether the division is horizontal, vertical or made in any other way, and corporeal hereditaments [rights in property which may be inherited]; also a manor, an advowson [a right to present a clergyman to a benefice], and a rent and other incorporeal hereditaments, and an easement [a right over land for the benefit of other land, such as a right of way], right, privilege, or benefit in, over, or derived from land, (Trustee Act 1925 s 68(6) as amended by the Trusts of Land and Appointment of Trustees Act 1996 s 25(2) and Schedule 4).

Legal interests in land: today, the only legal estates in land in England and Wales are those for either a fee simple absolute in possession or a term of years absolute: in broad layman's terms a freehold or a leasehold. See Law of Property Act 1925 ss 1(1) and 205(1)(x). The other types of legal interest and charge are relatively few (Law of Property Act 1925 s 1(2)). All other interests are equitable interests (Law of Property Act 1925 s 1(3)). In relation to a trust of land, the trustees hold the legal estate. Third parties will usually want to acquire the legal interest free of the rights of the beneficiaries under the trust.

Measure: a measure is a piece of legislation passed by the General Synod of the Church of England to which the Royal Assent has been given. It has the force of an Act of Parliament.

Nominee: in the context of a nominee for trustees, a nominee is a person nominated to hold trust property in his own name on behalf of the trustees. This device is commonly used to facilitate dealings with the trust assets.

Personal property (personalty): all property that does not comprise land or incorporeal hereditaments.

Personal representative: a person entitled to deal with a deceased person's estate in accordance with his will or under the rules relating to intestacy.

Power: in this context, a power is an authority to act in relation to another's property. A power may be administrative or dispositive. An administrative power is a power, the exercise of which does not affect the beneficial interests arising under a trust, such as a power to sell or lease property. In the present context, a dispositive power is a power, the exercise of which does affect the beneficial interests arising under a trust, for instance, a power of advancement and a power of appointment. A trustees' power of investment is a power to invest trust property. A power of advancement is a power given to trustees (whether by statute or by express provision in the trust instrument) to apply some of the capital from the trust property for the benefit of a beneficiary under the trust. For instance, in the case of a gift of capital to A on reaching the age of 30, part of that capital might be used, for insurance, to buy him a house at an earlier time. A power of appointment is a power "given under some settlement or trust authorising the donee to make an appointment of some or all the trust property."

Power of Attorney: a power of attorney is both the authority given by one person ('the donor') to another person ('the donee' or 'attorney') to act for the donor in a transaction or a series of transactions or in the management of his affairs and the document by which that authority is given. Under the law of England and Wales a power of attorney made by an individual must be executed as a deed (Powers of Attorney Act 1971 s 1(1)).

Professional charging clause: a provision in a trust instrument authorising the remuneration of a trustee for his care and trouble often permitting a trustee who is a solicitor, a literary executor or other professional person to charge for professional services (and in some cases business services generally).

Private trust: see Trusts.

Public trust: see Trusts.

Settled land: land held or deemed to be held on trust (usually referred to as a settlement) subject to the terms of the Settled Land Act 1925. Trusts of this kind may now only be created in exceptional circumstances (see Trusts of Land and Appointment of Trustees Act 1996 s 2 and Schedule 1). Such trusts were used in relation to land in which two or more beneficial interests were to exist in succession to one another. See Settled Land Act 1925 s 117(1)(xxiv).

Standard investment criteria: see notes on clause 4 of the Bill.

Statutory owner: a person having the powers of an immediate beneficiary of settled land, where the beneficiary himself is under 18 or there is no immediate beneficiary (for example, in a discretionary settlement in which no beneficiary has been appointed). The statutory owner is either the person of full age on whom the powers are conferred by the settlement; the trustees of the settlement; or, in a settlement made by will on a beneficiary under 18, the testator's personal representatives until the property is vested in the tenant for life.

Tenant for life (life tenant): a person owning land for an equitable interest that subsists for the whole of his life but terminates on his death. The Settled Land Act 1925 lays down the statutory powers of a tenant for life.

Testamentary Trusts: trusts established under a will.

Trustee de son tort: a person unconnected with a trust who takes upon himself to act as a trustee. He is thereafter liable, as if he had been appointed a trustee.

Trustee function of the donor: a trustee function of the donor is one the donor has as a sole trustee or one he or she exercises jointly with fellow trustees.

Trust and trustee: a trustee is a person who has property or rights (trust property or assets) which he holds or is bound to exercise for or on behalf of another or others, or for the accomplishment of some particular purpose or purposes. He or she is said to hold the property on trust for that other or others, or for that purpose or purposes.

Trust corporation: a trust corporation is one of certain companies with a large paid up capital, or one of certain officials. The most commonly encountered trust corporation is perhaps an executor and trustee company owned by one of the major banks or financial institutions. The term is defined in the Trustee Act 1925 (s 68(1) paragraph (18) which definition was extended by Law of Property (Amendment) Act 1926 s 3).

Trust Fund: see clause 39(1) of the Bill.

Trust instrument: the document setting out the terms of the trust.

Trust of land: a trust of land is any trust of property which consists of or includes land subject to exceptions for settled land and land to which the University and College Estates Act 1925 applies (Trusts of Land and Appointment of Trustees Act 1996 s 1).

Trust property or assets: see trust and trustee.

Trustee: see trust and trustee.

Trustee function: means the trusts, powers and discretions vested in the donor as trustee (Trustee Act 1925 s 25(1); Trusts of Land and Appointment of Trustees Act 1996 s 9(1).

Trusts: may be private or public (charitable). A private trust is a trust for the benefit of an individual or class, irrespective of any benefit which may be conferred on the public at large. A public trust is a trust whose object is to promote the public welfare, even if it incidentally confers a benefit on an individual or class. Charitable trusts are public trusts solely and exclusively for purposes that the law regards as charitable. In this sense, a purpose is charitable only if it is for the furtherance of religion, for the advancement of education, for the relief of poverty, or for other purposes beneficial to the community. Charitable trust is defined in clause 39(1) of the Bill.

Ultra vires: an act is ultra vires if it is in excess of the powers of the person doing the act.

Will: a document by which a person (called the testator) appoints executors to administer his estate after his death, and directs the manner in which it is to be distributed to the beneficiaries he specifies.