A fundamental part of a trustee’s role is managing the trust investments for the benefit of the beneficiaries. The beneficiaries are enabled by law to call the trustees to account for their actions and how they have invested the trust fund. It is therefore important that trustees understand their powers and duties in relation to trust investments, and this note is intended to provide an introduction to this area.


The Trustee Act 2000 contains provisions regarding trustees’ powers of investment, giving them fairly wide powers:  these statutory powers are commonly extended (or in rare cases restricted) by what is set out in the trust document and it is important that trustees understand the powers and duties that apply to each particular case.  In this note, we have assumed that the trustees have a wide power of investment.


When considering their duties of investment, the following considerations might be taken into account (though this is not an exhaustive list):

  • The overriding duty of care (Trustee Act 2000 s.1), which will apply to most  trusts and which requires a trustee to exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience that he has or holds himself out as having (or in the case of a professional trustee, can reasonably be expected to have).

  • The ‘Standard Investment Criteria’ (Trustee Act 2000 s.4(3)) which requires trustees to take into account:

  • The suitability of a given investment;  this has been interpreted in decided cases as saying that regard should be had to the portfolio as a whole and the risk level of this, rather than the risk attached to each investment in isolation e.g. this may require the trustees of a smaller trust fund with an older beneficiary reliant on the trust income to take a more cautious approach.

  • The need for diversification, so far as appropriate to the circumstances of the trust i.e. to reduce risk by spreading it across different investments.  However, sometimes there may be a particular reason not to diversify e.g. the trust owns shares in the family business or has a family home in it.

  • The beneficiaries of the trust and how to balance their respective needs; for example if a trust has one beneficiary entitled to the income now and another beneficiary who will become entitled to the capital later, then the trustees should take both their interests into account when considering the balance between income receipts and capital growth.  The trust documents may allow the trustee to lean towards capital growth or income  (but trustees must be careful of following any letter of wishes that the settlor may have written:  such letters are not legally-binding and cannot override the legal duties of the trustees).

  • The type of trust and any dates that may govern or restrict distributions; for example, there may be a limited period during which income can be accumulated or the trustees might be required to distribute capital when beneficiaries reach a certain age.

  • The taxes applying to the trust and the impact of these on investment and distribution strategies.

  • The prevailing economic conditions.

  • The other resources of the beneficiaries.

Having weighed the relevant considerations, trustees should produce a written Investment Strategy for the trust.   They should then review this from time to time.


Trustees can appoint an investment manager, and indeed this will often be advisable, but the trustees should:

  • Consider carefully their choice of manager and the terms and conditions of the agreement appointing them.  It is common for trustees to interview several investment managers to see who has the best fit:  also, the manager must be duly qualified.

  • Provide a written Policy Statement for the investment manager which should include (among other things) the provisions of the trust; the needs of the beneficiaries and the required balance between income and capital; levels of risk; benchmarks for performance.

  • Review the investment manager’s performance regularly, and continue to take an active interest in the trust investments.

Lastly, whilst trustees will doubtless be aware that investment values can rise and fall, beneficiaries sometimes forget this: clear and accurate written records will assist the trustees in defending themselves against criticism. As in other aspects of trust management, it is important that trustees not only act correctly but can demonstrate they are doing so.

If you require further information on anything covered in this briefing, please contact our Private Client Solicitor, Tessa Manisty or any other member of our private client team on 020 7925 2244.