Category: Legal principles

Explain to the trustees the legal principles applicable to the investment of trust funds


Trusts are not confide to the world of wills and family settlements, they have a considerable and increasing relevance in many commercial enterprises such as investment trust funds. However, over the course of time the economic and social nature has evolved so rapidly that the law governing the powers and duties has not been able to keep up. The Scottish Law Commission have stated that the Trusts Act 1964 is out of date, it was examined critically by them and they propose it should be replaced by new statutory provisions which give trustees power to make an investment of any kind if they are entitled to the trust absolutely or beneficially. And that trustees should have the power to acquire land on behalf of a trust.

A trust deed if it involves an investment will have to be adhered to whether it be to invest in a particular area or to avoid certain investments. However, under the Trusts (S) Act 1921 s4 it states that, if the trust deed is silent it gives trustees the power to make “any kind of investment”. This covers heritable property, moveable or incorporeal such as shares. Lord Watson gave his description in the case of Learoyd v Whiteley 1887 he stated that

As a general rule the law requires of a trustee no higher a degree of diligence in the execution of his office than a man of ordinary prudence would exercise in the management of his own private affairs. It is the duty of a trustee to confine himself to the class of investments which are permitted by the trust, and likewise to avoid all investments of that class which are attended with hazard”.

Before the 1921 Act, if there was no power conferred in deed very limited power to invest. The 1921 Act sought to improve situation by conferring certain powers in addition to those in deed provided they did not conflict with deed however, this provision was not really satisfactory. The Trust Act 1961 divides investment of trust into two groups; the narrow range of investments which are fixed securities and wide range such as shares. The act states that if a trustee seeks to invest in a wide range he must firs divide the fund into two parts. This however, was regarded as being a burden and that the “wide range” investments were restricted as it did not include investments to purchase land. A reform was sought by the Scottish Law Commission.

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