The Gazette 1996

GAZETTE

DECEMBER

1996

Trusts: A new era. Issues of Risk for Trustees

by Rachel Curran

2. WHO ARE THE "RISK TAKERS": THE ROLES TO BE PLAYED Once a trust is validly created, the trustee then enters into a series of relationships, and any issues of risk have to be considered in the light of these new relationships. In the majority of trusts with liquid assets, it is likely that the trustees will procure the services of an investment adviser. This relationship should be governed by an agreement, and the nature of each party's responsibilities should be clearly stated therein. The trustee and the investment adviser in the case of personal trusts will agree on an investment strategy for the trust. This can vary, depending on the trust, between a possible requirement for maximum income and minimum capital growth and maximum capital growth with little or no income. The trustee must look to balance all the interests of the beneficiaries. When a trustee accepts an appointment in the case of a collective investment scheme, pension fund, or other such fund where the assets tend to be primarily marketable securities, and the level of trading high, it is likely that formalised arrangements will be put in place to provide for the custody/ safe-keeping and administration of the trust assets. This custody agreement should clearly define the roles and responsibilities of each of the parties involved. INVESTMENT ADVISER CUSTODIAN

The nature of a trust involves one party ("the transferor") taking a risk by legally transferring assets into the ownership of another ("the trustee") to hold those assets for the benefit of a third party ("the beneficiaries"). When a trustee is appointed to a trust fund and accepts the appointment, the risk attaching to the safe keeping of the trust assets then prima facie falls on the trustee. Questions frequently asked by the transferor are: • who is responsible for the trust assets? • how will the funds be invested? • will the beneficiaries of the trust have access to records/trust accounts? These questions collectively represent some of the key risk issues involved for trustees and it is these issues that are addressed in this article. In Ireland, the Trustee Act of 1893 and the Trustee (Authorised Investments) Act, 1958 provide the basis of our trust law. In addition to these two statutes some of the more recent legislation providing for financial investment vehicles contain their own trustee provisions e.g. The Unit Trust Act 1990 and The Limited Partnerships Act 1994. Reference to sources of trust law would not be complete without mention of the Central Bank Series of Regulatory Notices for UCITS and non UCITS. These notices while not "law" in its true sense also provide a body of trustee rules and obligations in relation to the activities which they regulate. 1. TRUST LAW: "RISK" IN CONTEXT

Rachel Curran

The trust concept also features historically in the land Acts and more particularly in the Irish Land Act, 1903 as amended. Land Commission Trusts are created under provisions contained in the 1903 Act. Common Law and the Courts of Equity have also contributed, and continue to contribute to the body of trust law by way of judicial precedent. A trustee operates in a fiduciary capacity and as such owes a special duty of care to the beneficiaries of the Trust Fund. The following maxims, distilled from the various sources of trust law, provide a useful code of conduct for all trustees. • Treat the assets more carefully than your own • Do not part with control, unless expressly instructed (and appropriately indemnified) • If found to be negligent, you must reimburse the trust fund accordingly • A trustee should be clear thinking, fair, impartial, hardworking, patient

and tolerant - only seriously committed people need apply.

The Central Bank in its non-UCITS series of notices has provided that