Trustee Act 1925

The Trustee Act 1925 is an act, which is part of the land reform legislation in the 1920s. It consolidated and codified the law on trustees’ powers and appointment.

1. Why was it introduced? (Political/Sociological Context)

The introduction of the Trustee Act 1925 was a response to the decline of gratuitous trusteeship. The typical trustee in the eighteenth century was a country landowner who managed his estate with frugality and was high in the estimation of the country. By the end of the nineteenth century this changed. The trustee became a professional person or a member of a well-established firm. He sat on a few board of directors with the intention of exercising oversight over the company’s affairs. The trustee was generous in his private affairs but was very careful with the expenditure of public money. This was the model of disinterested trusteeship.

Due to a number of factors, including economic and social change, trustee competence and human frailty, this model was gradually undermined. Loss of trust funds through fraud and misappropriation of large sums of money by private trustees became a cause of concern because those who suffered as a result were the poor and the disadvantaged. At the time, there was a demand for security of funds and hence, a market for the services of trustees emerged. This was however coupled with shortage of supply as the imposition of legal standards on trustees discouraged private individuals from becoming trustees.

After the adoption of the Public Trustee Act 1906, banks and insurance companies began to take on work as trustees. At first, they were not a threat for the public trustees, but from 1920 onwards, there was a severe competition between the public and the corporate trustees.

2. What was the aim of the Act? (Legal Context)

The main purpose of the Trustee Act 1925 was to regulate the trust relationship in a way that protects the beneficiaries by defining the rights and obligations of trustees. This was to be done by consolidating the case law on the rights and duties of trustees into one single piece of legislation, so that the possibilities for fraud and misconduct of trustees were eliminated by means of a statute

3. What main changes did it make to the law?

Part I of the Trustee Act 1925 introduced a number of powers on trustees which supplement their powers of investment under the Trustee Investment Act 1961 and protect them from liability in certain circumstances, such as the requirement in s. 7 for investments in the form of bearer securities to be placed with a bank for safekeeping.

Under the case law, preceding the Trustee Act 1925, the trustees were required to exercise in the supervision of their agents the ordinary prudence that one uses for their own affairs. The issue of appointment of agents of trustees became regulated by statute under the Trustee Act 1925. Under s. 23(1) trustees were not liable for the loss which results from the appointment of their agents, provided that they acted in good faith. S. 23(3) gave trustees a specific right to employ a solicitor or a banker for certain purposes. However, they were still liable if trust assets remain in the hands of such agents longer than necessary.

By virtue of s. 30(1) trustees will seldom be liable for loss caused by an agent unless they were guilty of wilful default (conscious breach of duty or a reckless performance of a duty). Certain cases are not covered by this section, in which case a higher standard of conduct is required of the trustees.

Many sections of the Trustee Act 1925 were repealed by the Trustee Act 2000. However, two significant section that remain in force today are ss. 31 and 32. These apply as default provisions and are essential because they cover statutory trusts which arise where there is no express trust deed to cover the management of income and capital. S. 31 relates to the income of the trust fund and, inter alia, it enables the trustees to make payments from the income for the maintenance, education or benefit of infant beneficiaries. When considering whether to use part of the income of the trust for such purposes, the trustees must consider the age of the infant, their requirements and what alternative income they have for the same purposes. S. 32 confers on the trustees the power of advancement – they can pay or apply any capital money subject to a trust for the advancement or benefit of any person entitled to the capital of the trust property on attaining a specific age, death under specified age or occurrence of any other specified event.