The Trustee Bill 2001 has been given royal assent in the Isle of Man. The passing of this law should...
The Trustee Bill 2001 has been given royal assent in the Isle of Man. The passing of this law should create excellent opportunities for financial advisers.
The Trustee Bill is domestic legislation designed to bring the Isle of Man up to date with UK legislation which changed earlier this year. Most of the provisions in the Manx Act mirror those in the UK legislation. One major difference is that the Isle of Man Act amends the statutory perpetuity period for Manx trusts to 150 years, from the original 80 years. The perpetuity period is the maximum amount of time a trust can stay in force before it must be wound up and the assets distributed to beneficiaries. This extension will allow trusts created under Isle of Man law to be on a level playing field with other offshore jurisdictions with a similar perpetuity period.
A major change for existing trusts is that the statutory powers of investment contained in the UK Trustee Investments Act 1961 are repealed. It may seem strange that a UK act had force in the Isle of Man, but when UK legislation is passed it can extend to cover the Isle of Man provided the Manx Government agrees. The Trustee Investments Act 1961 was one of those acts.
For those unfamiliar with this act, it restricted the types of investment that trustees could hold if the trust deed did not contain a wide power of investment. In such trusts there was a requirement to split the fund into 'narrower range investments', and 'wider range investments.' The former were further split into those not requiring financial advice (National Savings Certificates), and those requiring advice (building society accounts, gilts). Wider range investments included listed stock in EU companies and authorised unit trusts and Oeics.
You will note that life assurance, including unit-linked investment bonds and offshore funds, are not included. Now, however, trustees of trusts that were restricted by the Trustee Investments Act can adopt a wider and more varied investment strategy.
However, with this new-found freedom come more onerous responsibilities, and it is in this area that financial advisers stand to benefit. The main responsibility is that there is now a statutory duty of care within the act. Where a trustee holds himself to be a professional trustee, then he must always 'exercise such care and skill......as is reasonable to expect of a person acting in the course of that kind of business or profession'. You can be assured that the definition of 'reasonable' will be set very high for companies or individuals who act as trustees in return for remuneration.
In relation to the selection of investments, trustees have a duty to pay attention to the 'Standard Investment Criteria.' The criteria trustees must pay regard to is the suitability of particular investments to the trust and the need to diversify investments as appropriate to circumstances of the trust. Furthermore, the trustees have a duty to regularly review the investments.
In addition, when considering how to use their wide power of investment, or whether to vary the trust investments, the trustees have new statutory duty to obtain and consider proper advice. The trustees can opt out of this duty if they consider it unnecessary or inappropriate to seek advice. Due to the risks such action brings, I suspect not many trustees will take up this option.
In a nutshell, the new act means trustees have a high duty of care when selecting investments. They are required to seek proper advice before taking action. If they hold themselves up to be professional trustees, the standard of care will be extremely high.
It is worth noting there are over 50 companies in the Isle of Man advertising themselves as professional trustees, who between them manage many millions. This is a potentially massive market.
Finally, the act defines 'proper advice' as the advice of someone who is 'reasonably believed by the trustee to be qualified to give it.' Who better to do this than financial advisers who are licensed to give financial advice in the Isle of Man?
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