City lawyers will find increasing demand for advice from stockbrokers and fund managers as a result of a series of sweeping reforms proposed in trust law, according to top lawyers.
The lawyers welcome new governmental backing for extensive modernising of what they say is an archaic area of statute law.
Support for change, which comes from both the Lord Chancellor and the Treasury, will initially result in greater freedom for trustees in their choice of investments.
In the short term, amendments of the Trustee Investments Act 1961, announced by Economic Secretary to the Treasury Angela Knight MP last week, will allow trustees to invest more of their funds in stocks and shares.
But in the longer term the Government has decided, in the light of widespread lobbying, that a fundamental deregulatory reform of the Trustees Investment Act is now called for.
It will issue a consultation paper on options for further deregulatory reforms by 1 May 1996. This will be based on work by the Law Commissions in England and Wales and Scotland which is being carried out jointly with the lawyer-driven Trust Law Committee.
The Law Commission said this is “the first time it has agreed to act jointly with any of the legal professional bodies or academic institutions”.
The committee itself is a leading proponent of change. Committee chair Sir John Vinelott, a former Chancery Division judge, said: “These are very positive steps for the Government to take. Many areas of trust law have needed updating for some time.”
Sir William Goodhart QC of 3 New Square, who is a leading committee member, said: “As far as the City is concerned, this will obviously give greater freedom for trustees to invest in equities. Solicitors will have to review the trusts they handle to see whether their investment powers should change.”
He added that most lawyers, where possible, now drafted deeds of settlement with wider powers than those laid down in the 1961 Act – especially with commercial trusts.
The committee's work has focused on what it sees as the most urgent matters – providing clear statutory powers for trustees collectively to delegate their functions and to use nominees, and the removal of restrictions on the types of property which trustees can acquire as an investment.
Knight said changes made earlier this year, which allow charities to boost the proportion of assets put into equities from 50 to 75 per cent, will now be extended to other forms of trust. The balance of funds will be held in Government or other public sector bonds.
“Beneficiaries of trusts will get a better deal due to the changes,” Knight told Parliament. “Trustees will be freed from unnecessary and outdated legislation which placed some of them in a strait-jacket when deciding how to invest the funds that they manage.”
Initially, the Treasury will make an order under s.13 of the 1961 Act to change the split of 'wider' and 'narrower' investments from 50:50 to 75:25 as the maximum allowable under the law, said Knight.
She added: “Fundamental deregulatory reform of the 1961 Act is now called for.”
Professor David Hayton of King's College, London said the committee's working party, which he chairs, is developing a consultation paper with the Law Commission on collective delegation of trustee's functions. “Its object is a broad reform of this area of law, especially where trustees' investment powers are concerned,” he explained.
The Law Commission also said trustees' ability to delegate functions, both “limited and unclear under present law”, will be considered for reform.
“For example, trustees – who may lack investment experience – are unable to appoint a discretionary fund manager to manage the trust fund on their behalf,” it said.
“Trustees may also be unable to make proper use of the new Crest system when dealing in shares. There is a clear need to review the extent to which trustees should be able to delegate these and other functions.”
Lawyers will find this second area for change even more significant, said Sir William Goodhart. He added: “This will be of importance for stockbrokers, fund managers, and private clients, who will need to be advised by their lawyers.”