W8 | Trustee Duties and Investment Considerations

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Questions and Answers

What is the primary responsibility of trustees concerning the interests of beneficiaries?

To ensure the financial interests of members are upheld as beneficiaries (correct)

To prioritize their personal interests above beneficiaries

To maximize speculative investments for higher returns

To invest exclusively in environmentally friendly companies

Which ethical stance did the National Union of Mineworkers (NUM) take regarding investments during apartheid?

Encouragement of investments in speculative ventures for higher returns

Rejection of investments linked to apartheid and harmful practices (correct)

Advocacy for diversified investments in all fossil fuels

Support for all mining investments to enhance job security

In the context of the Miner Workers Pension scheme, what alternate energy sources were considered relevant to their investment decisions?

Coal and natural gas

Hydropower and wind energy

Coal and oil (correct)

Nuclear energy and solar power

According to s14B(2)(b), what type of investments are trustees required to avoid?

Speculative or hazardous investments Signup and view all the answers

What is one argument that the court found unconvincing regarding the Miner Workers Pension scheme's investments?

Investing in fossil fuels directly harms employment prospects for miners Signup and view all the answers

What does the duty to act impartially between beneficiaries imply?

Trustees must consider the different financial needs of various classes of beneficiaries Signup and view all the answers

Which of the following least represents a consideration in modern portfolio theory?

Focusing on high-risk investments exclusively Signup and view all the answers

Which investment was identified as being too hazardous and not acceptable in a diversified portfolio?

Cryptocurrency Signup and view all the answers

What is the primary role of a trustee in relation to trust property?

To manage the trust property for the benefit of the beneficiaries. Signup and view all the answers

What must trustees do with trust funds within a specified timeframe according to modern standards?

Invest within six months and actively manage investments. Signup and view all the answers

Which type of investment strategy is now emphasized in trust management to mitigate risks?

Diversification through indexed funds. Signup and view all the answers

In the absence of explicit powers in the trust deed, what was the traditional limitation placed on trustees regarding investment?

Investing only in conservative assets like government bonds. Signup and view all the answers

What does the Trustee Act 1925 (NSW) emphasize regarding a trustee's investment powers?

The trust deed takes precedence over legislative powers in case of inconsistencies. Signup and view all the answers

What is the required standard of conduct for professional trustees under the Trustee Act?

Professional trustees must adhere to a higher standard than non-professional trustees. Signup and view all the answers

Which of the following is a modern consideration for ethical investment in trusts?

Considering the social and environmental impact of investments. Signup and view all the answers

What is a primary focus of modern portfolio theory in investment management for trusts?

Diversifying investments to reduce overall risk. Signup and view all the answers

What is the consequence of trustees failing to consider the needs of capital beneficiaries?

This constitutes a breach of duty. Signup and view all the answers

What might a trustee consider when making investment decisions?

Specific exclusions set forth in the trust instrument. Signup and view all the answers

Which of the following statements about diversification in trusts is accurate?

Diversification is generally necessary, but there are exceptions. Signup and view all the answers

Under what circumstance can a court consider an investment strategy when reviewing breaches of duty in relation to trustees?

When assessing the outcome of investment decisions. Signup and view all the answers

What is the significance of s90A in the context of breach of trust related to investments?

It permits the court to set off losses from one investment against gains from others. Signup and view all the answers

What should trustees primarily keep in mind regarding ethical investment considerations?

Investments should align with the beneficiaries' ethical beliefs. Signup and view all the answers

Which legal principle allows a trustee to avoid liability for certain breaches of trust?

Exculpatory provisions under trust law. Signup and view all the answers

What is a central focus of modern portfolio theory as it relates to trust investments?

Balancing risk and return through diversification. Signup and view all the answers

Study Notes

Trustee Duties

The best interests of beneficiaries include their financial interests as beneficiaries.
Modern ethical investments consider environmental and social issues.
There is a duty to invest trust funds in non-speculative or hazardous investments based on s14B(2)(b) of Trustee Act 1925 (NSW).
Modern portfolio theory allows for speculative and hazardous investments as a part of a diversified portfolio.
Certain investments may be so hazardous that they are not allowed, such as cryptocurrency and lottery tickets.
There is a duty to act impartially between beneficiaries.
Some investments may favor income beneficiaries over capital beneficiaries or vice versa.
Trustees have a duty to take advice on investment when necessary, depending on the trust and the trustee's expertise.

### Matters to be Considered when Investing

Trustees must consider various matters when investing, specifically outlined in s14C of the Trustee Act 1925 (NSW).
These matters can be expressly excluded by the trust instrument, but if not, the trustee must comply with them.
Factors to consider include the needs and circumstances of beneficiaries, the need for diversification, and any specific investment strategies outlined in the trust deed.

Exculpatory Provisions

General principles of equity may excuse a trustee from breaches of trust.
Specific provisions in relation to investment are also available.
Section 90 of the Trustee Act 1925 (NSW) allows the court to consider investment strategy when determining if a trustee is in breach of a duty in relation to investment.
Section 90A allows the court to set off losses from investments against gains from other investments. This is broader than the pre-legislative position, which allowed set-offs only within the same transaction or class of investment.

Trustee's Power of Investment

Trustees are essentially managers of trust property.
Since the 19th century, trustees have had a duty to invest trust funds rather than simply keeping them safe.
Trustees have the power to invest trust funds within 6 months or less and actively manage investments.
The trust deed typically gives powers of investment; however, historically, trustees could only invest in conservative assets like government bonds.
Modern portfolio theory emphasizes diversification to mitigate risk, by investing in indexed funds that cover a wide range of shares.
This theory has been adopted by trustee legislation, including in NSW.
When considering investments, the trustee should consider the trust deed and if it provides specific instructions for investment. The instructions in the trust deed will override any conflicting legislation.
Trustees have a duty to act in the best interest of beneficiaries, and to act prudently in financial decisions.
The legislation requires trustees to act unanimously if there is disagreement between professional and non-professional trustees. If there is disagreement then a professional standard of conduct should apply, as per the legislation.

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Description

Explore the essential duties of trustees concerning their investment decisions, including the balance of beneficiaries' interests and modern ethical considerations. This quiz examines the legal framework established by the Trustee Act 1925 (NSW) and highlights key investment matters that trustees must consider.