Introduction

As we saw in chapter 13 express trusts are created to manage assets. Asset management means active asset management. Thus, the trustee is under a duty to invest trust funds rather than to simply hold them safe. Resulting or constructive trustees are usually not under a duty to invest funds as their responsibility is to transfer the property to the person entitled to it. However, they can come under a duty to invest if the period of time for which the asset is held allows investment. It has been held that a trust fund should be invested within six months although there are occasions when funds should be invested more promptly. Failure to actively manage the trust is a breach of trust and can result in personal liability for the trustee. If a trustee under a resulting or constructive trust invests the funds, the trustee is under the same investment duties as a trustee of an express trust.

Sources of trustees’ investment powers

Trustees’ investment powers derive from the trust instrument, statute or court order. Early trusteeship legislation gave trustees limited investment powers. Unless the trust instrument contained extended investment powers the trustee could only invest in securities authorised by statute or obtain an order of the court allowing another form of investment. By the middle of the 20th century this scheme exhibited a number of disadvantages. One major flaw concerned the statutory list of authorised investments in which a trustee was permitted to invest. This required investment in highly conservative assets such as government bonds. Most Australian jurisdictions did not even permit investment in land. Further, the prudence of each independent investment was considered separately. This was called ‘line by line’ analysis. As no individual investment could be at all speculative the conservative nature of authorised list investments was magnified.