Trust funds change?

Press, 24 June 1986, Page 22

Trust funds change?

Deregulation of financial markets may change the way trust funds are administered, according to a new Justice Department report. The report suggests that the current selected list of appropriate places trustees can lodge funds should be replaced by a general guide called "the prudent man approach,” or, as it will eventually be called, the prudent person. The recommended change has been prompted by deregulation of financial markets, which means that the security of investing in certain institutions is no longer set in concrete. As well, the idea that certain institutions should be recommended in

favour of others contradicts the Government’s view that all institutions should receive equal opportunity. The current approach was based on the British tradition originating from the infamous South Sea Bubble collapse in the early eighteenth century. The prudent man approach is used in a number of states in the United States.

This approach gives a trustee complete discretion as to the choice of investments, but he or she must exercise care and discretion in making investments.

The working party which produced the report recommended that any proposed legislation should include guidelines to assist trustees.

Guidance on the need to maintain the value of the capital or the income of the trust should be provided, they said.

The committee also recommended the abolition of the "anti-netting” rule. This prevents a trustee who is liable for breach of trust in investing trust funds, from offsetting any profits made from an unauthorised investment against the loss from another unauthorised investment.

The Minister of Justice, Mr Geoffrey Palmer, said the recommendations of the working party were being considered with a view to implementing them in legislation.