Trustee Investment Policy Statement: Legal Duties, Best Practice, and Practical Guidance

Trustees are among the most highly regulated investors in English law. The Trustee Act 2000 imposes a statutory duty of care on all trustees in exercising their investment powers — a standard equivalent to that of a reasonably prudent investor having regard to any special knowledge or experience. For trustees who hold themselves out as professional fiduciaries (solicitors, accountants, trust companies), the standard is elevated accordingly.

Despite this, many trust investment decisions are made informally — without a documented framework, without clear objectives, and without a systematic process for reviewing whether the investment approach remains appropriate. This creates risk for trustees, uncertainty for beneficiaries, and suboptimal investment outcomes. An Investment Policy Statement (IPS) is the practical tool for addressing all three problems.

The legal foundation: Trustee Act 2000

The Trustee Act 2000 (TA 2000) significantly updated trustee investment powers and duties. The key provisions relevant to investment are:

Section 3: General power of investment. Unless the trust deed restricts it, trustees have a general power to make any investment as if they were absolutely entitled to the trust fund. This replaced the more restrictive "trustee investment" categories under the previous 1961 Act.

Section 4: Standard investment criteria. Trustees exercising any investment power must have regard to the "standard investment criteria," which are: (a) the suitability to the trust of the investments; and (b) the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust.

Section 5: Advice. Before exercising any investment power, trustees must obtain and consider proper advice — from a person reasonably believed to be qualified to give it — about whether exercising the power in the way proposed is consistent with the standard investment criteria. This duty to take advice is waived only where the trustees reasonably conclude it is unnecessary or inappropriate.

Sections 11–23: Delegation. Trustees may delegate investment management functions to an asset manager under a written agreement (the "policy statement" requirement under s.15). Where such delegation occurs, the trustee must prepare a statement of policy, review the arrangement periodically, and take steps to ensure the manager complies with the policy.

The IPS is the document through which all of these obligations are formally captured and documented.

Contents of a trust Investment Policy Statement

A well-drafted IPS will address the following:

Purpose of the trust and investment objectives. What is the trust designed to do? A trust established primarily to provide income for a surviving spouse has different investment objectives from a trust accumulating for future generations. The IPS should state the trust's purpose clearly and derive investment objectives directly from it — for example, "to preserve capital in real terms while generating sufficient income to meet annual distributions of approximately £X."

Beneficiary analysis. Different beneficiaries have different interests: income beneficiaries (who benefit from current income) and remainder beneficiaries (who benefit from capital growth on the ultimate distribution). The IPS should acknowledge this tension and document how the trustees intend to balance competing interests. A bias towards income at the expense of capital growth is not inherently wrong, but it should be a deliberate and documented choice.

Risk tolerance and return targets. What level of investment risk is appropriate given the trust's objectives, time horizon, and beneficiary needs? The IPS should state this clearly — whether expressed as a target volatility range, an illustrative strategic asset allocation, or a qualitative description (e.g., "balanced growth, targeting CPI+3% over a rolling 5-year period with maximum drawdown of 20%").

Time horizon. How long is the trust expected to last? A trust established for the lifetime of the settlor's children and grandchildren has a very different time horizon from a trust established to distribute within a defined period. The time horizon directly affects the appropriate asset allocation.

Liquidity requirements. Are there known future obligations — regular income distributions, a planned capital distribution, a liability to beneficiaries — for which the trust needs to maintain liquidity? These should be documented and built into the investment strategy.

Asset allocation framework. The broad split between equities, bonds, property, alternatives, and cash — often expressed as a strategic allocation with permissible tactical ranges. For example: equities 60% (±10%), bonds 25% (±10%), alternatives 10% (±5%), cash 5% (±5%).

ESG and exclusions. Whether the trustees have adopted an ESG (Environmental, Social, and Governance) investment policy, any specific exclusions (certain industries, geographies, or counterparties), and how these are implemented. Increasingly, professional trustees and trust companies adopt formal ESG frameworks; for family trusts, the settlor's values as expressed in the letter of wishes may be relevant.

Benchmarks. Against which benchmark or index should portfolio performance be measured? The benchmark should be appropriate to the risk level and asset allocation of the trust — not simply the FTSE 100 where the portfolio holds a diversified multi-asset allocation.

Review frequency. How often will the IPS and the investment portfolio be formally reviewed? Annual formal review is standard; ad hoc review should be triggered by significant market movements, changes in the trust's circumstances, or changes in the relevant law.

Investment manager selection and monitoring. Where investment management is delegated, the criteria for selecting the manager and the basis on which performance and compliance will be monitored.

Delegation to an investment manager

Under sections 11–23 of the TA 2000, trustees may delegate investment management to an authorised investment manager, but must:

• Prepare and maintain a statement of policy (the IPS, or a delegation-specific version)
• Ensure the investment manager complies with that policy
• Review the arrangement at reasonable intervals
• Intervene if the manager is not complying or if the arrangement is not operating satisfactorily

The courts have interpreted this delegation framework strictly. In the leading case of Nestlé v National Westminster Bank [1993], the Court of Appeal considered whether a bank trustee had properly exercised its investment duties. The decision confirmed that trustees cannot delegate the investment decision-making function in a way that leaves them without knowledge of how the fund is being managed. The IPS and the review process are the mechanisms through which trustees demonstrate active oversight rather than passive rubber-stamping.

Co-trustee and professional trustee considerations

Where a trust has a mix of lay trustees (family members) and professional trustees (solicitors, accountants, or corporate trustee companies), there is sometimes confusion about responsibility for investment decisions. The IPS should be adopted by all trustees jointly, not delegated to the professional trustee alone.

Professional trustees are held to a higher standard under s.1(1) of the TA 2000 where they act in the course of a business. This standard is relevant to the quality of the IPS they draft and the rigour of the review process.

Updating the IPS when beneficiaries change

Because the IPS is built around the needs of the beneficiaries, any significant change in the beneficiary class should trigger a review:

• Birth of a new beneficiary (grandchild)
• Death of an income beneficiary (changing the balance towards remainder beneficiaries)
• Significant change in a beneficiary's financial circumstances
• Approaching distribution (shortening the effective time horizon)

A trust IPS that was appropriate when established may not remain appropriate as the trust's life advances and the characteristics of its beneficiaries evolve.

Compliance note

The Trustee Act 2000 applies in England and Wales. Scottish trusts are subject to the Trusts (Scotland) Act 1921 (as amended) and the Charities and Trustee Investment (Scotland) Act 2005, which have their own investment duty provisions. Trusts established under offshore law (Jersey, Cayman, Guernsey, etc.) are governed by the law of the relevant jurisdiction. Nothing in this guide constitutes legal advice; trustees should instruct specialist trust solicitors for advice appropriate to their trust's governing law.

How Global Investments Can Help

Global Investments advises trustees on their investment obligations, including the drafting and regular review of Investment Policy Statements. We act as investment manager for a number of trust portfolios and operate under formal delegation agreements that comply with the TA 2000 requirements. For trustees seeking to formalise their investment governance or review an existing delegation arrangement, our private client investment team can provide an initial assessment. Contact us to discuss.