Types of investments (Trustees’ duty to invest)-FS

Question 1

Why is it essential for trustees to invest trust assets instead of allowing them to stagnate?

Answer 1

To preserve or grow the value of the trust fund in line with inflation, ensuring the fund maintains its real value over time.

Question 2

What are the potential consequences of not investing a trust fund?

Answer 2

The capital value of the fund may decrease over time, and life tenants may lose out on income, especially in trusts with successive interests.

Question 3

What types of assets are commonly included in a trust at its creation?

Answer 3

Trusts may initially include land, sums of money, or a combination of both.

Question 4

What are some examples of suitable investments for trust funds?

Answer 4

Suitable investments may include bank accounts, government bonds, corporate stocks, and unit trusts, depending on risk appetite and goals.

Question 5

What distinguishes unit trusts from other investment types?

Answer 5

Unit trusts typically specialize in high-risk sectors, diversify investments, and aim to spread risk across different companies and industries.

Question 6

What factors do trustees consider when choosing the type of investment?

Answer 6

Trustees assess the duration of the trust, nature of the beneficiaries’ interests, and the overall size of the trust fund.

Question 7

How are investment risks commonly categorized in trust management?

Answer 7

Investments are classified as low-risk (e.g., bonds, bank accounts), medium-risk (e.g., stocks, unit trusts), and high-risk (e.g., volatile company stocks).

Question 8

Why might trustees choose real estate as a trust investment?

Answer 8

eal estate can yield income through rent and capital growth through increases in market value, thereby benefiting multiple classes of beneficiaries

Question 9

What is an example of an unsuitable investment for a trust fund?

Answer 9

Investments in depreciating assets like cars, or speculative activities such as gambling, are inappropriate as they reduce the trust’s value.

Question 10

What is the duty of trustees in a trust involving both a life tenant and a remainderman?

Answer 10

Trustees must balance the interests of both, ensuring there is income for the life tenant and capital growth for the remainderman.

Question 11

How can trustees fulfil their duty to both life tenants and remaindermen in investment strategy?

Answer 11

By selecting investments that provide both regular income (e.g., dividends or rent) and long-term capital growth (e.g., stocks or property).