Time for a COVID Rethink? - July 2020
COVID-19 has required trust practitioners to rethink. Not only do key procedures need re-examining, but how investments are allocated and managed may also need reviewing. Marie Louise Zammit of our Malta office shares some ideas about how trustees can adjust to a world in the time of the coronavirus.
Trustee Best Practice During the “New Normal”
Malta’s trust industry moved quickly to remote working, and few clients noted much difference in service quality. Yet behind the scene trustees had to adapt, such as with changes to due diligence processes and the execution, notarisation and legalisation of documents. As well, many clients and trustees have started to consider the use of qualified electronic signature options which have the same legal force as wet ink signatures under Maltese law.
Video calls replaced face-to-face meetings, and new efforts were required to keep records. Beneficiaries may wish to add levels of scrutiny during these uncertain times, and trustees will need to be doubly sure that decisions taken are properly documented.
Time for an investment review?
Yet it is the area of trust investments that is likely to cause the most concern. Markets have recovered many of their early losses, but the long-term economic impact remains hard to gauge. Maltese law requires that trustees must act with the prudence, diligence and attention of a bonus pater familias (analogous to that of the reasonable man in English law), safeguarding trust property from loss or damage. Trustees have a duty to monitor investments, irrespective of whether the investment management function has been delegated. Systems, controls and procedures must be in place to ensure investment reviews are carried out appropriately. Specific issues to consider include:
- Independent advice. Trustees should consider whether independent advice is required to ensure a satisfactory review of the investment strategy.
- Investment strategy. Trustees should analyse whether the pre-crisis investment strategy is still appropriate. For example, with a property investment, are the tenants paying rent regularly, or has a moratorium been granted? What of any loans agreed by the trustee – should terms be reviewed? If the trustee received a loan, do they have sufficient liquidity to meet repayments?
- Income entitlement and beneficiaries’ requirements. It might be necessary to review the trust terms if the implication is that income payments are unrealistic in the current environment. Different beneficiaries might have competing needs, and the income versus capital equation may need revisiting.
- Powers of investment. Are there are any restrictions on the trustees’ powers of investment under the trust deed that may affect their ability to change investment strategy?
- Discretionary mandate. Where relevant, trustees may review existing investment mandates with the discretionary investment managers.
- Trust deed. Should these reviews point to the need for changes, trustees may consider whether a variation of the trust deed is appropriate.
Whether changes are required or not, clients will appreciate a pro-active response. Trustees must be alert to these fresh challenges and be prepared to take decisions for the long-term benefit of all.
For further information please contact: