Trustee Delegation Rule In USA’s Trust Law

Trust originated from Britain, developed in United States of America(Referred toas America hereafter). American Trust law carried forward the British non-delegationrule at first. After decades of discussion through academic and practical research,American trust law reversed the non-delegation rule. At the time trust first came intolife, it was mostly set up based on personal trust in the trustee for family uses. For thesake of settlors and beneficiaries, British law forbade trustees to delegate any trusteeduties to others. While with the industrialization and professionalism of the modernworld furthering, America started to utilize the trust vehicle for business purposes,such as investing and financing. Within the process, new problems emerged. Peoplebegan to critisize the non-delegation in response.Accordingly, America enacted Uniform Trustees’ Powers Act, UniformManagement of Institutional Funds Act, Employee Retirement Income Security Act.Although the adoption rates among states are different, these acts reversed thetrustees’ non-delegation rule in different sectors respectively. Started in the1990s,Restatement(Third) of Trust, Uniform Prudent Investor Act, Uniform Trust Codereversed non-delegation rule in its entirety.American trust law’s delegation rule stipulates that trustee can only delegate andshould delegate if a prudent investor would delegate in like circumstances, which isthe prudent investor rule. In order to comply with the prudent investor rule, trusteesshould act in accordance with the purposes, terms, distribution requirements of thetrust, meanwhile invest and manage the trust assets as a prudent investor would. Afterdelegating certain trustee duties to agents, whom bears the losses if things went awrycame into question. Even though case law indicates different court viewpoints, themuch more common understanding in American trust law practice would be: as longas trustee exercise due care, skill, caution in selecting the agent and supervisingagent’s performance, the agent owes fiduciary duty to the beneficiary directly, that isthe agent bears the losses. However, some trust scholars deem it inappropriate to treatall trustees the same in the delegation context. I am in consensus with this opinion andconsider it necessary to differentiate between professional trustees andnon-professional trustees. These two groups of trustees differ in negotiation settings, monitoring costs, impact of liability rules, settlors’ objectives. Thus strict liablity ruleshould apply to professional trustees and non-professional trustees only need to beresponsible for the losses when they are at fault.As a state running civil law system, P.R.China’s trust code didn’t come intoforce until the year of2001. Chinese trust industy commenced rather late compared toAmerica. With its deeply critisized trust statutes and incomplete supplementalinstitutions contributing as well, China’s trust companies runs rather little real trustbusiness but more of channelling finance works. Through the analysis of the currentChinese trust industry, I conclude that it is not well fitted to run the non-delegationrule in China. I also propose that applying the delegation rule could help mitigate trustcompanies’ currently facing dilemma, improve trust companies’ professional skills astrustee entities, and promote the embarkment of private trusts and charitable trusts inChina. Therefore, I suggest the reversion of the non-delegation rule, and replacementof it with the delegation rule which is under the guidance of the prudent investor rule.