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Maintenance And Advancement Notes

GDL Law Notes > GDL Equity and Trusts Notes

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Topic 11 - Maintenance and Advancement

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Trustees have a variety of powers = power of sale, power to maintain minors and to advance capital (focus here) o = Powers allow trustees to make 'early' payments of income/capital to Beneficiaries, even before Bs become absolutely entitled in equity (useful for Bs who have a contingent interest i.e. interest conditional on reaching a certain age, but have not satisfied the contingency yet). o = Make payments for certain purposes according to their individual needs, ensuring Bs are not left destitute while waiting for their interest to vest. Power of Maintenance/Advancement = provided by statute in ss 31 and 32 Trustee Act 1925 o S69(2) = power conferred by Act apply if and only so far as contrary intention not expressed in trust instrument Note - power to advance capital (s32) amended by Inheritance and Trustees' Powers Act 2014 s8 (permitted extending 'power to advance capital' of the whole of the prospective share of capital) Note - trustees CANNOT delegate their powers under ss31/32 TA 1925

Difference between beneficiary's right to the income and to the capital of a trust

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Income = A life interest gets income arising from trust property Capital = B's interest in remainder, is in the capital

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Vested = Interest by Beneficiary in trust property that has no conditions attached
[unconditional interest] (B doesn't have to do anything to become entitled to that particular interest). Exists currently ('present right to present enjoyment'), A interest 'vested in possession' o Vested in possession (property enjoyed presently) OR o Vested in interest (an interest in the future). So an interest 'vested in interest' something you see with successive interests. o Example = 'to A for life, remainder to B' = both and B have vested interests because they don't have to do anything to become entitled to their respective interests.
? A = life tenant who will receive income generated by the trust capital.
? Vested in possess = as A has ability to enjoy interest during lifetime.
? B = remainder-man who will receive trust capital once A passed away.
? Vested in interest = interest gained by B once A has passed away. Contingent Interest = contingency is an event not guaranteed to take place o Contingent if interest only arise if B still alive on A's death ('remainder B if he survives A'), subject to a condition which may or may not arise. Value depends on age of A and B.

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* Statutory provisions for trustees powers:

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If nothing expressly on trust with respect to maintenance/advancement, then use statute provisions as basis for trustees powers:

* S31 - Income (maintenance)

* S32 - Capital (advancement)

* IF express provisions within trust instrument = S69(2) - Express provisions prevail over default statutory provisions above^
o Re Turner's WT =S69(2) express provisions in a trust instrument will prevail over default statutory provisions.
?? ? ?Capital = property subject to the trust (property left on trust - money, land)
?????Income = money/property generated by the capital o Land = rents o Money = invested, generate income o Shares = dividends generate income
?????Accumulations = income, not expended during current year o Present year = income generated during particular time period o Accumulations = any income not spent during that particular year.
?? ? ?Minority = someone under 18, under age of majority
?? ? ?Majority = age when you legally become an adult, 18.

? ? ? ? S31 Powers of Maintenance:
? = Application/payment of income (present or accumulated) generated by trustee property
? Trustee has discretionary power possessed, so they don't have to be used - trustee under no compulsion to pay out income OR capital unless sure/want to do so!
o Any doubt to pay out, don't do it - trustee may be liable, breach of trust - strict liability.
? Has to be for 'maintenance, education or benefit' (at least 1 but can be more). Only for U18s (doesn't matter if vested or contingent interest). o Over 18 - powers under S31 lapse, trustee no longer discretion to pay out present/accumulated income.Example: o 'To Alastair, age 14, if he attains the age of 30' [contingent interest as no guarantee - only entitled to capital then]
o = No right to the income generated by trust property (Minor, has no right as too young to give a valid receipt to receive it) o = T has power to pay/apply income S31(1)(i) TA 1925 o for A's 'maintenance, education and benefit' o = Accumulations added to capital S31(2) TA
? I.e. any income not paid out before Alastair's majority before he's 18, is added to capital share. So will increase the amount of money/property he will receive when turns 30. o Accumulations - used for 'maintenance, education or benefit' S31(2)(ii) TA
? For a Minor, under 18, no distinction between present and accumulated income, and all applied/used for above...

?Power to apply income for maintenance - conscious exercise of discretion (Wilson v Turner). Power that cannot be used blindly, trustee has an obligation to investigate, and use their discretion. So if B confronts or comes to Trustee and asks for income generated. T not able to blindly pay it out, MUST use their discretion (positive obligation) Use of income (powers of maintenance) = need to be of primary benefit for the B - BUT incidental benefits are fine, as long as primary benefit is with B. Fuller and Evans (schools fees for B paid from income from trust, good for B but also benefits parents as they no longer have to pay school fees). Primary benefit still with B.Example: o 'To Alastair, Age 18, if he attains the age of 30' o Entitled to income S31(1)(ii) TA - even though he has a contingent interest, doesn't matter, the income becomes his as of right when 18. (like salary, nothing trustees can do to stop him - will go to him however income calculated/generated) o May be entitled to accumulations (income may be accumulated) - alastair may ask, if
? Interest was vested during minority e.g. 'to A for life' [NO as had contingent interest when a minor]
? At 18, acquires absolute interest in capital e.g. 'to A absolutely at 18'
[NO as his interest won't vest until he turns 30]
o Otherwise accumulations follow the capital (he is not entitled to accumulations), discretion lapses when B becomes adult (he's not entitled to them and trustees not able to apply them either because that power has now lapsed). Nothing he can do to get accumulations. o He doesn't lose them - they become 'accretions' added onto his capital, when he turns 30. Accumulations will mean he will generate income, as its increased, which he will be entitled as of right.Applies: o Where B is an unmarried minor ('infant' as per s31) o Where attained majority or earlier married and have contingent interest e.g. because they have not yet attained a specific age (25 etc) NB - B under 18/unmarried cannot give valid receipt - trustee should not pay money even if absolutely entitled. Beneficiary U18: o During minority, B has NO right to income where S31 applies. o According to terms of trust, minor B has contingent interest, plainly have no right to income. o S31 Minor B, no right to income even if apparently vested interest, whether in income ('to A for life') or in capital ('to A absolutely). Significant tax implications. o S31 gives trustees power during the minority of a B to pay income for 'maintenance, education or benefit' of the B.?

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