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GDL Law Notes GDL Equity and Trusts Notes

Maintenance And Advancement Notes

Updated Maintenance And Advancement Notes

GDL Equity and Trusts Notes

GDL Equity and Trusts

Approximately 631 pages

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Topic 11 – Maintenance and Advancement

  • Trustees have a variety of powers = power of sale, power to maintain minors and to advance capital (focus here)

    • = 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).

    • = 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

    • 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

  • Income = A life interest gets income arising from trust property

  • Capital = B’s interest in remainder, is in the capital

  • 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’

    • Vested in possession (property enjoyed presently) OR

    • Vested in interest (an interest in the future). So an interest ‘vested in interest’ something you see with successive interests.

    • 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

    • 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.

  • Statutory provisions for trustees powers:

  • 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^

    • 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

    • Land = rents

    • Money = invested, generate income

    • Shares = dividends generate income

  • Accumulations = income, not expended during current year

    • Present year = income generated during particular time period

    • 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!

    • 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).

    • Over 18 – powers under S31 lapse, trustee no longer discretion to pay out present/accumulated income.

  • Example:

    • ‘To Alastair, age 14, if he attains the age of 30’ [contingent interest as no guarantee – only entitled to capital then]

    • = No right to the income generated by trust property (Minor, has no right as too young to give a valid receipt to receive it)

    • = T has power to pay/apply income S31(1)(i) TA 1925

    • for A’s ‘maintenance, education and benefit’

    • = 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.

    • 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:

    • ‘To Alastair, Age 18, if he attains the age of 30’

    • 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)

    • 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...

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