Trustees' Powers, Maintenance & Advancement And Variation Notes

• Introduction

  - Powers of trustees:

  • 1. power of sale;

  • 2. power to give receipts;

  • 3. power to insure trust property – s34(1) Trustee Act 2000.

  • 4. power to maintain minors – s31 Trustee Act 1925.

  • 5. power to advance capital – s32 Trustee Act 1925.

  • 6. power to delegate in certain circumstances.

  - Source of power: trust document + Trustee Act 1925.

  • Trustee Act 1925: powers implied in trusts.

    • s31: apply income for maintenance + accumulate surplus income during minority.

    • s32: advance capital to beneficiaries.

  • trust instrument: can extent/restrict powers – overrules statutory provisions (often done).

    • s69(2) TA 1925: express provisions/contrary intention prevail over implied powers.

    • e.g. Re Turner’s WT [1937]: trust for grandchildren who attain age 28; express power to maintain from age 21 + instruction to accumulate surplus; 1 b. died at 24 no vested interest: contrary intention in instrument (to accumulate income) overruled s31(1)(ii).

  Maintenance from Income: s31 Trustee Act 1925

  - s31: power to apply income for maintenance + accumulated surplus income during minority.

  • minority: 18 (since Family Reform Act 1969; previously 21).

  • 2 possible situations where s31 applies:

    • 1. b. is unmarried minor (‘infant’).

    • 2. b. has attained majority or earlier married + has contingent interest.

  Present income (from current year):

  - Beneficiary under 18: s31(1)(i) – ts. can pay/apply income for maintenance, education or benefit.

  • b. has no right to income under 18: even if interest vested.

    • minors cannot give valid receipt: ts. should never pay money directly to b. under 18.

    • tax implications: Stanley v IRC [1944]: infant life tenant, trustee accumulated income until majority, on majority: b. assessed to surtax on accumulated income paid to him [Ld Greene]: income ‘not his in any real sense’ during minority; ‘title held in suspense’ + destroyed if b. dies before 18 ‘for all practical purposes in same position as if interest contingent’.

  • exercise: can pay to parent/guardian or otherwise apply income (e.g. pay school fees directly).

    • b. can have any interest: vested or contingent (or vested but liable to divesting).

    • may use whole or part of income: any income not used accumulated – s31(2).

      • accumulations: may be used for b’s benefit in addition to income in subsequent years of minority – s31(2)(ii).

    • subject to any prior interests/charges: e.g. if b. remainderman, no income until life tenant life tenant dies or surrenders interest.

    • no obligation: ts. must consider ‘all the circumstances’ (inc. b’s age + requirements).

      • should consider exercise: no automatic payments – Wilson v Turner [1883].

      • in practice: if ts. act in good faith, court unlikely to interfere.

    • may incidentally benefit another: if ts. exercising discretion in best interests of b.

      • Fuller v Evans [2000]: ts. paid b’s school fees; indirect benefit to father: responsible under consent order in divorce proceedings allowed.

  - When beneficiary reaches 18 (or marries): s31(1)(ii) – b. entitled to income (trustees lose discretion).

  • even if interest contingent: e.g. ‘to A if he reaches 25’ – 18: right to income; 25: capital vests.

  • calculation of income: based on capital + any accretions to capital.

  • tax implications: e.g. Re Turner’s WT: trust for grandchildren who reached 28, 1 died at 24 IRC trying to rely on s31(1)(ii) to charge estate duty on vested income (but overruled by instrument here).

  Accumulated income: any surplus income not paid/applied to maintenance under s31(1).

  - Accumulation when b. under 18: s31(2) – can be used for b. as if income.

  • accumulation of income not paid out: reinvested as capital to produce further income.

  • can be used for maintenance in subsequent years during minority: in addition to income of that year – s31(2)(ii).

  - When beneficiary reaches 18 (or marries): 3 poss. situations – s31(2)(i) + s31(2)(ii) (ts. lose discretion).

  • beneficiary entitled to accumulations if:

    • 1. b. had vested interest in income during minority (e.g. ‘to A for life’) – s31(2)(i)(a).

      • (N.B. if A dies before 18: A/A’s estate NOT entitled to accumulations).

    • 2. b. acquires vested interest in capital on 18 (e.g. ‘to A absolutely at 18’) – s31(2)(i)(b).

  • 3. all other situations: accumulations added to/follow capital – s31(2)(ii).

    • e.g. ‘to A if he reaches 25, but if he dies before attaining a vested interest, to B’ if A reaches 25: A entitled to capital + accumulations; if A dies before 25: capital + accumulations vest in B.

  Advancement of Capital: s32 Trustee Act 1925

  • N.B.: consider income first – easier if b’s needs can be met from income without advancement.

  - s32(1): ts. can pay/apply capital for advancement or benefit of any b. (of any age) entitled to capital.

  • b. can have any interest in capital: absolute/contingent, possession/remainder/reversion.

  • b’s interest must be in capital: i.e. cannot be exercised in favour of life tenant (interest in income).

  • no obligation: trustees have absolute discretion.

  • subject to express terms of trust instrument – s69(2).

  - Purposes of advancement: ‘advancement or benefit’.

  • wide definition: to improve b’s material situation or position in life.

    • Pilkington v IRC [1964]: [Viscount Radcliffe]: ‘some step that would contribute to the furtherance of his establishment’.

    • Lowther v Bentick [1874]: [Jessell MR]: ‘preferment and advancement are both large words, but benefit is the largest of all’.

  • wide application: not just financial benefit.

    • Lowther v Bentick [1874]: payment of b’s debt.

    • Re Kershaw’s Trusts [1868]: payment allowing b’s husband to move from Far East.

    • Re Long’s ST [1869]: transfer investments from UK to NZ (where b. moved) NOT benefit (but dubious).

    • Re Clore’s ST [1966]: donation to charity relieved b. of moral obligation to donate himself.

      • but cf. X v A [2005]: v. large donation (beyond b’s own resources) NOT benefit.

    • Pilkington v IRC: resettle money on new trusts to save b. tax benefit.

  - Resettlement: trust property advanced into new trusts...

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