Administration of Family Trusts

Question 1

Who can be appointed as a trustee?

Answer 1

• 18 + of sound mind.
• No conflicts of interest
• Maximum of 4 for trust of land
• Minimum of 2 to give good receipt

Question 2

When can trustees be appointed?

Answer 2

1. On creation of trust (e.g express terms or by transfer or in will)
2. After creation

Question 3

What are the 5 methods of appointing trustees after creation of the trust?

Answer 3

1. Power in trust deed
2. Statutory power to replace trustee (s.36 TA 1925)
3. *Saunders v Vautier (TOLATA 1996, s 19)
4. s.41 TA 1925 Court Power (exercisable by court or Charity Commission for charitable trusts).

Question 4

What happens if a trustee dies?

Answer 4

s.18 of the TA 1925 allows the powers under the trust to be exercised by the surviving trustee or (where there are no surviving trustees, the PRs of the deceased trustee) until the appointment of new trustees or PRs.

Question 5

How can a trustee be appointed under s.36 TA 1925?

Answer 5

Trustee appointed by trust deed or any surviving or continuing trustee can appoint a new trustee in writing in the following circumstances:

1. Trustee dies;
2. Trustee abroad for over 1 year;
3. Trustee minor or lacks capacity;
4. Trustee wishes to retire;
5. Trustee refuses or is unfit to act.

Question 6

How can Saunders v Vautier operate to appoint a trustee?

Answer 6

Where there is NO express power in the trust deed, beneficiaries can agree to direct trustees to appoint a new trustee in writing under TOLATA s.19 (prevents them from having to actually collapse trust).

Beneficiaries must all be of full age, sound mind and absolutely entitled to trust property.

Question 7

When does the court have power to appoint a trustee?

Answer 7

Equity will not allow a trust to fail for want of a trustee.

Where it is inexpedient, impracticable or difficult to appoint a trustee without the assistance of the court, can apply. May be incapacity, bankruptcy and liquidation.

Question 8

In what circumstances can a trustee be removed?

Answer 8

1. Power in trust deed
2. Statutory power to replace trustee (s.36 TA 1925)
3. Common law power to remove trustees where it is not appropriate for them to remain in office (e.g dishonesty, breach)
4. s.41 TA 1925 - power to remove (exercisable by Court or Charity Commission for charitable trusts)

Question 9

How can a trustee retire?

Answer 9

• s.39 TA 1925: trustee can voluntarily retire by deed.
• Saunders v Vautier: in writing at direction of all beneficiaries.

In both cases, must:
* be are at least 2 natural trustees or 1 corp trustee left; and
* other trustees / persons with POA consent.

Question 10

What is a sole beneficiary’s entitlement to capital and income?

Answer 10

Interest vested in possession
* entitled to capital and income as it arises if over 18 and has capacity. If not, income accumulates.

Interest vested in interest
* entitled to income as it arises (unless someone else is given an interest in the income). if 18 and has capacity, if not, income accumulates.

Contingent
* Beneficiary has conditional interest in capital until condition fulfilled then becomes absolutely entitled.
* Entitled to income as it arises if 18 and has capacity, if not, accumulates. As long as someone else not given interest in income.

Question 11

How does a successive interest trust work?

Answer 11

Life tenant = interest vested in possession. Absolutely entitled to capital and income as it arises.

Remainderman = interest vested in interest. When life tenant dies, become entitled to capital.

Question 12

What is the power of maintenance under s.31 TA 1925?

Answer 12

Default fiduciary power which may be excluded / modified by trust deed.

For minor beneficiaries only.

Allows trustees to pay trust income (including accumulated income) to a minor beneficiary with an interest in capital where there is no prior interest for their maintenance, education or benefit (i.e school fees, medical bills, food, clothing holidays).

Question 13

What is the Power to Advance Capital (s.32 TA 1925)?

Answer 13

Default discretionary power. Can be excluded or modified by trust deed.

Allows trustees to advance up to 100% capital entitlement for benefit of ANY beneficiary before they become absolutely entitled (interest in possession).

• must get written consent of beneficiaries with prior interest (life tenant, vested in possession);
• Ensure used for requested purpose = best to purchase on their behalf.