Large Group 7 Flashcards
Why do settlors or testators set up trusts to delay beneficiaries’ access to trust property?
Settlors or testators often set up trusts to delay beneficiaries’ access to trust property because they may feel the beneficiaries are too young or may not manage the property wisely.
What statutory powers do trustees have to help beneficiaries who need funds early?
Trustees have powers to:
- Advance trust capital early to beneficiaries.
- Advance trust income early.
- Allow beneficiaries to vary the terms of the trust or bring the trust to an early end, provided certain conditions are met.
What is the “power of advancement” under the Trustee Act 1925?
The power of advancement under Section 32 of the Trustee Act 1925 allows trustees to advance some or all of a beneficiary’s trust capital early, before the beneficiary becomes entitled to the property under the trust’s terms.
Can trustees be compelled to exercise the power of advancement?
No, the power of advancement is a discretionary power, meaning trustees cannot be compelled by the beneficiaries or the court to exercise it.
What are the conditions under Section 32 of the Trustee Act 1925 for making advancements?
The conditions for making advancements under Section 32 are:
- The beneficiary must have an interest in capital.
- The payment must be for the beneficiary’s advancement or benefit.
- The advancement must not exceed the beneficiary’s share of the trust capital.
- The advancement is taken into account when the beneficiary becomes entitled to the capital.
- Any prior beneficiaries (such as life tenants) must give written consent if they are adults.
What did the case of Pilkington establish regarding the meaning of “advancement or benefit”?
The case of Pilkington established that “advancement or benefit” refers to any use of the trust capital that improves the material situation of the beneficiary, such as saving tax on the trust fund or paying for education.
What did Re Pauling’s Settlement Trust demonstrate about advancements?
Re Pauling’s Settlement Trust demonstrated that advancements must be for the beneficiary’s benefit and not for someone else’s benefit. In this case, the advancement was made for the beneficiaries’ father’s benefit, which was a breach of trust.
How does the Inheritance and Trustee Powers Act 2014 affect advancements?
The Inheritance and Trustee Powers Act 2014 allows trustees to advance the whole of a beneficiary’s share of trust capital (instead of just half) if the trust was created on or after 1st October 2014. For trusts created before this date, trustees can only advance up to half of the beneficiary’s share.
What must trustees consider regarding advancements if the beneficiary is an infant?
If the beneficiary is an infant (under 18), trustees must ensure they do not pay the advancement directly to the infant, as they cannot get a good receipt. Instead, trustees should apply the money for the infant’s benefit, such as paying school fees directly.
What happens if a beneficiary receives an advancement but dies before becoming entitled to the capital?
If a beneficiary dies before reaching the contingency age (such as 21), their estate is not required to repay the advancement. However, if the beneficiary reaches the contingency age, the advancement will be deducted from their final share of the trust capital.
What is the role of income in trusts, and what are trustees required to do with it?
Trust income is generated from investments such as shares, bank accounts, or property. Trustees are required to pay trust income to the beneficiaries entitled to it, unless the beneficiaries are infants. If the beneficiaries are infants, trustees must either apply the income for their maintenance, education, or benefit or accumulate it until they become entitled to it.
What is Section 31 of the Trustee Act 1925, and how does it relate to infants’ trust income?
Section 31 of the Trustee Act 1925 allows trustees to apply trust income for the maintenance, education, or benefit of infants. Trustees can either pay the income directly for these purposes or accumulate it and pay it to the beneficiary when they become absolutely entitled to the capital.
Can a beneficiary’s parent insist on how trust income is used for an infant?
No, the parent cannot insist on how trust income is used. Trustees have discretion under Section 31 of the Trustee Act 1925 to decide whether to apply the income for the infant’s benefit.
What happens to accumulated income if an infant beneficiary dies before becoming entitled to the trust capital?
If an infant beneficiary dies before becoming entitled to the trust capital, their estate receives the accumulated income along with the trust capital, which will then be dealt with according to the rules of intestacy or the beneficiary’s will.
What is the significance of the case Saunders v Vautier for beneficiaries?
The case of Saunders v Vautier allows beneficiaries who are all adults and have full mental capacity to unanimously agree to end a trust and receive their shares of the trust capital. This provides an option for beneficiaries to alter or terminate the trust if they are unhappy with its terms.
