Trustee Powers: Maintenance and Advancement Flashcards
lit some common examples of income which could be generated from trust capital.
- Dividends paid on shares;
- Interest on bank accounts;
- Rent paid arising from land.
under what circumstances do trustees have the power to use income to pay for the maintenance, education and benefit of a beneficiary under the age of 18 (ie a minor)?
Under s31 TA 1925, this can be done where:
a) there is no provision in the trust preventing this; and
b) the trustees can only exercise this power in favour of minor beneficiaries who have some kind of interest in income, whether vested or contingent, but not where there are any prior interests to income (eg a life tenant is still alive).
Can trustees pay income to minor beneficiaries under s31 where there is a life tenant?
No.
The life tenant must be paid the income during their life and therefore this cannot be used or redirected to the beneficiaries with an interest in capital.
Minor beneficiary’s cannot give good receipt of income. What are the two options for paying income to minor beneficiary’s (ie who should the income be paid to given the minor cannot give good receipt)?
The trustees can either pay the income to:
- the beneficiary’s parent or guardian; or
- directly to the education/benefit provider (eg piano teacher, fee paying school) which the money is being used to pay for.
Is the power to pay income to a minor beneficiary discretionary or mandatory?
Discretionary.
The trustees can pay the income to a minor beneficiary but cannot be compelled to do so.
What is the position with regards to paying trust income to an adult contingent beneficiary?
Adult continent beneficiary care entitled to trust income as it arises and the trustees must pay that income to them.
Eg 18 year old has interest in trust property contingent on reaching the age of 25. Once the beneficiary turns 18, the trustees MUST pay the income to the beneficiary as it arises, until they have their interest vested in the capital at the age of 25.
What happens if an adult beneficiary dies before they reach they contingent age under the trust?
Their estate does not receive anything, either generate income nor capital.
However, no one can reclaim income paid to them prior to their death.
Explain the provision of s32 TA 1925.
Trustees have the power to advance capital early for a beneficiary’s advancement or benefit provided:
a) there is no contrary provision preventing it in the trust;
b) the beneficiary has an interest in capital;
c) the payment must be for the advancement or benefit of the beneficiary; and
d) for trusts crated after 1st October 2014, advance payment cannot exceed their entitlement. For trusts created before this, trustees can only advise up to half the beneficiary’s entitlement; and
e) the payment is taken into account when the beneficiary becomes entitled to trust capital;
f) If there is a beneficiary with prior interest, advancement can only take place if that other beneficiary gives their consent.
Explain hat constitutes advancement and benefit for the trustees to be able to pay capital to a beneficiary.
Includes use of money which will improve the material situation of the beneficiary.
This includes most things, besides what is deemed to be purely for leisure , pleasure and hobbies.
Who counts as a beneficiary with an interest in capital?
1) beneficiaries with a vested interest in trust capital (whether in possession or in remainder); and
2) beneficiaries with a contingent interest in trust capital.
Who is deemed to be a beneficiary with prior interest who needs to consent to the payment of capital to one of the other beneficiaries?
This will commonly be the life tenant as advancement of capital could reduce the amount of income the life tenant is entitled to (ie the income generated from the trust property).
Note that other remainder beneficiaries do NOT have to consent to the advancement as they are not deemed to be a beneficiary with prior interest.
What does it mean that the payment of capital must be taken into account when the beneficiary becomes entitled to the trust capital?
If an advance payment is made prior to when th beneficiary becomes entitled, the amount paid early must be deducted from the total amount the beneficiary is entitled to.
eg Interest in the capital worth 20k. If 10k is paid early, the beneficiary is only entitled to 10k when they become entitled (20k minus the 10k they have already received early).
Is the s32 power of trustees to pay capital to beneficiaries discretionary or can they be compelled to pay capital?
They CANNOT be compelled to pay capital to any beneficiaries.
The power user s32 is purely discretionary.
Can the s32 power to pay capital be used to pay capital to beneficiaries who are minor?
Yes but similar to the payment of income this would have to be paid to a third party (as the minor cannot give good receipt).
This would usually be a parent or guardian.
