Trustee powers: maintenance and advancement Flashcards
Express powers in the declaration of trust
A settlor may expressly provide in the declaration of trust that trustees can, in the future, pay income or capital to beneficiaries before they become entitled to trust property. If they do so, those express provisions must be followed.
In the absence of any express provision in the declaration of trust, the trustees can pay income or capital early to beneficiaries. The settlor can modify or exclude these statutory powers ac much as they wish.
Power to apply income for beneficiaries who a minors
Income is a return paid on a regular basus generated from capital. Common examples of income returns include:
a) dividends paid on shares;
b) interest paid on bank accounts; and
c) rent paid for the occupation of land.
Trustees have the power to use income to pay for the maintenance, education and benefit of a beneficiary under the age of 18 years so long as the following conditions are satisfied:
a) there is no contrary provision in the declaration of trust; and
b) the trustees can only exercise this power in favour of infant beneficiaries who have some kind of interest in income, whether vested or contingent, but not where are any ‘prior interests’ to income.
Trustees cannot apply income for a beneficiary where someone else is the life tenant. In successive interest trusts - eh a trust for my husband for life, remainder to my son - the trustees must pay income to the life tenant (mu husmand). During his lifetime, my husband has a prior interest to income
Duty to pay income to certain beneficiaries
Adult contingent beneficiaries are entitled to trust income as it arises and trustees must pay that income to them, pending the vesting of their beneficial interests.
If an adult contingent beneficiary dies before the condition is satisfied, their estate will receive nothing 0 no capital and no accumulated income.
Power to pay capital to or for beneficiaries
Capital refers to the underlying trust property itself. Trustees have the poser to pay or apply trust capital early for a beneficiary’s advancement or benefit so long as some conditions are satisfied.
Statutory CONDITIONS on advancing capital:
a) There is no contrary provision in the declaration of trust
b) The beneficiaries has an interest in capital. Such beneficiaries include: beneficiaries with the vested, contingent or remainder interests in trust property.
Example: I create a trust for my husband, Rajesh, for life, remainder to my son Saleem. Saleem is currently aged 8 years. Under this successive interest trust, Saleem is the only person interested in capital. Asthe life tenant, Rajesh is only interested in income, with the result that my trustees cannot pay capital to him. (If my trustees wish to apply trust capital for the early benefit of Saleem, they must first obtain the written consent of Rajesh)
c) The payment must be for the beneficiary’s advancement or benefit. This includes any use of money that will improve the material situation of the beneficiary. This is broad in application - most things will improve the material situation of the beneficiary, save perhaps for money that will be used for pleasure, leisure or hobbies. The trustees have to be careful to ensure that the capital being advanced will benefit the beneficiary in some way and will not solely benefit someone else. However, if the advancement is made to or for the benefit of the beneficiary, it does not matter that there is an incidental benefir to other people.
Example: A trust has been created for the benefit of two grandchildren. Their mother requests the trustees to advance capital while the grandchildren are under the age of 18 years. The trustees know that the reason for this request is that the mother wants to use the capital to pay off her overdrafts. If the trustees advance capital for this reason, they will be in breach of trust.
d) For trust created after 1 October 2014, the advance payment must not exceed the beneficiary’s entitlement.
For trusts created on or before 1 October 2014, the trustees can only advance up to half the beneficiary’s entitlement.
e) The payment is taken into account when the beneficiary becomes entitled to trust capital.
Example: I create a trust for Adam and Britney if they reach the age of 21 years. Britney (then aged 19 years) is given an advancement of 15 000 pounds.
When Britney reaches the age of 21 years and calls for her share of the trust property, she will receive a half share in the trust capital minus the 15 000 advancement already paid.
If Britney were to die before reaching the age of 21 years, her estate would not have to pay back the advancement.
f) If there is a beneficiary with a prior interest, an advancement to another beneficiary can only take place if the prior interest-holder is an adult and has given written consent to the advancement. The most common example of a beneficiary with a prior interest is the life tenant
