Trustee Powers of Advancement and Duties when running a Trust

Question 1

Power to apply income for beneficiaries who are minor

Answer 1

(S31 TA1925)
Trustees have power (not obligation) to use income to pay for maintenance, education and benefit of a beneficiary under 18 if:
1. No contrary provision in the declaration of trust
2. Only exercise in favour of minor beneficiaries who have some kind of interest in the income (not where there are prior interests to income e.g. where sb else is a life tenant)

Question 2

Duty to pay income to adult contingent beneficiaries

Answer 2

S31 of TA 1925:
Adult contingent beneficiaries are entitled to trust income as it arises and trustee must pay that income to them, pending the vesting of their beneficial interests.

Question 3

Statutory conditions on advancing capital

Answer 3

Trustee has power but not obligations:
1. There is no contrary in declaration of trust
2. The beneficiary has interets in the capital
3. Payment must be for beneciary’s advancement or benefit save for pleasure, leisure or hobbies.
4. For trust created after 1 October 2014, the advance payment must not exceed the beneficiary’s entitlement. For trust created on or before 1 October 2014, the trustees can only advance up to half of beneficiary’s entitlement.
5. the payment is taken into account when beneficiary becomes entitled to trust capital. If beneficiary die before then her estate would not have to pay back advancement.
6. If there is a beneficiary with a prior interest, an advancement to another beneficiary with prior interest can only take if the prior interest holder is an adult and has given written consent.

Question 4

Time of creation of trust within will

Answer 4

The trust within will is deemed to have been created on death.

Question 5

Duty of care by trustee

Answer 5

A trustee must take all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own. Standard can be higher for professional trustee

Question 6

Duties when starting out as trustee

Answer 6

1. ensure that they have been property appointed
2. ascertain what the trust property consist of and take reasonable measures to take control of trust property.
3. review the trust documents and associated paperwork
4. enquire into past business of the trust to ensure that there have been no past breach, take appropriate action to remedy breaches..
5. where chattels held on trust, ensure that a proper inventory is drawn up.

Question 7

Duty to act impartially between beneficiaries

Answer 7

1. Trustee must not benefit one beneficiary at the expense of the other

Question 8

Duty to act personally and unanimously

Answer 8

1. Co-trustees must generally take decisions unanimously (unless trust doc provided otherwise)
2. Trustee must be personally active in the running of trust.
3. If a trustee:
   (a) leave matters in hands of co-trustee without enquiry
   (b) allow trust funds to remain in the sole control of co-trustee
   (c) fails to watch over and if necessary, correct the conduct of their co-trustees
   (d) fails to take action knowing that a co-trustee is committing a breach of trust.
   He can be liable to make good any lost that ben. suffer.
4. Whils trustee can take advice from expert, they cannot allow experts to take decisions for them

Question 9

Duty to exercise discretions property

Answer 9

Having decided to exercise a power, the trustees must act:
1. in good faith
2. rationally
3. for the purpose for which it was created
4. with regard to relevant material matters
5. with regard to all relevant fact
6. with regard to any legitimate expectation that a beneficiary might have that the power be excercised in particular way.

Question 10

Reasons for exercise of a power

Answer 10

1. Trustee do not generally required to give reasons for their decision.
2. If they do decide to give reasons, beneficiaries and the court may enquire into their soundness
3. Particular beneficiary has a legitimate expectation that a discretion will be exercised in their favour, the trustee may be obliged to give reasons and advance warning if they plans of excercising power differently.

Question 11

Required disclosure of information

Answer 11

Beneficiaries are entitled to see the following documents:
1. trust document or will created the trust
2. Trust accounts; and
3. a schedule of trust investments or other documents show how trust property is invested.
Trustees are not obliged to disclose the documents that record trustees’ deliberations on a discretion of power.

Question 12

In which case, beneficiaries can see documents that record reasons trustees took for exercising a power?

Answer 12

1. Beneficiaries can apply to the court for disclosure.
2. Court will consider that application under its inherent jurisdiction to supervise the administration.
3. Start presumption that the documents should not be disclosed unless such disclosure is in the interest of sound administration of trust (e.g. where there is evidence that trustees might have committed a breach of trust)
4. Court may refuse disclosure where it would cause family members to fall out or if it were to reveal confidential info about finance and state of health of individual beneficiaries.

Question 13

Duty to consider whether to exercise discretion to disribute property

Answer 13

Applicable to discretionary trust, trustees must from time to time consider whether to exercise discretion to disribute property (e.g. no request approved in 20 years, no meeting in 20 years then it would appear that the trustee are in breach of this duty).