Trustees' Dispositive Powers and Duties

Question 1

in what 3 cases do trustees distribute trust property?

Answer 1

(1) when they have an obligation to do so under the terms of the trust

(2) when directed to do so by Bs with SV rights

(3) in exercise of a dispositive power of maintenance or advancement

Question 2

when must trustees distribute trust property when a beneficiary becomes entitled?

Answer 2

Ts have a duty to distribute property in accordance with the terms of a trust as soon as the right to the property arises

(must not wait for B to ask for it)

Question 3

what is the duty of trustees to distribute income?

Answer 3

Ts must distribute income as it arises to adult Bs with a right to it within a reasonable period - for:

• Bs with a vested interest in possession
• Bs with vested in interest and contingent interests - where the capital carries intermediate income

Question 4

in a discretionary trust, when do trustees have to distribute income and capital

Answer 4

Ts exercise their discretion and distribute capital and income as they choose

but it must be done in a reasonable time

Question 5

can T distribute income to minors who are entitled to it?

Answer 5

No - the income ‘accumulates’ and is added to the capital

the minor is not entitled to anything until they have a right for the capital to vest in possession

BUT: trustees have a power of maintenance

Question 6

what is the power of maintenance?

Answer 6

• where a minor has any interest (vested or contingent), a trustee can pay income to the minor
• if someone with a prior right to the income exists, they must consent to this
• Ts can use both previously accumulated income and income generated after making the decision to maintain the minor
• Ts must pay it to a parent / guardian /good provider not the minor (cannot give good receipt)
• Ts have broad discretion on the purpose of paying income - e.g., school fees, training, medical bills, clothing, food, leisure, rent, etc.
• the primary benefit must be for the minor but it does not matter if the parent indirectly benefits
• Ts must exercise this power in good faith and properly and not unquestioningly - they must make sure it is applied for the minor’s benefit
• exercising power of maintenance is a good idea where the minor will not become entitled to the capital until a later age contingency is satisfied (eg, 25) as they cannot access the income after turning 18

Question 7

what is the power of advancement?

Answer 7

• trustees have discretion to give beneficiaries up to 100% of the capital before their interest vests in possession
• if there is a B with a prior interest, their consent must be obtained to advance
• cannot be paid directly to minors
• trustees have a duty to ensure the capital is used for the purposes for which it was advanced and have a duty to monitor this and cease further payments if they are misusing advancements
• advancements must be brought to account when B becomes absolutely entitled (amount received is reduced proportionately to reflect the amount advanced)

Question 8

bringing payments to account

Answer 8

advancements must be brought to account when B becomes absolutely entitled (amount received is reduced proportionately to reflect the amount advanced)

trustees have a choice between treating the share advanced as a proportionate share of the overall trust value, or its strict monetary value - this will affect the other beneficiary’s entitlements later if the trust increases or decreases in value