Trustees' Powers and Duties Flashcards
What is the power of maintenance under s31 TA 1925?
T has the power to pay income (current and accumulated) towards the **maintenance, education or benefit of a minor **B.
When does the statutory power of maintenance not apply?
In successive interest trusts i.e. Where another B (i.e. other than the minor) has a prior interest
Eg: Trust in favour of A, remainder to B (a minor). Power of maintenance not exercisable in favour of B.
is this example right?
What is the power of advancement under s32 TA 1925?
T has the power to pay capital towards the advancement of a B whose interest has not yet vested in possession (whether they are adult or minor).
Does the power of advancement have the same restriction as the power of maintenance?
No- it requires the **written consent of any B with a prior interest. **
As regards the statutory power of maintenance, what is not required but is good practice for T to do?
Because the power of maintenance only applies during the minority of a beneficiary, it is good practice for trustees to consider exercising the power shortly before the beneficiary turns 18, particularly if the beneficiary has a contingent interest in the trust capital.
If it is not exercised at this time, all accumulated income will become part of the trust capital and the beneficiary will not be able to access it unless and until their interest in the capital vests.
Not sure what this means
What’s the difference between current and accumulated income? Why does the distinction matter?
Current income: Income the trust generates during a specific period which is available for immediate distribution to the beneficiaries.
* EG: If the trust document specifies that income should be distributed regularly (e.g., monthly or annually), then that would be considered the current income distributed to the beneficiaries.
Accumulated Income: Income generated and retained within the trust to accumulate over time. This income could be reinvested or held for future distribution.
The distinction is important because it affects how much beneficiaries receive in the short term (current income) vs what might be set aside and grow for future use (accumulated income). Trustees usually have some discretion in deciding whether to distribute or accumulate income, depending on the terms of the trust.
Define advancement
Any use of trust money which will improve B’s material situation.
When exercising the power of maintenance, to whom should T pay the income?
Either B’s parent/legal guardian OR directly to provider of good or services. The same goes for exercising power of advancement of capital in favour of a minor B.
What are the restrictions on the use of income once in B’s parents hands?
Must be used primarily for B’s benefit, though it is ok for parents to be indirectly benefitted.
Since the power is fiduciary, T must consider exercise properly and must only advance income in good faith for B’s benefit.
What is T obliged to do, after making an advancement?
Trustees have a duty following the exercise of the power of advancement to ensure that the money is being used for the purposes for which it was provided.
Explain T’s obligation to ‘bring the payment (advancement) into account’
Any amount that the beneficiary will receive when their interest vests will be reduced proportionately to reflect the proportion of the capital that they received early by advancement.
Explain T’s discretion in bringing the payment into account
Trustees hold a trust fund worth £20,000 on trust for A, B, C and D in equal shares when they reach 18.
The trustees exercise the power of advancement to pay £5,000 to A. The trustees must choose whether this is to be treated as A’s proportionate share.
This could make a significant difference to A as £5,000 would amount to 100% of A’s share in the trust fund at the date it was paid.
If the £5,000 is treated as A’s proportionate share, A will no longer be entitled to anything from the trust fund, regardless of how much the fund is worth when A reaches 18. For example, if the fund grows to £25,000 this will be shared equally between B, C and D (£8,333 each).
If the £5,000 is not treated as A’s proportionate share, the trustees will take A’s payment into account before making their distributions, bringing the total trust value to £30,000. That is then shared equally between all four beneficiaries. B,C and D each receive £7,500. A has already had £5,000 so is entitled to an additional £2,500.
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