Trustees powers and duties

Question 1

What is the general power of investment under S3 TA 2000?

Answer 1

S3 TA 2000 sets out the general power of investment. Under this provision, a trustee may make any kind of investment that they could make if they were absolutely entitled to the assets of the trusts.

Question 2

What is the standard investment criteria set out in S4 TA 2000?

Answer 2

1. Suitability-is the investment of a suitable kind and is the particular investment suitable?
2. Diversification-trustees must also consider the need for diversification of trust investments, which will depend on the size and nature of the particular trust.

Question 3

What must trustees do before exercising their powers of investment?

Answer 3

They must obtain and consider proper advice in accordance with S5 TA 2000. The advice must relate to how the power should be exercised, with reference to the standard investment criteria.

Question 4

What is the statutory duty of care under S1 TA 2000?

Answer 4

The statutory duty of care is found in S1 TA 2000 and requires trustees to ‘exercise such care and skill as is reasonable in the circumstances’.

Question 5

Do trustees have a power to acquire land?

Answer 5

Yes, under S8 TA 2000 trustees have a statutory power to acquire freehold or leasehold land in the UK (not overseas). This power may be exercised for investment purposes but also more widely.

Question 6

How may trustees delegate their investment powers?

Answer 6

By an agreement evidenced in writing as per S15 TA 2000, which includes a term ensuring compliance with a written ‘policy statement’ to be prepared by the trustees.

Question 7

What is the ultimate obligation of trustees?

Answer 7

Trustees will always have an ultimate obligation to distribute the capital and bring the trust to an end.

Question 8

What is the basic rule in relation to distributing trust property to adult beneficiaries?

Answer 8

The trustees must distribute the income as it arises, including beneficiaries with contingent interests which carry the intermediate income (s31(1)(ii) TA 1925).

Question 9

What is the basic rule in relation to distributing trust property to minor beneficiaries?

Answer 9

The trustees must accumulate the income that arises before they turn 18 (s31(2) TA 1925). Accumulated income is added to the capital and distributed with the capital.

Question 10

What is the statutory power of maintenance under S31 TA 1925?

Answer 10

Power to pay income for the maintenance, education or benefit of a minor beneficiary. Applies to:

-Vested, future interests

-Contingent interests which carry the intermediate income

Does not apply where another beneficiary has a prior interest e.g. successive interest trusts.

Question 11

What is the statutory power of advancement?

Answer 11

Power to pay capital for the advancement of a beneficiary whose interest has not yet vested in possession. Applies to:

-Adult and minor beneficiaries

-Vested, future interests

-Contingent interests

Requires the consent of any beneficiaries with a prior interest.

Question 12

When can the statutory power of maintenance be used?

Answer 12

It can be used for the benefit of minor beneficiaries with vested or contingent interests in the capital (as long as no other beneficiary has a prior interest in the income).

Question 13

What are some common uses of the statutory power of maintenance?

Answer 13

The trustees have a very broad discretion in respect of the trust income. Common uses might include:

-school fees or other training

-medical bills

-food, clothing and rent

-leisure and holidays

Question 14

Who should the trust income in relation to the statutory power of maintenance be paid to?

Answer 14

It should be paid either to the children’s parent/guardian or the provider of the goods or services that are being acquired as a minor beneficiary cannot give good receipt.

Question 15

When can the statutory power of advancement be used?

Answer 15

The statutory power of advancement:

-may be used by both adult and minor beneficiaries

-applies to both vested and contingent interests

-can be modified or excluded by the trust instrument

Question 16

How much capital can be paid under the statutory power of advancement?

Answer 16

The trustees may use the power of advancement to pay up to 100% of a beneficiary’s prospective entitlement to the capital.

Question 17

What does advancement mean?

Answer 17

Advancement has now been recognised to provide for an immediate financial benefit for a beneficiary, such as to avoid an inheritance tax liability.

Pilkington v IRC (1964): ‘any use of the money which will improve the material situation of the beneficiary’.

Question 18

Who should the trust capital in relation to the statutory power of advancement be paid to?

Answer 18

If the beneficiary is an adult, the trustees can pay it directly to him but must ensure it has been used for the requested purpose.

If the beneficiary is a minor, it should be paid to their parent/legal guardian or to the provider of goods or services that are being acquired as a minor cannot give good receipt.

Question 19

What is required before exercising the statutory power of advancement?

Answer 19

As the exercise of the power may prejudice other beneficiaries, the power may only be exercised with the written consent of beneficiaries with a prior interest.

Consent can only be provided by beneficiaries who are of full age and sound mind.

Question 20

What does ‘bringing payment into account’ mean in relation to the statutory power of advancement?

Answer 20

Any such payment under the statutory power of advancement must be brought into account when the beneficiary becomes absolutely entitled. This means the 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.