Unit 7

Question 1

What is the power to release capital to beneficiaries?

Answer 1

Under s32 TA 1925, T has power to advance a beneficiary’s share before they are entitled to it.

Also known as the ‘power of advancement’.

For this to apply:
- B must have an interest in capital.
- The payment must be for B’s advancement / benefit.
- The advancement must not exceed B’s entitlement.
- The advancement is taken into account when B becomes absolutely entitled.
- Any B with a prior interest must be an adult + provide written consent to the advancement.
Trust instrument can vary this power.

Question 2

Elaborate on ‘the payment must be for the B’s advancement / benefit’.

Answer 2

Defined in Pilkington v IRC - any money improving the material situation of B.

Re Paulings ST: The advancement must be for the beneficiaries. If B <18 - cannot give good receipt (money should be directed to the purpose).

Question 3

Elaborate on ‘the advancement must not exceed B’s entitlement’

Answer 3

s9 Inheritance and Trustees’ Powers Act 2014

If the trust was created on or before 1 Oct 2014 - the advancement CANNOT exceed HALF of B’s entitlement.

If the trust was created after 1 Oct 2014, the trustees can advance the WHOLE of B’s entitlement.

Question 4

Elaborate on ‘the advancement is taken into account when the beneficiary becomes absolutely entitled’

Answer 4

The advancement is deducted from B’s share - prevents unfairness between other B’s.

Question 5

Elaborate on ‘the trust instrument may vary the power’

Answer 5

Settlor can vary the power through the use of a clause within the trust instrument.

Common clauses:
- removing the need to obtain written consent from life tenant.
- giving T discretion whether to bring the advancement into account.
- extending s32 to allow advancements of capital to the life tenant.

Question 5

Elaborate on ‘any B with a prior interest must be an adult and give written consent to the advancement’

Answer 5

E.g. Trust for X for life remainder to Y.

Beneficiary with a prior interest = life tenant.

Check life tenant is an adult and whether they would give written consent to the advancement.

Question 6

What is the power to apply income for infant beneficiaries?

Answer 6

Advancing trust income to B’s <18.

Does not apply to B’s >18 as they are automatically entitled to their share of the trust income.

Question 7

What enables the trustees to advance trust income to infant Bs?

Answer 7

s31 TA 1925

T’s discretion.

Power to apply trust income for the beneficiary’s maintenance, education or benefit.

Apply the income directly for the purpose (e.g. pay fees to the university) OR apply income directly to B’s parents. <18 cannot give good receipt.

Any income not advanced must be accumulated (invested with the capital to produce a return and grow).

Question 8

Can the trust instrument vary s31 TA 1925?

Answer 8

YES
e.g. removing / postponing a contingent B’s right to trust income at 18.

Question 9

What is the variation of trust?

Answer 9

A trust may be varied by a power within the trust itself, by the collective consent of the beneficiaries, by the court, through its inherent jurisdiction, or by statute.

As a trust can operate for many years, there may be occasions where it is useful or necessary to vary the terms of the trust.

Can be varied via:
- Saunders v Vautier
- VTA 1958

Question 10

What is Saunders v Vautier?

Answer 10

One method of varying a trust.

The Bs can end the trust and insist the T’s transfer the trust property to them / new trustees on different trusts if all the beneficiaries:
- are in existence.
- >18 + full mental capacity.
- they unanimously agree.

(Bare trust for multiple Bs).

Question 11

What is Variations of Trusts Act 1958 (VTA 1958)?

Answer 11

The VTA 1958 allows the court to provide consent for certain types of beneficiary where they cannot do so for themselves. Thus, any variation still requires the consent of all other existing sui juris beneficiaries.

• infants / Bs lacking capacity (s1(1)(a)).
• B’s with a future entitlement (s1(1)(b)).
• unborn persons (s1(1)(c)).

Court must not approve unless it is for B’s benefit (Re Holt’s Settlement; Re Weston’s Settlement; Ridgewell v Ridgewell).

The variation must bear some resemblance of the original trust (Re Ball’s Settlement).

Question 12

Are the settlor’s intentions relevant when varying the trust?

Answer 12

S’s intentions are only relevant insofar that it relates to the benefits of B (Goulding v James).

Court is primarily focussed on B’s benefits.

Question 13

What does s57 TA 1925 provide?

Answer 13

Where the trustees do not have power to effect an act in the administration or management of the trust, they can apply to the court under s.57 for the necessary power which the court will grant if ‘expedient’.

Question 14

What are the Trustee Investment Powers?

Answer 14

Lending money to beneficiaries (s3 TA 2000). Must be a secured loan on land.

Buying a house for B’s to live in (s8 TA 2000).

Question 15

How should T’s respond if B’s ask to see trust documents?

Answer 15

Uncontroversial: Trust accounts, schedules showing how the trust fund is invested, the trust instrument (allow)

Confidential: Minutes of a trustees’ meeting where the exercise of a discretion was discussed, settlor’s letter of wishes to the trustees of a discretionary trust (refuse)

Schmidt v Rosewood Trust: B have right to apply to court for disclosure of trust documents but has no automatic right to see anything but can request documents. If T refuses, can seek court order but court will not order the release of confidential documents.

Breakspear v Ackland: scales are tipped against disclosing confidential documents.

Question 16

Are trustees under a duty to give reasons?

Answer 16

NO
Trustees do not have to give reasons for the use of their discretion.
Re Beloved Wilkes Charity (1851); Re Londonderry’s Settlement (1965)

BUT ‘legitimate expectation’ - Scott v National Trust (where B’s enjoy a legitimate expectation that a discretion will be exercised in their favour, T’s may be obliged to give reasons for a change in policy).

Question 17

What are trustee discretions?

Answer 17

Cannot following S’s intentions / wishes blindly (Turner v Turner). T under a duty to exercise discretion.

[Differs to a duty (mandatory, discretions are optional)].