WS 5 - Running a trust: Powers, Controlling and Variation

Question 1

Re Brockbank

Answer 1

• Performance is at the discretion of trustees; can’t be forced to exercise power

Question 2

Can statutory powers be excluded by trust instrument?

Answer 2

• Remember that statutory powers are implied only if there is no contrary provision in the trust instrument (MUST ALWAYS LOOK AT THE TRUST INSTRUMENT FIRST)

Question 3

Power of advancement?

Answer 3

s.32(1) TA 1925 Power to advance in their absolute discretion, to those with an interest in trust capital, vested or contingent, provided:

Question 4

s.32(1)(a) TA 1925

Answer 4

Does not exceed half of B’s share (once one half received, trustees cannot give more even if TF goes up in value – Re Marquess of Abergavenny’s Estate – although the terms of the trust may remove this restriction); and,

Question 5

s.32(1)(b) TA 1925

Answer 5

Is brought in account as part of such share; and

Question 6

s.32(1)(c) TA 1925

Answer 6

Does not prejudice beneficiaries with prior interest (unless of full age and consents in writing) – NEED THIS PERSON’S CONSENT FOR ADVANCEMENT

Question 7

Does s.32 ta 1925 apply to children?

Answer 7

yes

Question 8

Does the power of advancement apply to life tenants?

Answer 8

– s.32 DOES NOT APPLY TO LIFE TENANTS AS THEY ONLY HAVE AN INTEREST IN THE TRUST INCOME, NOT THE TRUST CAPITAL!!!!!!

Question 9

Does the power of advancement apply to objects of a discretionary trust?

Answer 9

DOES NOT APPLY TO OBJECTS OF A DISCRETIONARY TRUST UNTIL TRUSTEES HAVE EXERCISED THEIR DISCRETION

Question 10

• Pilkington v IRC

Answer 10

advancement = any use of money which will improve B’s material situation (Viscount Radcliffe)

Question 11

What should trustees do when advancing to minors?

Answer 11

cannot give good receipt. Advance direct to the cause

Question 12

Re Pauling’s Settlement

Answer 12

when parents of young beneficiaries request an advancement to B, trustees should be cautious, and if they doubt intentions, they should apply money directly to the cause (e.g. school fees)

Question 13

What if B has received an advancement but dies before reaching contingency?

Answer 13

B’s estate need not repay the advancement

Question 14

s.31(1)(i) TA 1925

Answer 14

if B under 18, T can pay whole/part of trust income (whatever is reasonable) to his parents or towards B’s maintenance, education or benefit – BUT – only if there are no prior interests (e.g. B is not the life tenant)

Question 15

s.31(1)(ii) TA 1925

Answer 15

When B reaches 18 and still does not have a vested interest, he may demand trustees to pay him all trust income

Question 16

s.31(2) TA 1925

Answer 16

Any income not so used must be accumulated (invested like capital). Proviso to s.31(2) – accumulations can be used for future maintenance, education and benefit while B under 18

Question 17

Can Bs compel Ts to carry out duties?

Answer 17

Yes

Question 18

Tempest v Lord Camoys (1882)

Answer 18

Courts may intervene if trustee’s exercising powers or duties improperly

Question 19

What if the trustees merely do as the settlors tell them?

Answer 19

a. Court may intervene if trustees merely do as settlor tells them, rather than exercising discretion (Turner v Turner [1983])

Question 20

When else will court intervene in exercise of trustee power/duty

Answer 20

b. Court will intervene to prevent the exercise of the discretion in favour of a non-object

Question 21

Re Manisty’s Settlement

Answer 21

2. Court may intervene if trustees act capriciously

Question 22

Dundee General Hostipals Board of Management v Walker [1952]

Answer 22

3. Courts may intervene if the exercise of power is wholly unreasonable

Question 23

Schmidt v Rosewood Trust

Answer 23

c) Beneficiaries entitled to see trust documents, subject to confidentiality (Schmidt v Rosewood Trust [2003] Privy Council)
1. Even if confidential, court has power to order them to be disclosed. Court will need to take account of all interests

Question 24

Re Londonderry’s Settlement

Answer 24

d) Documents containing trustee’s deliberations/reasons for decisions made:
1. Beneficiaries not entitled to see these (Re Londonderry’s Settlement [1965])

Question 25

Klug v Klug

Answer 25

2. If trustees do state reasons, court may find decision void if they deem it irrational (Klug v Klug – revealed had not exercised power as beneficiary daughter had married without her consent. Deemed irrational.)

Question 26

Exceptions to Re Londonderry’s Settlement?

Answer 26

a. Where B had a legitimate expectation that discretion would be exercised in his favour and it wasn’t (e.g. if income suddenly stops) (Scott v National Trust)
b. Pension funds. Different to Bs of family trust. Here the Bs pay for the benefit

Question 27

Justification for keeping reasoning secret?

Answer 27

1. Cause bad feeling in families

2. No trustee would take a position if thought his decisions on discretionary matters open to challenge

Question 28

(a) Saunders v Vautier: beneficiaries can end the trust if:

Answer 28

• 18+ and of sound mind (sui juris)
• All agree
• Are all in existence and ascertained, and absolutely entitled

Question 29

Re Smith [1928],

Answer 29

• According to Re Smith [1928], Saunders v Vautier does apply to discretionary trusts where all the objects are:
o Sui juris
o Ascertainable
o Agree

Question 30

Does saunders and vautier apply to successive interests

Answer 30

• Saunders v Vautier does apply to trusts containing successive interests, but there Y’s children are infants and some may be unborn and so not everyone sui juris

Question 31

s.1(1) Variation of Trusts Act 1958

Answer 31

• S.1(1): On application, courts can consent for those who cannot consent themselves, provided variation will benefit them.

Question 32

Goulding v James

Answer 32

. Immaterial whether variation is contrary to settlor’s wishes

Question 33

o Re Holt

Answer 33

eg of entitlement being delayed in terms of age, but this disadvantage being offset by a prior life interest being surrendered – allowed by court

Question 34

o Raising the contingency age to a more responsible age

Answer 34

Re T

Question 35

On whose behalf can the court consent over s.1 VTA 1958/

Answer 35

• S.1(1)(a) – on behalf of those who by reason of infancy or other incapacity is incapable of assenting
• S.1(1)(b): on behalf of next of kin
• S.1(1)(c): - on behalf of unborn children

Question 36

o Re Ball’s Settlement:

Answer 36

Variation of the trust (e.g. altering interests) is permitted, but a complete resettlement of the trust will not be approved (e.g. changing the beneficiaries)

Question 37

(Knocker v Youle [1986])

Answer 37

o Court cannot consent for an adult ascertained who is capable of consenting himself