Powers of a trustee

The powers of a trustee include:

  1. Power to delegate
  2. Power of maintainence
  3. Power of advancement

Power to delegate

The law’s attitude to delegation has not changed. Originally, the principle was that a trustee (himself a delegate) was not able to re-delegate. However, to keep up with business changes, trustees may not have the expertise to perform certain duties and since Trustee Act 1925, it is no longer for trustee to justify delegation.

Before 1926 (unless specifically authorised by the trust instrument) trustees could not delegate administrative functions. UNLESS doing so was reasonably necessary for their administration of the trust to the standard of a prudent man of business. See Speight v Gaunt 1883 and Learoyd v Whiteley 1887

The power to delegate is governed by Trustee Act 1925 and subsequently Trustee Act 2000.

S11(1) and (2) of the Trustees Act 2000 allows trustees to collectively delegate any of their function to an agent except:

  • any function relating to whether or in what way any assets of the trust should be distributed
  • Any power to decide whether any fees or any other payment due to be made out of the trust funds should be made out of income or capital
  • any power to appoint a person to be a trustee of the trust or
  • any power conferred by any other enactment or the trust instrument that permits the trustees to delegate any of their functions or to appoint a person to act as a nominee or custodian

Trustees may also delegate tasks to one of themselves (s12(1))

But not to trustees who are also beneficiaries (s12(2))

Where the agent is to carry out any investment, trustees must first provide a written “policy statement” to guide the agent’s exercise of his powers in the best interest of the trust (s15)

Trustees are required to periodically review any delegation arrangements (s22)

Any individual trustee may, by power of attorney, delegate any or all of his duties, powers or discretions whether administrative or dispositive, for up to 12 months (s25)

Delegation of asset management functions

Should trustees intend to delegate an “asset management function”, that is making an investment decision or the acquisition of property for the trust, or a disposal of property that is subject to the trust, then they must comply with S15 of the Trustee Act 2000.

Section 15 Trustee Act 2000

1.) The trustees may not authorise a person to exercise any of their asset management functions as their agent except by an agreement which is in or evidenced in writing

2.) The trustees may not authorise a person to exercise any of their asset management functions as their agent unless:

a.) they have prepared a statement that gives guidance as to how the functions should be exercised (a policy statement).

3.) The trustees must formulate any guidance given in the policy statement with a view to ensuring that the functions will be exercised in the best interests of the trust

4.) The policy statement must be in or evidenced in writing

 

 

Power of maintenance

Power of Maintenance / Advancement

Trustee Act 1925 S31 confers on trustees a power to apply, in their sole iscretion, income for the infant’s maintenance. This can be either:

vested (10k shares of XYZ plc on trust for my son absolutely)

contingent (Blackacre to my son if he obtains the age of 25)

Once he/she turns 18, then he’ll be entitled to any income arising on the property

During infancy, trustees may pay portions in all circumstances reasonable and must accumulate the rest.

Wilson v Turner (1883)  (What if payment is made unnecessarily?)

Income was paid to beneficiary’s father automatically without inquiry into needs. Father’s estate was required to repay the money.

Section 31(2) – Income accumulated instead of spent in one year, may be spent for maintenance in later years.

Where a beneficiary has a vested interest or an interest that vests upon turning 18, any income that instead of being spent on maintenance but was accumulated will then be held on trust for him absolutely – he can demand immediate payment of it.

Power of Advancement

This is the power to use capital of the fund to benefit the beneficiary who has only a future benefit.

S32 of Trustee Act 1925 empowers trustees to advance capital to beneficiaries of future or contingent interest in the capital, unless expressly excluded.

S32 allows trustees to advance to beneficiary up to one half by value of capital.

Subsequent advancements may be made over time so long as beneficiary has not been paid out sums amounting to half of his presumptive share.

In some cases – trustees need the prior consent of one beneficiary to advance money to another. (A for life and then to B for e.g.)

Exercising the power of maintenance

When deciding whether to use the income for the infant’s maintenance, education or benefit, trustees are required by S31(1) of the Trustee Act 1925 to consider “the age of the infant, and his requirements and generally to the circumstances of the case, and in particular to what other income, if any, is applicable for the same purposes”.

In Wilson v Turner 1883, trustees paid income over automatically to the infant’s father without consciously exercising their discretion and were liable for breach of trust when the father used the money for his own benefit.

 

 

Power of advancement

Maintenance is the payment of income to an infant beneficiary for his/her maintenance. Advancement is the payment of capital to any beneficiary before the time he is entitled to the trust fund.

What counts as benefit?

In Lawries v Bankers 1858, it was the purchase of a commission in the army

In Re Williams Will Trust 1953, it was the purchase of business premises so that the beneficiary could setup as a doctor

The word “benefit” in statute has enabled trustees to make the payment for any form of material benefit of the beneficiary.

Pilkington v IRC (1964) Viscount Radcliffe said: “means any use of the money which will improve the material situation of the beneficiary.

Pilkington also suggests that funds advance may be settled on discretionary trusts.

In Re Clore’s Settlement Trusts (1996) – Court approved an advancement to a rich beneficiary allowing him to make a charitable donation he felt morally obliged to make. It was material, although not decisive, consideration that by the advancement of capital the beneficiary could make the donation with much less severe tax consequences than if he did so out of his income.

Improper use of the Power of Advancement

Trustees must ensure the money actually benefits the beneficiary. You cannot advance without any responsibility (must even to inquire as to its application).

Trustees also cannot make an advancement that benefits the trustees or benefits anyone else other than the beneficiary. In Molyneux v Fletcher 1898, trustees advanced money to a beneficiary so that she could pay her father’s debt to one of the trustees – this is an improper use of the power of advancement.

Are there limits to the use of advancement? 

Yes, the three limits are in Trustee Act 1925 and they are:

1.) Only half the presumptive share may be advanced

2.) The advancement must be brought into account

3.) Consent is required where there is a prior interest

Categories: Trusts: Basics

Leave a Reply

Your email address will not be published. Required fields are marked *