#14759 - Maintenance And Advancement - GDL Equity and Trusts

Topic 11 – Maintenance and Advancement

• Trustees have a variety of powers = power of sale, power to maintain minors and to advance capital (focus here)

  • = Powers allow trustees to make ‘early’ payments of income/capital to Beneficiaries, even before Bs become absolutely entitled in equity (useful for Bs who have a contingent interest i.e. interest conditional on reaching a certain age, but have not satisfied the contingency yet).

  • = Make payments for certain purposes according to their individual needs, ensuring Bs are not left destitute while waiting for their interest to vest.

• Power of Maintenance/Advancement = provided by statute in ss 31 and 32 Trustee Act 1925

  • S69(2) = power conferred by Act apply if and only so far as contrary intention not expressed in trust instrument

• Note – power to advance capital (s32) amended by Inheritance and Trustees’ Powers Act 2014 s8 (permitted extending ‘power to advance capital’ of the whole of the prospective share of capital)

• Note – trustees CANNOT delegate their powers under ss31/32 TA 1925

Difference between beneficiary’s right to the income and to the capital of a trust

• Income = A life interest gets income arising from trust property

• Capital = B’s interest in remainder, is in the capital

• Vested = Interest by Beneficiary in trust property that has no conditions attached [unconditional interest] (B doesn’t have to do anything to become entitled to that particular interest). Exists currently (‘present right to present enjoyment’), A interest ‘vested in possession’

  • Vested in possession (property enjoyed presently) OR

  • Vested in interest (an interest in the future). So an interest ‘vested in interest’ something you see with successive interests.

  • Example = ‘to A for life, remainder to B’ = both and B have vested interests because they don’t have to do anything to become entitled to their respective interests.

    • A = life tenant who will receive income generated by the trust capital.

    • Vested in possess = as A has ability to enjoy interest during lifetime.

    • B = remainder-man who will receive trust capital once A passed away.

    • Vested in interest = interest gained by B once A has passed away.

• Contingent Interest = contingency is an event not guaranteed to take place

  • Contingent if interest only arise if B still alive on A’s death (‘remainder B if he survives A’), subject to a condition which may or may not arise. Value depends on age of A and B.

• Statutory provisions for trustees powers:

• If nothing expressly on trust with respect to maintenance/advancement, then use statute provisions as basis for trustees powers:

• S31 – Income (maintenance)

• S32 – Capital (advancement)

• IF express provisions within trust instrument = S69(2) – Express provisions prevail over default statutory provisions above^

  • Re Turner’s WT =S69(2) express provisions in a trust instrument will prevail over default statutory provisions.

• Capital = property subject to the trust (property left on trust – money, land)

• Income = money/property generated by the capital

  • Land = rents

  • Money = invested, generate income

  • Shares = dividends generate income

• Accumulations = income, not expended during current year

  • Present year = income generated during particular time period

  • Accumulations = any income not spent during that particular year.

• Minority = someone under 18, under age of majority

• Majority = age when you legally become an adult, 18.

• S31 Powers of Maintenance:

• = Application/payment of income (present or accumulated) generated by trustee property

• Trustee has discretionary power possessed, so they don’t have to be used – trustee under no compulsion to pay out income OR capital unless sure/want to do so!

  • Any doubt to pay out, don’t do it – trustee may be liable, breach of trust – strict liability.

• Has to be for ‘maintenance, education or benefit’ (at least 1 but can be more). Only for U18s (doesn’t matter if vested or contingent interest).

  • Over 18 – powers under S31 lapse, trustee no longer discretion to pay out present/accumulated income.

• Example:

  • ‘To Alastair, age 14, if he attains the age of 30’ [contingent interest as no guarantee – only entitled to capital then]

  • = No right to the income generated by trust property (Minor, has no right as too young to give a valid receipt to receive it)

  • = T has power to pay/apply income S31(1)(i) TA 1925

  • for A’s ‘maintenance, education and benefit’

  • = Accumulations added to capital S31(2) TA

    • I.e. any income not paid out before Alastair’s majority before he’s 18, is added to capital share. So will increase the amount of money/property he will receive when turns 30.

  • Accumulations – used for ‘maintenance, education or benefit’ S31(2)(ii) TA

    • For a Minor, under 18, no distinction between present and accumulated income, and all applied/used for above…

• Power to apply income for maintenance – conscious exercise of discretion (Wilson v Turner). Power that cannot be used blindly, trustee has an obligation to investigate, and use their discretion. So if B confronts or comes to Trustee and asks for income generated. T not able to blindly pay it out, MUST use their discretion (positive obligation)

• Use of income (powers of maintenance) = need to be of primary benefit for the B – BUT incidental benefits are fine, as long as primary benefit is with B. Fuller and Evans (schools fees for B paid from income from trust, good for B but also benefits parents as they no longer have to pay school fees). Primary benefit still with B.

• Example:

  • ‘To Alastair, Age 18, if he attains the age of 30’

  • Entitled to income S31(1)(ii) TA – even though he has a contingent interest, doesn’t matter, the income becomes his as of right when 18. (like salary, nothing trustees can do to stop him – will go to him however income calculated/generated)

  • May be entitled to accumulations (income may be accumulated) – alastair may ask, if

    • Interest was vested during minority e.g. ‘to A for life’ [NO as had contingent interest when a minor]

    • At 18, acquires absolute interest in capital e.g. ‘to A absolutely at 18’ [NO as his interest won’t vest until he turns 30]

  • Otherwise accumulations follow the capital (he is not entitled to accumulations), discretion lapses when B becomes adult (he’s not entitled to them and trustees not able to apply them either because that power has now lapsed). Nothing he can do to get accumulations.

  • He doesn’t lose them – they become ‘accretions’ added onto his capital, when he turns 30. Accumulations will mean he will generate income, as its increased, which he will be entitled as of right.

• Applies:

  • Where B is an unmarried minor (‘infant’ as per s31)

  • Where attained majority or earlier married and have contingent interest e.g. because they have not yet attained a specific age (25 etc)

• NB – B under 18/unmarried cannot give valid receipt – trustee should not pay money even if absolutely entitled.

• Beneficiary U18:

  • During minority, B has NO right to income where S31 applies.

  • According to terms of trust, minor B has contingent interest, plainly have no right to income.

  • S31 Minor B, no right to income even if apparently vested interest, whether in income (‘to A for life’) or in capital (‘to A absolutely). Significant tax implications.

  • S31 gives trustees power during the minority of a B to pay income for ‘maintenance, education or benefit’ of the B.

    • Power applies whether interest vested/contingent, or vested but liable to divesting (because subject to a power to appoint income or capital elsewhere)

    • Trustees may pay income to B’s parent/guardian or ‘otherwise apply’ it e.g. paying school fees directly.

    • May use whole/part of income from property held for them.

    • Any income not paid/applied as above ‘MUST be accumulated’ – reinvested as capital to produce further income S31(2). During B’s minority accumulations may be used for their maintenance in any subsequent years in addition to the income of that years S31(2)(ii) = needs tobe considered just before minor attains 18

    • Trustee may exercise this power under S31 ‘subject to any prior interests/charges affecting [the trust] property”. So if the trust is ‘for A for life, remainder to B (a minor)’ B can expect no income from the trust until A dies or surrenders their life interest.

    • THERE is NO obligation – to make payments for maintenance. The obligation is to accumulate income to the extent that the power of maintenance is not exercised. The trustees should consider the exercise of power and must NOT make automatic payments Wilson v Turner

      • BUT provided they act in good faith, the exercise of the power is unlikely to be interfered with by the court.

    • Case = Fuller v Evans = held as long as trustees exercise their discretion in best interests of Bs, it doesn’t matter that it accidentally benefits the parents (payment of school fees benefited the father, who was obliged to pay under divorce proceedings).

    • NB – the power of maintenance is exercisable only in favour of B under 18

• Beneficiary over 18

  • B becomes entitled to the income. Applies in obvious example of a gift to A for life, when A reaches 18, but by virtue of S31 also applies where S has a contingent interest ‘to A if he reaches 25’. If A dies before 25, the capital will not vest in them, but nevertheless, once they reach 18, they have the right to income in the meantime.

• Accumulations:

  • During B’s minority – income not paid out must be accumulated (can be used for maintenance in subsequent years of minority)

  • When B reaches 18, 1 of 2 situs apply:

  • 1. If B has vested interest in income during their minority, they are entitled to the accumulations at...