#13753 - Explaining Advice To Client - Private Client

S.31 Maintenance - Trustees Act 1925 amended

• Amendment: trustees given absolute discretion instead of having to be reasonable.

“This is a important clause in the Will which gives your trustee [NAME?] the power to look after / provide for any young members of your family who inherits under the will. [NAME minor beneficiary]. If / when he inherits under your will, the trustee will be in charge of providing for his education and his general daily expenses by using any money that the estate generates [this is referred to as ‘income’ – it represents funds such as rental income; dividends from shares; By allowing the trustee absolute discretion to use this money, you are making it easier for the trustee to perform his role. Usually under statute the trustee is restricted in performing this role and he is required by law to be “reasonable” and consider [NAME of B] age, circumstances and other sources of income when exercising this power. This can often lead to later conflict over this issue of what is reasonable – something which I am sure you wish to avoid.

The amendment when removing this word therefore allows your trustee to use his discretion without having to justify himself and thus reduces the risk of being challenged. The clause does highlight the important role your trustee is required to perform. By giving him / her this power you must be sure you are completely confident in their ability to perform the role.

• Amendment: Where beneficiary has a contingent interest [i.e. he must attain age of 25 to receive the legacy] then the will can remove the right for B to receive the income at 18:

Under statute law the beneficiary [NAME] will be entitled to receive the income [“any money coming into the estate”] once he has reached the age of 18 – despite your wishes that he not receive the lump sum / everything you own until he is 25. The trustee’s role for looking after the beneficiary [NAME] is effectively over and your trustee will no longer have the power to use his discretion over how the money should be used [the power described above].

The drafted clause in your will has removed the right for the beneficiary [NAME] to receive all the income/ lump sum at 18. Instead, the trustee’s power to use his discretion over the funds will continue until beneficiary [NAME] has reached [AGE – 25]. This is particularly suitable if you feel beneficiary [NAME] will be too young to receive the substantial sum of income that your will provides for him.

S.32 Advancement – Trustee Act 1925 amended

• Amendment: remove the limitation that requires trustee to only use up to half of the beneficiary’s share

The clause has removed a statutory limitation which restricts how your trustee [NAME] is to deal with your estate and provide for the people who inherit under your will [NAMES]. Through the appointment of your trustee, you are conferring onto him / her / them the power to put forward a lump sum which can be received by those who inherit under your will [NAME beneficiaries]. This is commonly referred to as the power to “advance capital”. The Trustee Act 1925 [S.32 in particular] restricts this power which means that your trustee [NAME] can only advance a maximum of half the capital value of your estate. For example, [ GIVE EXAMPLE].

The drafted clause in your will eliminates this restriction imposed by statute. It will mean your trustee [NAME] has more flexibility when dealing with your estate following your death. So for example, if your beneficiary [NAME] requires [EXAMPLE] then your trustee [NAME] can advance over half of everything you own to provide for this requirement – should that be necessary and appropriate in the circumstances. Trustee will have discretion to decide what is appropriate.

• Amendment: advancement must be brought into account when the beneficiary becomes absolutely entitled:

The clause has removed the requirement for your trustee [NAME] to consider how much each beneficiary [NAMES] has received when it comes to the point that your beneficiaries are entitled to receive your estate in their own right. [i.e. this will draw to a close your trustee’s role in providing for the beneficiaries. The trust effectively comes to an end]. This requirement is restrictive because it may lead to unfairness [give example]. It allows your trustee to have more flexibility.

• Amendment: Trustee must get consent from any person with a prior interest to the lump sum:

The clause has removed the requirement for your trustee [NAME] to get prior consent from [NAME of relevant beneficiary] before making an advancement of a lump sum to either [NAME residuary beneficiaries – these are the beneficiaries who are entitled once those with the life interest have passed away].

The clause drafted in your Will can therefore make it easier and more flexible for your trustee [NAME] to look after those who inherit under your will. This is relevant because under your will you give a life interest to your spouse [NAME] [this allows your spouse to benefit from your estate whilst he/ she is alive. Following this your children have the residuary interest [i.e. they inherit after your spouse has passed away]. The drafted clause allows your trustee to make a lump sum payment to your children without having to obtain your spouse’s [NAME] consent.

Power to insure –

• No need to amend S.34 TA 2000

• However – does the will refer to S.19 TA 1925 in which case it will be amending that provision. Advise the client that this is not necessary.

Power to appropriate – amend S.41 AEA 1924

• Amend: The requirement for the trustee to get consent from the beneficiary requesting the appropriation

This clause refers to the trustees [NAME] power to appropriate. This is a power allowing someone inheriting under your will the opportunity to choose another item out of your assets that is more suitable to their needs or wishes. They can only choose assets which you have not already given away in your will. So for example, [GIVE EXAMPLE of who might want to appropriate. i.e .Bob wants clock instead of cash].

Under statute it is a mandatory requirement that your trustee get the consent of [NAME beneficiary] before this power to appropriate can be exercised.

The clause drafted in your will has removed the need for obtaining this consent. It is usually an unnecessary and onerous task for a trustee to carry out. The clause will therefore make the task of your trustee somewhat easier.

Please consider this draft and its implications carefully. If you do wish for the need for consent to apply we can easily amend your will.

• Amend: Remove the need for re-valuation [so appropriation takes effect with the value at the date of death]

This clause also refers to the power to appropriate [see sentence above]

Under statue it is a mandatory requirement that the asset being appropriated is valued at the date of the actual appropriation. [So for example, if [beneficiary NAME] wishes to receive a clock instead of his lump sum gift from you, the clock would have to be valued at the date which he is to receive that clock [the “date of appropriation”]. Given that most of your assets, including the clock, will be valued at the date of your death, S.41 AEA is requiring a re-valuation of an asset which is extremely unlikely to have changed in value since the date of your death. The re-valuation is therefore an unnecessary and costly process that can well be avoided.

The drafted clause in your will has removed the need for the re-valuation of any asset which is to be appropriated, therefore making the task of your trustee both easier, cheaper and less cumbersome.

Power to accept receipts from / on behalf of a minor

• Amend: Allow trustee to accept valid receipt from a minor who is 16.

By appointing your trustees you are conferring onto them the power to make payments of lump sums or income payments to any minor beneficiaries [which includes any beneficiary under the age of 18 - so potentially – NAMES]. It is a mandatory requirement that your trustees obtain receipts for any payment they make to such a beneficiary. This is done to discharge them of their liability [so if a dispute occurred the receipt would provide evidence that the lump sum had been paid].

Under general law your trustees [NAME] cannot accept valid receipts from anyone who is a minor [i.e. below the age of 18]. The Children’s Act 1989 allows your trustees to accept valid receipt from a parent of guardian of a minor – so potentially [GIVE NAMES / examples]

The clause drafted extends the power of your trustee, allowing them to accept valid receipt from any person inheriting under your will who attains the age of 16, thereby making administration easier and more straightforward.

Power to invent

• Generally no need to amend – S.3 TA 2000 confers adequate powers onto the trustee. Restrictions from the Trustee Investment Act 1961 have been removed.

• If the will contains any restrictions / exclusions on Ts power to invest these will continue to apply.

• Example: ethical investment provision prohibiting certain investments:

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