Power of Advancement

Power of advancement

Trustees may apply trust capital for the advancement or benefit of a beneficiary before they become absolutely entitled

Statutory source of advancement power

Trustee Act 1925 s32

Purpose of advancement

Allows trustees to give a beneficiary part of their future capital early

Who the power applies to

Beneficiaries with vested or contingent interests in capital

Beneficiary age and advancement

The power can be used for both minors and adults

Maximum advancement amount (modern trusts)

Trustees may advance up to 100% of the beneficiary’s prospective share

Nature of advancement power

It is a discretionary power, trustees are not obliged to exercise it

Meaning of advancement

Any use of money that improves the beneficiary’s material situation

Examples of advancement

Buying a house, paying for education, purchasing a car, starting a business

Advancement for moral benefit

Capital may be used for purposes that improve a beneficiary’s moral or personal well-being

Payment to adult beneficiary

Capital can be paid directly to the adult beneficiary

Payment to minor beneficiary

Capital must be paid to a parent, guardian, or directly to the provider of goods or services

Reason minors cannot receive capital directly

Minors cannot give valid legal receipt for money

Trustee duty after advancement

Trustees must ensure the money is used for the intended purpose

Improper advancement example

Allowing parents to use advancement money for their own benefit is a breach of trust

Consent rule for advancement

Consent is required from any beneficiary with a prior interest

Example of prior interest requiring consent

Life interest trust where life tenant must consent to advancement

Consent requirement condition

Consent must come from a beneficiary who is adult and of sound mind

No consent required rule

Consent is not required from beneficiaries with only future or contingent interests

Advancement and contingent interests

The power can be used even if the beneficiary’s interest has not yet vested

Bringing advancement into account

Early capital payments must be taken into account when the trust capital is later distributed

Purpose of bringing into account

Ensures the beneficiary does not receive more than their fair share

Proportionate share method

Advancement can be treated as the beneficiary’s entire share of the trust

Monetary deduction method

Advancement can be treated as a monetary payment deducted from the beneficiary’s final entitlement

Advancement vs maintenance

Advancement uses capital, maintenance uses income