Trusts

Who can be a trustee?

Anyone except a minor (s 20 LPA 1925), subject to practical limits (conflicts, fitness) and any extra rules in the trust instrument.

What are the numerical limits on trustees of land?

Maximum 4 (legal title); minimum 2 (to give good receipt).

What happens if a transferee disclaims trusteeship after the settlor transfers property to them?

They hold on bare trust for the beneficiaries until new trustees are appointed.

List, in order, who may appoint a replacement trustee.

1. Express power in the instrument;

2. trustees under s36 TA 1925 (including a disclaiming trustee, s 36(8));

3. beneficiaries with Saunders v Vautier rights, s 19 TLATA;

4. the court, s 41 TA 1925

5. Charity Commission for charitable trusts.

In a testamentary trust, what happens if the named trustee predeceases the testator?

PRs temporarily hold on trust and appoint permanent trustees.

Named executors-as-trustees renounce executorship. Who appoints replacements?

The renouncing executors

A third-party named trustee disclaims under a will. Who can appoint?

The disclaiming trustee (s 36(8)); if they decline, the PRs can appoint.

A minor is left a legacy absolutely. What can PRs do under s 42 AEA 1925?

Appoint trustees (usually parent/guardian) and transfer the legacy to them. Need at least 2 and no more than 4 trustees, or a trust corporation.

Can the settlor automatically appoint new trustees after the trust is created?

No, unless the instrument reserves an express power.

On what grounds can s 36(1) TA 1925 be used to replace a trustee?

eath; abroad for over a year; minor or lacks capacity; wishes to retire, refuses to act, or unfit to act.D

How are removed trustees and dissolved corporate trustees treated under s 36?

Removed trustees are treated as dead (s 36(2)); dissolved corporate trustees are treated as incapable of acting (s 36(3)).

Who can appoint additional trustees under s 36(6), and what is the limit?

The person named in the will/deed for that purpose, otherwise the current trustees. Must be in writing; cannot exceed 4 trustees (unless the instrument allows).

What formality applies to s 36 appointments?

They must be in writing.

What does s 19 TLATA 1996 allow?

Beneficiaries with Saunders v Vautier rights (all adult, sound mind, together absolutely entitled) can direct trustees in writing to appoint a new trustee, avoiding collapse and resettlement. Not available if the instrument has an express power to appoint.

Which principle underlies the court's power under s 41 TA 1925?

Equity will not allow a trust to fail for want of a trustee.

What three principles guide the court when appointing trustees?

(1) Settlor/testator's wishes; (2) don't appoint where beneficiaries dispute suitability; (3) whether the appointment promotes or impedes administration (consider existing trustees' views, but test their reasonableness).

What can the court do on appointing a trust corporation?

Authorise remuneration

What powers do court-appointed trustees have?

The same as the original trustees (s 43 TA 1925).

What is the Public Trustee's role?

Last-resort trustee under the Public Trustee Act 1906 where no one else will act; entitled to charge.

Which body can appoint trustees of charitable trusts?

The Charity Commission (s 69(1)(b) Charities Act 2011).

Where do the default dispositive powers come from and can they be changed?

Ss 31 and 32 TA 1925 are defaults; they can be varied or excluded by the instrument (s 69(2) TA 1925)

Which statutory power deals with income, and which with capital regarding dispositive powers?

Income: maintenance (s 31). Capital: advancement (s 32).

Who can benefit from s 31 and from s 32 regarding dispositive powers?

S 31: minors only. S 32: minors and adults.

Life interest for A, remainder to B (17). Can trustees use s 31 to pay income to B?

No. A has a prior interest in the income; B has no interest in it.

Life interest for A, remainder to B (17).: can trustees advance capital to B under s 32?

Yes, but only with A's written consent (prior interest).

Contingent interest: capital for A (17) if A reaches 21, otherwise B (25). Is B's consent needed for an advance to A?

No. B's interest is subsequent, not prior.

What does s 32 allow?

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

What is the maximum amount advanceable (post-1 Oct 2014 trusts)

Up to 100% of the beneficiary's prospective entitlement. (Pre-2014 trusts: 50%.)

Can a beneficiary demand an advance?

No. It is a discretion, not a duty.

Give the Pilkington v IRC [1964] definition of advancement.

Any use of the money that will improve the material situation of the beneficiary (Viscount Radcliffe). Includes IHT-saving advances.

When can advancement cover charitable purposes?

Only to the extent the beneficiary would otherwise have used their own resources for such purposes (Re Clore's ST; X v A).

To whom is an advance paid?

Adult: directly or via purchase of goods/services. Minor: parent/guardian or the provider, not the minor.

What duty do trustees have after advancing money to a recipient?

Ensure it is used for the purpose advanced; if misused, stop paying and consider paying third parties directly.

What happened in Re Pauling's ST [1964]

Bank trustees advanced money that was used for the parents' benefit (e.g. house in parents' names). They had failed to check application, which was a breach of trust.

Whose consent is needed for an advance, and in what form?

Written consent of any beneficiary with a prior interest, who must be of full age and sound mind. Not needed from subsequent-interest holders.

£20,000 fund for A (19) and B (16) equally at 25. A wants £12,000. Result?

Max £10,000 (A's share). For more, A must use Saunders v Vautier to collapse their share.

What does "bringing the advance into account" mean?

When the beneficiary becomes entitled, what they receive is reduced to reflect the earlier advance.

Two ways to bring an advance into account?

As a proportionate share of the fund, or as a fixed monetary sum.

£20k fund, A/B/C/D equal at 18. £5,000 advanced to A. Outcome if (a) proportionate and (b) money amount, with fund later £25k?

(a) A gets nothing more; B, C, D get £8,333 each. (b) Fund treated as £30k; each gets £7,500; A already had £5k so receives £2,500 more.

What is the default position for income of a minor beneficiary?

Trustees must accumulate it until the beneficiary is 18; it is then added to capital and paid with it.

For what purposes may income be paid under s 31?

Maintenance, education or benefit of a minor.

Which interests does s 31 apply to?

Vested interests and contingent interests that carry the intermediate income, provided no one has a prior interest in the income.

Can s 31 cover accumulated income?

Yes. Both current and accumulated income.

To whom should income be paid for a minor?

Not the minor (no good receipt). Pay the parent/guardian or the provider directly (e.g. the school).

Nature of the s 31 power and what must trustees do?

A fiduciary power: trustees must consciously consider it and act in good faith in the beneficiary's interests.

Is it a problem if a parent indirectly benefits from maintenance?

No, provided the primary benefit is the minor's.

What does Wilson v Turner (1883) establish?

It is improper to pay income to a parent/guardian unquestioningly, assuming it will be used for the minor.

What happens to accumulated income unspent at 18?

It becomes part of capital and is only accessible when the capital interest vests.

What good practice applies as a beneficiary nears 18?

Consider exercising the power shortly before 18, especially for contingent interests.

Practice point: how is s 31 commonly varied?

To defer the right to income until capital vests, so income is accumulated and paid with capital.

In a life interest trust, what happens to s 31 when the life tenant dies and the remainderman is still a minor?

Trustees hold until 18 and accumulate income, but s 31 is now available (no prior interest remains).

Who can use the same protection methods as trustees?

Personal representatives.

Name the protective measures available at the outset.

Decline the role; ouster clause; exemption clause; trustee liability insurance.

Ouster clause vs exemption clause?

Ouster removes the duty entirely (not all duties can be ousted, e.g. Bartlett v Barclays). Exemption leaves the duty but excludes or limits liability for breach.

What cannot an exemption clause or insurance protect against?

Fraudulent breach of trust.

Can premiums for trustee liability insurance come from the trust fund?

Often yes, as an expense of the trust.

Is relying on legal advice a complete defence?

No. If the court takes a different view, trustees may still be liable.

Four steps trustees can take when uncertain about powers or duties?

Court directions; s 48 AJA 1985 application; surrender of discretion; beneficiary consent.

Effect of acting on court directions?

Trustees are not liable even if a beneficiary later sues. Safest but expensive.

Explain the s 48 AJA 1985 procedure.

(1) Get written opinion from a lawyer satisfying s 71 CLSA 1990 (barrister/solicitor with 10 years' experience); (2) apply to High Court to rely on it. Usually granted without a hearing if no dispute. Only for construction questions.

What does surrendering discretion to the court mean and when is it used?

The court makes the decision itself. Used for deadlock or conflict of interest, on a specific problem only (exceptional).

When is beneficiary consent a valid protection?

When all beneficiaries are known, locatable, adult and of sound mind, and give fully informed consent. Consent from only some gives a partial defence against those beneficiaries.

What risk arises if trustees distribute only to known/located beneficiaries?

Personal liability to later claimants, and recipients may face claims too.

List the options for missing or unidentified beneficiaries.

Benjamin order; s 27 notice; retain a fund; pay into court (s 63); missing beneficiary insurance; indemnity from recipients.

What is a Benjamin order and what must trustees show?

Court order permitting distribution on an assumption (e.g. missing beneficiary presumed dead). Trustees must make full enquiries and show no reasonable prospect of knowing the truth without disproportionate expense.

Limits of a Benjamin order?

Protects trustees personally but a later claimant can still pursue recipients.

Facts and significance of Re Benjamin [1902]

Son disappeared about a year before the testator died; evidence he had probably died; court allowed distribution on the basis he did not survive.

Facts and significance of Re Green's WT [1985]?

Son missing for years, certified presumed dead; will left estate to him but to charity if unclaimed by 2020. Nourse J extended Benjamin orders, overriding the testator's express wishes to allow distribution to charity.

How does a s 27 TA 1925 notice work?

Advertise intention to distribute to known beneficiaries; after 2 months trustees may distribute with no personal liability to unknown beneficiaries.

Where must the s 27 notice be published?

i) London Gazette; (ii) newspaper in the area where trust land is situated; (iii) any other appropriate newspaper (e.g. a trade paper).

When is retaining a fund suitable, and what are its downsides?

Suitable where all beneficiaries are identified but some not located. Downside: long-term administration. Risky for unknown beneficiaries (hard to quantify shares).

Why is payment into court (s 63 TA 1925) attractive and difficult?

Attractive because trustees effectively retire; difficult because courts treat it as a last resort after all tracing options fail.

How does missing beneficiary insurance work and compare with a Benjamin order?

Trustees distribute, then claim on the policy if a beneficiary appears (they remain liable). Upfront cost, but much cheaper than a Benjamin order.

Main drawbacks of an indemnity from beneficiaries?

Doesn't stop claims against trustees; only worth the indemnifier's ability to pay; may require litigation. Benefits: cheap, quick, no fund tied up.

What can a later-appearing beneficiary claim if trustees are protected?

No personal claim against trustees. If distributed: proprietary or personal claim against recipients. If undistributed: claim against the remaining property held by trustees.

Post-breach checklist for a trustee?

Check exemption clause; consider defences (court directions, instigation/consent/acquiescence, limitation/laches, s 61 TA 1925); check insurance/indemnity; consider third-party claims (e.g. negligent advisers); seek contribution under Civil Liability (Contribution) Act 1978.

How might a trustee use claims against third parties?

Sue negligent advisers (lawyers, financial advisers) in their capacity as trustee; early action may avoid a personal breach claim altogether.