Powers Of Trustees

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POWERS DERIVED FROM:

TRUST INSTRUMENT

KEY STATUTES

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TRUSTEE ACT 1925 - s31 (income) , 32 (capital)

TRUSTEE ACT 2000 - s3,4,5,8 (investment)

TOLATA 1996 - s6 (buy property), s7 (partition), s12 (occupation)

AEA 1925 - s 41 (appropriation)

Inheritance and Powers of Trustees Act 2014

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TYPES OF POWER

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• Dispositive
  
• Administrative
• Powers of Appointment

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DISPOSITIVE POWERS

• DISCRETIONARY
  
• MUST CONSIDER IN AN INFORMED AND HONEST WAY
  
• IF SO, COURT WILL NOT INTERFERE
  

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Scott v National Trust - T suddenly and without warning/ reason stopped regular payments to B made for 10 years. Court overturned. T must act fairly - B had reasonable expectation.

Klug v Klug (refusal to appoint to daughter because of fall out successfully challenged) - must consider using powers in an informative way.

Gisborne v Gisborne - refusal to pay income to a B. Court upheld on basis T had properly considered exercising power but decided not to pay.

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GUIDANCE ISSUED IN

RE HAY'S SETTLEMENT 1982

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• Review terms of trust and dispositive powers periodically consider whether to exercise powers
• review potential B's and circs
• consider appropriateness of disposition on case by case basis
• record keeping: enough to minute having considered and the outcome of decision - don't have to record reasons - re Londonderry's Settlement

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WHEN WILL A COURT INTERFERE?

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1. Trustee fails to consider exercising powers at all.
2. Trustee acts dishonestly - mala fides
3. Acts outside of his powers
4. Decision is fundamentally flawed

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• COURT MAY OVERTURN FUNDAMENTALLY FLAWED DECISIONS - i.e. decisions based on information which was incorrect or failure to consider appropriate information

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Hastings-Bass

Stannard v Fisons pension trust - payment out was made based on old valuation. The court reversed the payment.

now limited by Futter v Futter & Pit v Holt (breach of trust or acting outside of power)

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S31 TA 1925 (as amended IPTA 2014) - POWER TO PAY INCOME (accumulation trusts - vested or contingent but only if carries interest in Income)

• for maintenance, education or benefit
• pre-2014 such "reasonable sum" considering age, situation, other funds etc.
• post 2014 - removal of reasonable sum requirement - "in absolute discretion"

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• can be increased (STEP standard pre ITPA)
  
• can be limited by Trust instrument (direction to accumulate)
• B has entitlement to income post-18 (nb. impact on A & M with B over 18 at death - IPDI)
• once accumulated - income paid out post-18 will be treated as capital by HMRC - consider paying out just before 18 to treat as income (lower rate)

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s32 TA 1925 POWER TO ADVANCE CAPITAL (fixed interest trusts)

• up to 1/2 of B's presumptive share
• amended ITPA pots 2014 to entire presumptive share
• requires LT consent
• can be altered by Trust Deed -to limit or extend e.g. to life tenant or remove need for LT consent
• can appoint absolutely or resettle in a trust for B

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• personal liability to ensure capital is applied for the purpose - re Pauling's Trust (don't pay to parent of child - T had to repatriate pay direct to source)
• may transfer assets not just cash - ITPA and re Collard Will Trust

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s32 continued...

1. "Advancement and benefit"- wide interpretation

2. Once paid out to B - he can't benefit from subsequent growth on capital remaining in.

3. Hotch-Pot

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1. re Moxton, Pilkington v IRC - resettlement of fund for tax saving was found to be benefit to B.

re Clore - to charity was for good of B

Fuller v Edwards (paid school fees for parent)

2. re Abergavenny (1/2 of fund left in grew - B who had taken had no interest in this)

3. Hotchpot B must account for his advance - pre IPTA by literal amount, post IPTA by proportionate percentage (e.g. if he was given 25%, he takes 75% at end)

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POWERS OF APPOINTMENT

Personal - No duty to exercise or consider exercising (LT)

Fiduciary - no duty to exercise but must consider powers as above

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• personal powers of appointment typically to Life Tenant. Commonly limited to use on death by Will.
  
• Powers an be used to create new discretionary trusts but there must be at least 1 B who is as per original trust - re Willis, Kain v Hutton - the new settlement will be separate to original

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TYPES OF POWER OF APPOINTMENT

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• General power of Appointment- widest power - "to anyone in the world" - (since it need not be exercised it does not fail administrative workability - re Gulbenkian
• Special power of Appointment - appointment to anyone within a prescribed class
• hybrid powers - looks like a general power but excludes specified individuals or class (re Hay's)

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WHERE POWER IS NOT EXERCISED

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1. Property will pass to the default B's where the Trust has prescribed
2. OR, attempt to distribute "fairly" between the potential B's (where feasible) - Burrough v Philcox

OR

court may appoint trustees to select Bs

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POWERS OF APPROPRIATION

S41 AEA 1925

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• Power to appropriate assets in satisfaction of a legacy
• PRs cannot appropriate to themselves as B's (self dealing) - Kane v Radley-Kane
• care to ensure that it does not compromise a gift to another B (e.g. appreciating asset where there are remainder men)]
• Value is at appropriation NOT at death- re Collins

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FRAUD ON A POWER

• where a power is, on the surface, exercised appropriately but in fact is used for a purpose for which it was not intended -
  
• here the default B's are being defrauded - their only option is to take court action against T and recover.

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Examples

Wong v Burt - power to appoint to one of 2 Ts who was also B. She requests 1/2 fund. Paid out and instead of benefiting self - she puts it in a trust for other half of family - whilst her intention was fairness between families this was set aside and had to be repaid.

Vatcher v Paull - B got T to appoint entire fund to him on understanding he'd transfer 1/2 back to T.

Kain v Hutton - no fraud where object of power of appointment got the fund appointed to her but put it in trust for herself, husband and kids. Whilst her family benefited she also did so OK

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ADMINISTRATIVE POWERS

NB. PERSONAL LIABILTY HERE FOR BREACH - SEE MODULE 13Trustee Act 1925

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• common law and statutory duty of care (s1(1) TA 2000
• Act bona fide
• Best interest B's

Speight v Gaunt, Bartlett v Barclays Bank

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DUTY OF CARE AND RECORD KEEPING

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• keep minutes of meetings and decision process
• If in breach - personal liability for financial loss to Trust: Nestle v Natwest bank (review investments), Buxton v Buxton (rent arrears), Butler v Saunders (failure to accept higher offer on sale of land)

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TYPES OF POWER

1. TOLATA 1996 - PROPERTY

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S6 - to sell land (consult LT s12)

S7 - to partition land between Bs

S12 - to allow a B to occupy property

s8 TA 2000 - to purchase/ sell/lease etc.

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2. DELEGATION

• where personal appointment T remains liable
  
• where agent appointment - Liability passes but T liable for initial appointment and, with asset management, regular review (s22).
  

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• s5 TDA amends (s25 TA 1925)- power to delegate to a personally appointed attorney (power of attorney) for up to 12 months (retain personal liability - notice to other trustees)
• s11 TA 2000- delegation to agents - eg. an estate agent. Liability passes save T is liable for the appointment itself. Cannot delegate: a. power to appoint trustee / nominee or custodian b. dispositive powers
• s15 Trustee Act - delegate asset management- and to pay agent s32 - must be written agreement
  

s1 TDA - if T is also B of land he can delegate his T powers to other T

s9 TLATA - delegate to beneficiary

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OTHER GENERAL POWERS

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1. Investment - s3,4,5, and 8 TA 2000

2. To insure - s34 TA 2000

3. To give receipts - s14 TA 1925

4. To settle litigation - s15 TA 1925

5. To mortgage (to raise finance) - s16 TA 1925 and s8(3) TA 2000

6. To recover expenses- inc of litigation if reasonably incurred s31 TA 1925