Protective Tusts, Trustees Powers, Variations of Trusts

(a) Can Jack demand and explanation of why he has been removed from office and why the trustees refuse to pay him any money?

A trustee can be replaced if he dies, remains out of the United Kingdom for more than twelve months, desires to be discharged from his powers, refuses or is unfit to act, is incapable of acting or is an infant. If a person is named in the trust instrument as having the power to appoint a replacement trustee then he may do so 1 , if the trust instrument does not provide for such a scenario then the surviving or continuing trustees may appoint a new trustee to replace the original trustee 2 . For the purposes of Section 36 of the Trustee Act 1925, bankruptcy will render a trustee 'unfit to act'. Moreover, "if the nature of the trust is such that the trustee receives and deals with trust funds, so that he could misappropriate them, a bankrupt trustee should be removed" 3 . Paul has removed Jack by replacing him with Bill on the grounds of his bankruptcy which is perfectly feasible. The will left by Mary is silent with regards to trustees' powers therefore, Paul will be relying on Section 36 of the Trustee Act 1925 in appointing Bill. If Paul had not decided to remove Jack, then the Court has the power to make an order for the appointment of a new trustee to substitute a trustee who is bankrupt 4. Paul has evidently acted within his powers. As a trustee, Jack had a duty to familiarise himself with the terms of the trust under which he was acting and should therefore have been aware that bankruptcy is one of the grounds on which to remove and replace a trustee. It should not, then, be necessary for Paul to provide an explanation to Jack.
Mary left her estate on protective trust. The aim of a protective trust is to safeguard the trust property from improvident beneficiaries and their creditors. Jack, as the primary beneficiary, has been given a life interest determinable upon the occurrence of certain events which would enable another party to reap the benefits of the trust. A protective trust provides that if a determining event occurs such as bankruptcy, the trust shall then be held on discretionary trust for named beneficiaries. Section 33 of the Trustee Act states that when the original trust fails, the property will be held on trust for the main beneficiary, his spouse and children or any other person who would be entitled to the trust property or the income from it "as the trustees in their absolute discretion…think fit" 5 . Paul and Bill have the discretionary power to pay money out to Jack as "during the discretionary period, that ensues, the principal beneficiary will still be treated as entitled to the interest" 6 but they can equally refuse to pay him money if they are acting within the best interest of the trust. Beneficiaries are entitled to request information from trustees as to the way in which the trust property or his share of the trust property has been invested and as to where it is 7 even where the beneficiary is only the subject of a discretionary trust 8 . Yet, trustees are not as a general rule bound to disclose reasons for exercising their discretion 9 thus Jack will be able to question how the trust fund is being used but he will not be entitled to demand an explanation.

(b) Would Paul and Bill be allowed to give trust capital to Emerald and, if so, on what terms?

Provided Bill was correctly appointed, he will have the same powers as Jack had under the original trust which includes the power to advance trust money 10 . As Mary's will was silent with regards to trustees' powers, Paul and Bill have all of the statutory powers conferred upon them by the Trustee Act at their disposal. Section 32 of the Trustee Act gives trustees the "absolute discretion to pay or apply capital money subject to the Trust for the advancement or benefit of any person entitled to the capital of the trust property or any share of it". With regards to the advancement of capital, it is of no relevance that Jack's life interest has determined as this power applies to the interest of "any person entitled to the capital of the trust property or any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion"11 . The advancement of capital must benefit the said beneficiary but 'benefit' has been given a very wide meaning and has been said to amount to "any use of the money that will improve the material situation of the beneficiary"12 . Indeed, to advance a capital sum to Emerald would improve her situation in that it will assist her in purchasing a property. In theory, Jack could frustrate the advancement by refusing to give his consent to the advancement if he can prove that it would prejudice his interest13 . However, "persons who are for the time being objects of a discretionary trust or power are not entitled to any prior life interest or other interest vested or contingent within sub-s 1(c) and therefore their consent to the exercise of statutory power is not necessary"14 . In the circumstances, then, it seems that Paul and Bill can advance trust capital to Emerald so long as the amount advanced does not exceed half of Emerald's presumptive or vested share .15

(c) Can Jack change the terms of the trust on the lines he suggests and if not, what obstacles stand in his way?

Under the Variation of Trusts Act 1958, the Court can use its discretion to vary the terms of a trust provided the variation is for the benefit of the party making the application. The Act widened the Court's inherent jurisdiction which was seen to be somewhat restricted in cases such as Chapman v Chapman16 by allowing it to make an order for variation "if it thinks fit". Section 1 of The Act sets out the categories of beneficiaries on whose behalf the court can use it's discretion. Those categories are
a) any person…incapable of assenting,
b) any person who may become entitled…to an interest under the trust as being at a future date on the happening of a future event,
c) any person unborn and
d) any person in respect of any discretionary interest of his under a protective trust where the interest of the principal beneficiary has not failed or determined.
We must consider, then, whether Jack comes within the scope of the Act. Clearly, Jack will not come within two of these categories, as he is neither unborn nor incapable of assenting. Furthermore, he will not fall within category d) as his interest under the original Protective Trust determined on his bankruptcy. The only possibility is that Jack falls within Section 1(b) of the Act as a person who may become entitled to an interest under the trust. However, Jack is already entitled to an interest under the trust thus it seems unlikely that his application to vary the terms of the trust would succeed. If Jack's main concern is to gain access to half of the trust fund, then he could try to implement the rules in Saunders v Vautier17 to terminate the trust and demand the trust property be handed over to all of the beneficiaries. In order to use these rules it is necessary for all beneficiaries to be adult, sui juris and absolutely entitled to the whole fund between them. They must also give their consent to this arrangement. This solution is not practicable as even if Emerald and Sapphire consented, Sapphire is only 14 and therefore not considered an adult. It appears, then, that Jack will not be able to vary the terms of the trust or gain access to any part of the trust property unless Paul and Bill use their discretion and bestow him some benefit under the trust.

  1. Trustee Act 1925 s 36(1)(a)[^ Return]
  2. Trustee Act 1925 s 36(1)(b)[^ Return]
  3. Re Barker's Trust (1875) 1 Ch D, Re Addam's Trust (1879) 12 Ch D in The Encyclopaedia of Forms and Precedents Vol 40(2) Para. 678.5.[^ Return]
  4. Trustee Act 1925 s 41(1)[^ Return]
  5. Trustee Act 1925 s 33(1)(ii)[^ Return]
  6. Sweet & Maxwell's Practical Trust Precedents. Rel 14 (Nov 1996), Para. C1-321.[^ Return]
  7. Walker v Symonds (1818) 3 Swan 1, Thompson v Clive (1848) 11 Beav 475[^ Return]
  8. Re Murphy's Settlement (1998) 3 All ER 1 [^ Return]
  9. Londonderry's Settlement (1965) 2 WLR[^ Return]
  10. Trustee Act 1925 s 32[^ Return]
  11. Trustee Act 1925 s 32(1)[^ Return]
  12. Pilkington v Inland Revenue Commissioners (1964) AC 612[^ Return]
  13. Trustee Act 1925 s 32(1)(c)[^ Return]
  14. Re Beckett's Settelement (1940) Ch 109, Hals Statutes Vol. 48 Notes.[^ Return]
  15. Trustee Act 1925 s 32(1)(a)[^ Return]
  16. (1954) AC 429[^ Return]
  17. (1841) 4 Beav 115 [^ Return]

BIBLIOGARPHY

  • Halsbury's Laws of England, 4th Edition, Vol. 48, 2000 Reissue.
  • The Encyclopaedia of Forms and Precedents, 5th Edition, Vol. 40(1) Trusts and Settlements, 2001 Reissue.
  • The Encyclopaedia of Forms and Precedents, 5th Edition, Vol. 40(2) Trusts and Settlements, 2002 Reissue.
  • Tolley's Administration of Trusts, Issue 4 (December 2000).
  • Sweet & Maxwell's Practical Trust Precedents (November 1996).
  • Trustee Act 1925.
  • Trustee Act 2000.
  • Trust of Land and Appointment of Trustees Act 1996.
  • Variation of Trusts Act 1958

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