Trust Law and Trustees

(a) A trust is created by will in the same way as any other declaration of trust. Providing the requirements of section 53(1)(b) and (c) Law of Property Act 1925 are complied with then the trust is prima facia valid. Foregoing examination of certainty of objects, subject matter and intention we shall consider that the will and trust implemented by Keir’s will is valid. Consequently the will trust, that does not make any provisions for the powers of the trustees, will be governed by (amongst other statutes) the Trustee Act 1925.

Under the trust the trustees (Tom and Vivienne) have a power of advancement. Section 32 Trustee Act 1925 permits the trustees to provide money to a beneficiary under a trust before they are beneficially entitled. Section 32 states that the trustee “may at any time apply any capital money subject to a trust for advancement or benefit as they, in their absolute discretion, think fit”. This would suggest that the decision to make an advancement to Lucy rests with the trustees and their discretion is unqualified. There is no breach of trust simply because the trustees have decided not to advance money to Lucy.

When the trustees decide to exercise the power of advancement in favour of Rebecca it should be borne in mind that at that stage she does not have a vested interest. Rebecca’s entitlement under the trust is contingent upon her attaining the age of 25 years. Any advancement at this stage may be premature as Rebecca unfortunately died before taking her vested interest. However that does not necessarily mean that the trustees have acted in breach. Section 32 Trustee Act 1925 also states that trust money may be advanced “to a person entitled to the capital of the trust property, or any share thereof, whether absolutely or contingently upon attaining any specified age”. This application of the power of advancement is within the confines of the trustees duties and will not in itself result in a breach.

There are further qualifications as to the advancement of capital money to a beneficiary under a trust. The general purpose of advancement is to provide some permanent benefit or advantage in life for the beneficiary. Such benefit would be establishing a business, payment on marriage or educational purposes. It is likely in this context that the advancement to Rebecca to purchase a home would qualify as a permanent benefit. It should also be remembered that the trustees have an absolute discretion to advance capital money. Restrictions on advancement are limited to what the trustees feel is reasonable within the confines of their powers. In Franklin v. Green (1690) advancement to children who had no entitlement until 21 was permitted by the Court for the purpose of an apprenticeship.

The fact that £300,000 was advanced to Rebecca may however be a problem for Tom and Vivienne. Section 32(1)(a) Trustee Act 1925 states that no more than one half of the beneficiary’s presumptive share shall be advanced without the consent of the other beneficiaries. At the point immediately prior to advancement to Rebecca the trust fund was worth £800,000 and her presumptive entitlement was an equal share with Lucy i.e. one half. The most that could be advanced to her was £200,000 and therefore the trustees are in breach. They have not obtained the consent of Lucy before making that advance.

(b) If Lucy wants to replace Vivienne she will either have to get her to retire or be removed. If she intends to apply for Vivienne to be removed she would require good grounds. There are grounds under section 36 Trustee Act 1925 but these relate to the other trustees ability to remove Vivienne. Upon an application to the Court a beneficiary can remove a trustee and examples of the Court’s justification are where the trustee went abroad permanently, they became insolvent or failed to recognise a conflict of interest amongst others.

With regard to Lucy’s current concerns, these would appear to relate to matters of capacity rather than conduct. Section 20 of the Trust of Land and Appointment of Trustees Act 1996 allows beneficiaries to apply to have the trustee removed on grounds of lack of mental capacity. However this is probably not appropriate for two reasons. Firstly section 20(1) TLATA 1996 will only apply where there is no person willing, able or entitled to exercise the powers of that trustee. As James and Tom remain trustees it would appear to be more appropriate for them to remove her under section 36 Trustee Act 1925 if she does become incapacitated. The second and most fundamental reason is that despite her age there is nothing to suggest that Vivienne is unable to act as a trustee. In the absence of a specific power of removal, it appears that Vivienne will remain a trustee.

The other option open to Lucy would be to request Vivienne to retire. Section 19(1) TLATA 1996 prescribes that in certain circumstances the beneficiaries can request the trustee to retire, irrespective of whether there is someone to replace them (providing there remain at least 2 trustees to manage the trust). Without repeating the provisions of section 19, it requires that the departing trustee is provided with an indemnity against actions taken during the like of the trust. In turn this would require the consent of other trustees to give such an indemnity. Therefore not only must Vivienne agree to step down, but that Tom and James provide her with an indemnity. The difficulty here is that James is aware of the breach of Trust above and to give an indemnity to Vivienne would render him liable to rectify that breach personally.

(c) While James has no personal interest in the trust fund, he does have locus standi to bring claims against the other trustees on behalf of Lucy. It is a separate matter as to whether that is something he should do.

Proceedings can be brought by Lucy or James for breach of trust, presumably for the over advancement to Rebecca. The claim would be issued against Tom and Vivienne for the balance of any shortfall of the value of the trust. The claim can be issued against one or all but any trustee singled out may have the right to a contribution from the other trustees who are also liable. Usually contribution proceedings would be commenced under the Civil Liability (Contribution) Act 1978. In any event, a contribution can only be recovered from a trustee that is found to be in breach to the beneficiaries for the same damage.

It used to be the case that trustees were not liable for the actions of their co-trustees until the provisions of the Trustee Act 2000 came into force. The relevant provisions of this legislation removed the statutory protection for trustees under the 1925 act. Nevertheless, it makes little difference as the principle that the trustee is not responsible for the actions of the co-trustees was established by authorities before the first legislation. It throws the burden back to the trustee to show that he acted responsibly. Consequently it is fair to conclude that despite being a trustee, James will have no liability to Lucy and therefore no conflict of interests should arise if he wants to bring proceedings on her behalf.

There is a caveat at this stage regarding James’s involvement. If a trustee does not take steps to protect a beneficiary’s interest or conceals the breach then he may also be liable. Consequently it would be necessary for James to bring proceedings or at least advise Lucy to do so in order to prevent himself becoming potentially liable. Furthermore, as the breach already committed James must bring action for restoration of the fund. At least James must take such active steps that would be considered in all the circumstances most prudent. It would certainly be a sensible option for James to seek the direction of the Court under the Civil Procedure Rules 1998 Pt 64(2)(a).

It would appear to be necessary for James to commence immediate proceedings on behalf of Lucy to restore the trust fund following the breach in advancing £300,000 to Rebecca. His own liability to Lucy will not materialise as he was not a trustee at the relevant time and had not part in the advance. Furthermore he will have acted prudently in either issuing proceedings on behalf of Lucy, advising her to do it or at least seeking guidance from the Court. Any possible contribution sought from the other trustees will likely be defeated by James for the reasons mentioned above.

Bibliography

• Kerridge, Roger, Parry and Clark: The Law of Succession, London: Sweet & Maxwell, 2002
• Lewin on Trusts; Eighteenth Edition, London Sweet & Maxwell 2008
• Parker & Mellows – The Modern Law of Trusts; Eighth Edition, London Sweet & Maxwell 2003
• Pettit, Philip, H: Equity and the Law of Trusts; Tenth Edition, Oxford Publishing 2005
• Wilkie, Margaret, Equity and Trusts, Oxford: Oxford University Press, 2008
• www.westlaw.co.uk (as accessed on 03/09/08)