Beneficiary Interest Vs. Trustee Power - Essay Example

? Beneficiary Interest Vs. Trustee Power Beneficiary Interest Vs. Trustee Power Introduction A trust is a concept whereby property, the subject matter of the trust, is transferred from one person the settlor to another, the trustee to hold for a specified list or class of persons, the beneficiaries. It is a formal transfer device analogous to a will except property transfer is to trustees not executors. Trustees, having legal title to the property can exercise control over the property via the powers and rights bestowed on them by the settlor, who himself may be a beneficiary or trustee. These rights and powers arise from their office; they are to be exercised in their capacity as trustee and in the interest of beneficiaries who have beneficial ownership. With this beneficial title comes in equity, rights in respect of the trust rights themselves although not direct rights to possession of the trust property, (Law Commission 2011, P.227).These rights vary with the kind of trust created. The separation of ownership is one of the defining features of trusts .These powers pertain particularly in the trustee’s duty to invest the trust funds, duty to keep trust accounts and a duty to distribute trust assets according to the specifications of the trust. For breach of his duties, a trustee is liable for breach of trust for which the beneficiaries can sue for a money judgement. Beneficiaries have a right to due performance of the trust and to be considered. Powers of Investment The duty of investment has two major components: a duty to invest trust fund so as to be fair or even-handed between the different beneficiaries classes and a duty to invest the trust rights in such a manner as to protect them risk but also ensure reasonable returns.What amounts to investment is a matter of case law. In Re Powers, the court rejected the purchase of a house as residence for the beneficiaries as an investment because there would be no receipt of income from this. As pertains to even-handedness, the benefit of trust property is often divided into income and capital beneficiaries and it accrues as rent, dividends and so on. The guiding principle being that the character of an expense or receipt determines who bears it, hence capita for capital beneficiaries and expenses of an income nature are borne by income beneficiaries, (Penner 2008, P.275). Where such divisions cannot be made, for example where all investment is income as in cases of wasting assets or where the investment doesn’t generate any income a trustee may favour a capital over an income beneficiary or vice-versa. Courts thus impose a duty of fairness requiring the trustee to equally weigh the capital in the making of his investment decisions. As demonstrable by the New Zealand case, Re Mulligan (1998), the duty to invest is a fiduciary one and only by being even-handed can he be said to have acted in the best interests of all beneficiaries. In the case the trustee investment choice maximised the income of the life tenant but there was little capital left in the fund on her death. Interestingly, Cowan v Scargill (1985) Megarry V-C held that trustees’ refusal of an investment plan amounted to a breach in trust. The standard of prudence required is subject to reasonableness, a trustee isn’t expected to overcome the market or save the fund from declining economic woes. The higher the risk of an investment the higher the returns to it. Historically, courts favoured safer options and until recently confined trustees to fixed interest government securities despite the broadness of investment clauses as designed by the settlor of the estate. Once interpreted restrictively, investment clauses are now given their plain meaning, Re Harari’s Settlement Trust, (1949). The Trustee Act gives the legal investment in the absence of clear instructions on the settlor’s part. The law gives a trustee limited powers to delegate investment-making decisions as is the power to appoint agents. There have been proposals that trustees should be given power to apportion and charge in accordance with sound business practice where it is just and equitable and in the beneficiaries interests. Power of maintenance Most trust instruments empower trustees to use income or capital for maintenance. Thus legally, trustees can pay income from property only for which the minor has vested or contingent interest and only where the beneficiary is entitled to intermediated income. The trustee is bound to consider the circumstances of the case, the age and needs of the beneficiary and whether there is other income that can be applied for the same purpose. A trustee may then use as much income as he thinks fit and the rest accumulated for future maintenance or to be dealt with as capital. In Wellesley v Wellesley (1839) the possibility was created for the court in its inherent jurisdiction to authorise maintenance out of capital where the infant has no other means of support. There are suggestions for distinctions between maintenance for minor and adult beneficiaries although there’s agreed to be no confusion to the trustees stemming from this, (Davis & Dudley 2011, P.3). Legally, while a minor attaining majority with only a contingent interest in the capital is bound to be paid in the absence of terms to the contrary, Re Turner’s Will Trusts, (1937) Power of Advancement In Re Gerbich (2002), the court commented that advancement was taken to encompass the setting up of a life of a young person. It doesn’t include a loan or a debt. The power allows trustees to expend capital for the beneficiaries’ benefit, even where such beneficiary has a future or contingent interest. The power is created expressly as maintenance but there are statutory empowerments. In some cases where there are many beneficiaries, trustees will need the consent of others to advance money to the rest. In Re Pauling’s Settlement Trusts (1964), it was decided that trustees are under an obligation to see that the money advanced actually goes to benefit the beneficiary. Resettlement has been pointed out by scholars to contain a power of advancement but is subject to the time limitations of the original trust. Variation of Trusts Generally, a settlor has free rein to determine what terms will be included in the trust. Because of their long life span and their susceptibility to change overtime for example, unforeseen tax liability. If all the beneficiaries are ascertained and agreed, they may exercise their rights to either dissolve the trust or vary its terms. Else, the assistance of the court must be sought. The courts have inherent jurisdiction to vary trusts although their scope of the jurisdiction is limited to giving trustees greater administrative or management powers and this only in emergency cases, Re New, (1901). The courts can’t as illustrated in Chapman vs. Chapman vary beneficial interest except where the courts empower trustees to apply income to maintain an infant beneficiary even where he directed the income to be accumulated,(University of London 2008, P.59). The court’s enhancement of trustee administrative powers is for purposes of expediency especially when dealing in specific ways with trust fund. This doesn’t really encapsulate a redrafting of the trust or a reapportioning of beneficial interests. In Trustees of the British Museum vs. AG, (1984) Megarry V-C refused the contention that the powers of trustees should only be extended in special circumstances but that there should be a general power to widen investments based on, inter alia, the size and object of the trust fund and the standing of the trustees. Conclusion The balancing of beneficial and legal ownership rights is one of the primary functions of Trust law. With trustees under a legal obligation to act according to the terms of the trust instrument and beneficiaries having certain legal expectations from their trustees, it is mostly up to the courts and the statutory framework to regulate the powers of the trustees so as to protect the beneficiaries from being the victims of their trustee’s greed. Courts have the primary obligation to ensure that the beneficiaries benefit from the property whether it is in the financial form or otherwise. References Law Commission (2011). “Trustees Duties: Appointment, Retirement and Removal of Trustees”: Law Commission Issues, TE.AKA.MATUA.O.TE.TURE University of London (2008): “Law of Trust: The Express Trust Relationship”: University of London External Programme, UK. Davis, L. & Dudley, K. (2011): “A Guide to Trustees Duties and Powers” Private Client Group. Martineau. UK. Penner (2008): “The Trust Up and Running: Retirement, Appointment and Removal of Trustees” ISBN 9780199540921 Read More