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Treading Carefully: trustees' approach to requests of a Beneficiary - practical analysis

Janina White

24 Aug 2023

What are the trustees' options if a 19 year-old beneficiary has asked for £100,000 to be paid to him immediately so that he can pay for his tuition, meet his living expenses, and take out his girlfriend?

Trusts have always acted as protective financial instruments, ensuring that beneficiaries receive what's due to them. But when a 19-year-old beneficiary requests £100,000 ostensibly for education and personal expenses, how should trustees respond? The decision is not straightforward and demands a keen understanding of the trustee's powers, obligations, and the specifics of the trust instrument.

The Power of Advancement and Trustee's Responsibilities

Trustees possess the power of advancement, which allows for the allocation of trust capital to beneficiaries, especially for matters related to education and career. These are deemed appropriate avenues to use the funds, as they significantly contribute to the beneficiary’s welfare.

Yet, trustees are also saddled with the responsibility of preserving and even increasing the trust funds. While they exercise discretionary power, this power isn't absolute. The trust instrument, as indicated by the Henley v Wardell case, guides its scope. Any misuse or inappropriate exercise of this discretion can be seen as a breach of trust, as evidenced by Re Pauling.

Beneficiary's Right to the Requested Sum

In our scenario, the trust instrument specifically provides for the right of advancement. But even in its absence, s. 69(2) TA 1925 empowers the beneficiary to make such requests. The term ‘benefit’ as construed in Pilkington v Inland Revenue commissioners does not solely pertain to the beneficiary's personal needs but spans any enhancement in their material position.

The Saunders v Vautier Rule

One significant consideration is the Saunders v Vautier rule, which permits a beneficiary, meeting specific conditions, to request the trust property be transferred to him, consequently ending the trust. But the beneficiary's rights and the implications of this rule, especially when there are multiple beneficiaries, should be carefully evaluated.

The Financial Implications

Should the trustees decline or disagree on the request, it may lead to court action with financial repercussions for the trust and potential strains on interpersonal relationships. But before reaching such a stage, it might be prudent for the trustees to scrutinise the beneficiary's claim. A tuition fee nearing £90,000 sounds excessive, and living on £10k-£20k a year seems reasonable. Thus, the trustees should request a detailed breakdown of costs. While supporting the beneficiary's girlfriend isn't inherently unreasonable, the trustees should assess the financial implications and fairness of this arrangement.

Key Points in Trustee Decision-Making

Intersection Challenges:

  • Trust law intricacies

  • Trustee responsibilities

  • Beneficiary's wishes

Trustee Approach:

  • Exercise discernment

  • Comprehensive understanding of the law

  • Financial prudence, especially with large requests

Primary Objectives:

  • Ensure the trust's longevity

  • Cater to the beneficiary's genuine needs and aspirations.

Janina is a solicitor registered in England and Wales, and the Republic of Ireland, and a member of the American Bar Association. Her extensive legal expertise spans Corporate Law, Sanctions, and Corporate Governance. Beyond law, Janina is a Chartered Company Secretary and showcases a passion for global cultures, evident in her fluency in eight languages. Advising multinational giants, her unique blend of legal acumen and cultural insight sets her apart, offering readers a rich, global perspective on her subjects. Janina is also a private investigator and a member of the Association of British Investigators and she is actively using the investigative techniques (including the use of the Artificial Intelligence, OSINT and HUMINT)  in her legal work.

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