Tuo [Power of Advancement] PDF

Preview

Summary

Notes on Administrative of Trusts Law , topic; Power of advancement. This is with reference to lecture notes and book, textbooks, research, and Nota Marinah (Alumni of UiTM)...

Description

Abs 1) Explain the difference between maintenance and accumulation and advancement of a trust fund. Maintenance Re Trust of the Will of Ong Lain (1949); -Maintenance (allowance) is usually paid to the parent/guardian since the minor beneficiaries cannot give a valid discharge for the money advanced to them until they get married -for minors (use income) Section 36(1)(b) When you reach 21 y/o, there is 2 options: 1) receive vested interest (all capital to u) 2) one you don’t (so the ben will continue to get the money till he dies, or failure of his interest. Type of maintenance given to the beneficiaries (via TD): -medical bills, food, boarding, clothes. -no restriction on amount given -to maintain a beneficiary is to pay the cost of his necessities -no charitable advances

Accumulation Re Trust of the Will of Ong Lain (1949); -The accumulation of surplus income means that there is residue of the income which the trustee must accumulate by way of compound interest by investing in authorized investments. The surplus income thus becomes capital so long as the beneficiary’s interest persists and will be held for the minor till he is 21 years or marries before 21.

Advancement -Advancement is payment of a capital sum in order to establish a person in life or make permanent provision for him (Hardy v Shaw)

Section 36(1):

Type of advancement given to the beneficiaries (via TD): -Non-recurrent events like house, start business -Total limited to RM10k or 50% of the beneficial interest -Charitable advances allowed to the bens to donate.

-accumulate income in the TP from investment to give to the bens upon attaining the age of majority under Section 36(1) i.e. 21 y/o

-Section 37

Abs -maintenance cannot use TF, use income generated/accumulated from investment stored in the TF. (section 36)

Residue of income. Residue- the one that is left over is used to accumulate the TF. Accretion. Capital will plus with accumulation income to proceed with investments for further gain income.

Comes from capital

Abs 2) Vertroue settled RM1 million for the benefit of Stefan and Zolts in equal shares. Ana and Anis are the appointed trustees. The trust deed expressly states that they are only entitled upon attaining the age of 40 years and free of bankruptcy. Stefan who is a minor wants to study law in UiTM and demands the trustee to pay him the tuition fees of RM 33, 000 pa for 4 years. Zolts is facing financial difficulties since the demise of his parents a year ago and his guardian insists on maintenance until Zolts reaches 25 years. Advice the trustees [bens: S & Z].

Ana and Anis both have the power to distribute the benefit to beneficiaries. The connotation of benefit in this context is financial benefit. One of the ways of distribution, inter alia, is by way of advancement. In Stefan’s situation, she is a minor who wants to further her study in UiTM and demands Ana and Anis to pay him the tuition fees of RM33, 000 pa for 4 years. I would advise Ana and Anis that they have the absolute discretion to pay capital money of trust for the pecuniary benefit to the beneficiary provided when the beneficiaries have attained a certain age or the occurrence of a certain event as embedded under Section 37 of the Trustee Act 1949.

LAW: 1) Section 37: Trustees can exercise their discretionary power to advance capital for the benefit of the beneficiaries whether vested (present right to immediate possession) or contingent (awaiting) interest. 2) However, the discretionary power is subjected to some restrictions. -S.37(a) The money advanced does not exceed RM10k or half of the vested interest in the trust property, which is greater Re Evans Settlement: Where the trust instrument provided that the trustees could only advance up to $5000, thus excluding the statutory power of advancing up to one-half of the share. -S.37(b) The money advanced to the beneficiary will be recognized as part of his share of the trust property when the beneficiary becomes absolutely entitled to it (has a vested interest in it) -S.37(c) No advancement that is prejudice to any person shall be made, unless there is a written consent given by such person 3) Definition -Advancement is payment of a capital sum in order to establish a person in life or make permanent provision for him [Hardy v Shaw] -Advancement is payment to a person with vested or contingent interest before the time fixed for their obtaining of absolute interest [Re Aldridge] -Also, in Pilkington v IRC, advancement means setting up the beneficiaries in life as opposed to making mere casual payments to the beneficiaries. It encapsulates the purpose of purchasing business premises, settlement on marriage, payment to enter apprenticeship, to avoid tax, or supplying further capital to an existent business.

Abs

4) Other valid investment includes: -Lowther v Benthick: Discharge of beneficiary’s debt -Re Kershaw: Paying the debt of beneficiary’s husband -Re Clare: Payment to beneficiary that felt morally obligated to donate to charity was validated by the court. Rationale: It seemed that the ben will use his own funds to satisfy his moral obligation regardless. Thus, allowed. 5) However, trustee cannot make advancement to benefit them. -Molyneux v Fletcher: The trustees made advancement to a beneficiary in order for the beneficiary to discharge a debt owing to the trustee’s father. It is held to be an improper exercise of duty. -Re Pauling’s Settlement Trusts: Where the children filed a suit against the trustees for advancing money to their parents who used it for their extravagant lifestyle. It was held that, trustees must not advance the money without any responsibility to inquire into its application. An advancement must be made specifically for the benefit of the beneficiaries and failure to ensure so will cause the trustees to be liable for the repayment of the money advanced. Once the interest becomes absolute, the advancement becomes part of the beneficiaries share in the trust capital [ Mary George]

APPLICATION: In the instant case, Stefan has a contingent interest whereby the capital will only be given upon her attaining the age of 40 and free from bankruptcy. At present, she demands RM33,000 pa for 4 years. I would advise Ana and Anis that they are entitled to advance the capital provided that they can ensure that is for a proper purpose.

In Zolts’ situation, his guardian

LAW:

Abs is insisting for maintenance 1) Generally, trustees have no power to give a minor, income arising out of the TF unless the trust instrument expressly until Zolt reaches 25 due to allowed it. their difficulties after the demise of Zolt’s parents. 2) However, when the trust instrument is silent on the matter of maintenance, as envisaged by Section 36(1)(a) of the TA 1949, Here, I would advise Ana and Anis that they have the a) where the TP is held for the benefit of a minor, whether vested or contingent interest, discretionary power to give a minor maintenance provided Section 36(1) (a) When the TD is silent; the trustee has a sole discretion to provide maintenance to a beneficiary during that the trust deed is silent on his minority i.e. 21 years old. There is also a contradictory opinion and criticism in respect to the age provided in Section this matter and upon fulfilling 36. As embedded in Trustee Act, the age of majority is 21 years old, whereas in Section 2 of the Age of Majority Act 1971 certain requirements as is 18 years old. Professor Ramy Bulan opined that there is a drafting error with regard to the age of majority stated in TA. embedded under Section 36 However, as it not yet to be amended by the Parliament, the age of 21 will be the referred age of majority. of the TA 1949. In the event that the minor attains 21 but still has no vested interest (only contingent interest), the trustee shall pay the income of the property and accretion thereof to him until he has obtained a vested interest, or dies, or his interest fails. Re Jones Will Trust Soames v A: Upon attaining the age of majority, the trustee must pay the beneficiary his share of income, though his interest is still contingent. Assuming that it is expressed in the TD. Regardless, in Re Turner, there is nothing preventing the TD to provide maintenance for adult bens. b) the trustee has a sole discretion to pay (whole or part) of the income from the TP Wilson v Turner: The trustee’s discretion means he must use active mental exercise, well thought over and discussed. Failure to maintain, in particular when the TD compels to do so could amount to a breach. Re Bryant- When trustee made automatic payment to a minor’s father without exercising any discretion, the court may order the trustee to pay back the sum to the trust fund, provided the trustee exercise his discretion in good faith the court will not interfere c) to the beneficiary’s parent, guardian or any person standing in loco parentis Re Trust of the Will of Ong Lai: Maintenance (allowance) is usually paid to the parent/guardian since the minor bens

Abs cannot give a valid discharge for the money advanced to them until they get married. d) to provide for his education, benefit, necessities, or/and maintenance in reasonable circumstances, [S. 36(1)(a)] Sowarsby v Lacy: education is part of maintenance e) notwithstanding any fund or person under the law providing the same. -[S. 36(1)(a)(i) & (ii)] 3) If the minor’s share of the fund does not carry any income, there can be no maintenance. However, it is possible for the TF to be used for the maintenance provided that there is a court order. Lee v Brown.

Abs Stefan: Section 36 (1) (a) -advancement

Zolts: Maintenance 1) power to give maintenance -if stated in TD, can give as an adult, then can. Re Turner -if not, Section 37 should be taken strictly, use discretion cause cannot give above 21. -this case, cannot cause sampai 25. -law assumes that he is independent sebab Section 37.

-if u give juga, tak falls under standard of care (honest prudent man), then he is in breach of duty of care. -when breach, kena restore balik the money.

-Trustee cannot favour one another. Tanjinget case. I would advise S & Z that they have the power of advancement as provided under Section 37 of the Trustee Act. By virtue of this Section, the Trustee may at any time in his absolute discretion pay some capital money of trust for the benefit (advancement) of the beneficiary entitled thereto when he reaches a certain age or the occurrence of a certain event.

Abs The important term here is the trustee’s absolute discretion. In Re Bryant- When trustee made automatic payment to a minor’s father without exercising any discretion, the court may order the trustee to pay back the sum to the trust fund, provided the trustee exercise his discretion in good faith the court will not interfere. In the instant case, if the trustees were to give the bens the advancement, it is permissible to do so only after the bens have attained the age of 40 and are free from bankruptcy. Therefore, the only possible Section 36(1)- when the TP is held for the benefit of minors (contigent or vested), the trutee has the sole discretion to pay whole or part of the income from the TP to his parent/guardian or apply towards his education/benefit.maintenance of income of the TP in reasonable circumstances – notwithstanding there is another fund provided the sum. [as a form of maintenance]

Leong Mook Nyenn-education is part of maintenance Sowarsby v Lacy (1819)-education is part of person’s benefit (maintenance) Benefit-direct financial benefit Age of majority act. Mary George. Professor Balan UM wrong in drafting.

Contingent interest: created for specified event-tertakluk kepada syarat. Vested interest: created of a person without specifying (fixed ab initio) not subjected to any condition.

Abs Vesting order- order to transfer property. If he gets bankrupt at before 40, he won’t get...