A sensible approach to Trustee Act powers.Thursday 9th June 2011
The recent Court of Appeal decision of Southgate -v- Sutton has made clear that the Court can permit trustees to partition a trust fund without having to apply for a variation of the trust.
A family trust had been set up, some of whose beneficiaries were residents of the United States and others of whom were residents of the United Kingdom. The trustees wished to set up a sub-fund, to be administered in the United States, for tax purposes for the residents there. The trust instrument did not given the trustees the power to make the required changes. The UK residents refused to consent to the trust being varied to permit that. The trustees therefore applied to the Court to approve the partition of the trust fund.
Under s.57(1) of the Trustee Act 1925 ("the 1925 Act") the Court has the jurisdiction to confer powers upon the trustees which relate to the management or administration of any property vested in them when they do not have this power by virtue of the trust instrument or in law, and when their proposals are in the interests of the trust. There is a balance to be struck for the Court between assisting the trustees in managing the fund under the 1925 Act, and allowing the trustees to actually effect a variation of the trust. Where the interests under a trust are to be re-written or re-arranged this is generally achieved by an application under the Variation of Trusts Act 1958 ("the 1958 Act") but such a variation normally requires the beneficiaries' consent.
In this case, as the trustees had no existing power to partition, and the beneficiaries would not consent to a variation under the 1958 Act, the only option available to them was to make an application under the 1925 Act.
In the earlier case of Re Freeston's Charity ("Freeston") it had been held that a power granted under the 1925 Act could not extend to varying or rearranging the nature of the beneficial interests in the trust. This decision therefore cast doubt on whether the Court had jurisdiction to permit the application in the present case.
The Court of Appeal held that the Court did in fact have the jurisdiction to grant an application allowing the trustees to partition the trust fund. The Court held that Freeston did not apply because in Freeston the proposal was to alter the nature of the interests under the fund when there was no difficulty in administering the fund, and there was no clear requirement in the interest of the fund to partition it.
In this case, by contrast, the Court of Appeal accepted that the powers were necessary to prevent a severe loss to the trust fund due to tax liabilities. The Court considered that the impact on the beneficial interests would be small, and acknowledged there were difficulties in managing the fund without the powers requested.
The decision in Southgate -v- Sutton has recognised that there should be a degree of flexibility in the law in this context. It is a positive example of the Courts having regard to the overriding interests of the trust and the need to allow trustees to manage the fund sensibly.
Ashfords' Trusts and Estates team can assist on any matters regarding a will or trust. For taxation and estate planning advice please contact Michael Alden on 01392 334041. In the event of a dispute in relation to a deceased person's estate or a trust please contact Robert Horsey on 01884 203086.
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