4.0
Trustees’
powers
/19
Trustees’ powers
/4.1
Re Pilkington’s Will Trusts; Pilkington v Inland
Revenue Commissioners (1964)
House of Lords
A trustee’s power of advancement under s32
of the Trustee Act 1925 could be applied widely
and could extend to setting up a new trust.
Facts
Penelope Pilkington was a minor beneficiary of her
great uncle’s will trust. The trustees proposed to
exercise the statutory power of advancement to
transfer part of Penelope’s expectant share of capital
onto a new trust to pay her the income at 21 and the
capital if she attained the age of 30, in default to her
children. The advancement would reduce or obviate
estate duty on her father’s death provided he survived
the transfer by two to five years.
Ruling
The House of Lords confirmed that trustees could
use the statutory power of advancement to make
a settled advance of the assets on trusts of the
type proposed because it was for the benefit of
the beneficiary. Viscount Radcliffe articulated that
advancement meant:
In this instance, the main benefit was a tax saving
that would increase the size of the fund provided
for the beneficiary. But the advancement would
also secure the provision for her future children. The
House of Lords would have approved the advance as
proposed but for the fact that the new trusts would
infringe the rule against perpetuities.
20\
“
Any use of money which will
improve the situation of the
beneficiary.
”
Notes
In practice, it is rarely necessary to rely on the
concept of advancement alone. A proposal for
the advancement of a beneficiary is almost
invariably for their benefit. Express powers of
advancement in modern trusts often refer only
to benefit and not to advancement.
“Benefit” may be widely construed. See also Re
Clore’s Settlement Trusts (1966) (English High
Court) in which the trustees of a well-endowed
family trust exercised their express power of
advancement by paying trust capital to a charity.
This was held to be for the beneficiary’s benefit
because it discharged his moral obligation to
support the charity.
It was emphasised that if a power is to be
exercised in this way, the beneficiary must
recognise the moral obligation, which in that
case he did.
Tempest v Lord Camoys (1882)
English Court of Appeal
A Court will not generally interfere with a
trustee’s refusal to exercise a discretionary power.
Facts
The testator left his estate to two trustees to pay
certain annuities and to accumulate a portion of the
remainder for the duration of his nephew’s life and
21 years, or until that nephew’s oldest son should
reach 21. The testator’s will imposed a trust to invest
the accumulated fund in the purchase of land for the
benefit of his family. The particular land purchased
and the manner of its purchase were left to the
trustees’ absolute discretion.
One of the trustees (with the support of the family)
wished to purchase Bracewell Hall in the West
Riding of Yorkshire. The purchase price was £60,000
of which £30,000 could be paid from the capital
fund. The remainder would have to be raised by
a mortgage against the property being acquired.
The other trustee refused to join in the purchase.
The beneficiaries applied for an order directing the
purchase of the property.
Jessel MR said:
Ruling
The power to invest the fund in property was a trust
power which had to be exercised properly and in a
reasonable time. The Court would if necessary compel
the execution of the trust.
However, the precise manner of its exercise and, in
particular, whether additional capital should be raised
by way of mortgage were matters for the trustees’
discretion. Where one trustee disagreed with the
proposed exercise of the power, the Court would not
intervene or compel his cooperation.
Notes
The case highlights the different jurisdiction of
the Court in respect of trust powers and bare
or mere powers (see discussion in later cases
Gulbenkian’s Settlement and McPhail v Doulton).
In this case the powers in question were purely
administrative, but the same principles would
apply to discretionary dispositive powers such as
a beneficial power of appointment.
“
It is settled law that when
a testator has given a pure
discretion to trustees as to the
exercise of a power, the Court
does not enforce the exercise of
the power against the wish of the
trustees, but it does prevent them
from exercising it improperly.
”
/21
Trustees’ powers
/4.2
Trustees’ powers
/4.3
Pitt v Holt/Futter v Futter (2013)
Supreme Court
Narrowed the application of the rule in
Hastings-Bass and widened the test for
equitable mistake.
Facts
Derek Pitt was a ward of the Court of Protection
with his wife acting as receiver. Following professional
advice she settled his money on discretionary trust.
Her advisors did not consider the inheritance tax
implications of the trust.
Mr Futter and Mr Cutbill were trustees of two nonresident trusts. They advanced capital from one trust
to another following incorrect advice from Mr Cutbill’s
firm resulting in a large capital gains tax charge. In both
cases the trustees sought to unwind their actions.
Notes
The Court stressed that the Hastings-Bass rule
and mistake are discretionary remedies. It was
suggested that the Court may refuse relief for
those who are trying to unwind artificial tax
avoidance schemes.
The judgment will prevent trustees making
applications to set aside their own acts based on
their failure to consider relevant matters when
exercising their powers.
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Ruling
The Court considered the so-called rule in HastingsBass (as formulated in later cases) that the Court
may set aside a trustee’s exercise of a discretionary
power where it is clear that the trustee would not
have exercised it as he did if he had taken into
account only and all relevant considerations. The
Court confirmed that the rule does not come into
play where a trustees’ act is outside the scope of
his powers. Such an act would be void. Rather, the
rule applies where an act is within the scope of the
trustees’ power but the trustee has breached his duty
(this is crucial) by not giving appropriate consideration
to relevant matters. The act is voidable and can be set
aside at the Court’s discretion.
The Court widened the test for mistake to include
any mistake of “sufficient gravity”. This could include a
mistake about tax consequences.
The Court upheld the Court of Appeal’s decision that
a remedy should not be granted under the rule in Re
Hastings-Bass in either case because the trustees had
not breached their duty. In Pitt v Holt, however, the
Court departed from the Court of Appeal decision and
set aside the settlement on the ground of mistake.