Analysis
The trustees of a settlement sought directions as to whether they could advance capital to certain beneficiaries pursuant to their powers under s32 Trustee Act 1925, as varied by a clause of the trust deed, so as to bring the trust to an end. They sought a declaration as to whether the proposed advancements were within the power as a matter of construction, (ie whether there were beneficiaries with interests prior to those of the beneficiaries in whose favour the advancements were to be made, whose consent was required), and, presuming that they were within that power, the court’s approval of those advances.
The trust deed provided that the trustees would hold the portion of the fund to which this case related for the settlor’s present and future grandchildren (the grandchildren). However it also stated in the immediately following clause ‘Provided always that the share… taken by any of the Beneficiaries… shall not vest in him or her absolutely but shall be retained by the trustees and held on the following trusts’, those engrafted trusts being specified so as to grant the grandchildren life interests, subject to which the share and its income would be held on trust for the first and other sons of the relevant beneficiary, and in default of that for the beneficiary absolutely. No children had yet been born to any of the grandchildren. Consequently, the possible children of the grandchildren were referred to as ‘the unborns’.
As to whether the proposed advances of capital were within the scope of the s32 power, this was determined by (1) whether the grandchildren had an absolute interest in their allotted shares pursuant to the rule in Hancock v Watson; (2) assuming their interest was absolute, whether the grandchildren had an interest in capital within the meaning of s32; and (3) assuming the grandchildren had an absolute interest in capital, whether the interests of the unborns were yet still ‘prior’ to those of the grandchildren within the meaning of s32.
Held:
The rule in Hancock v Watson is not only engaged when engrafted trusts fail, since events subsequent to the execution of a trust deed cannot be relevant to its construction. Nor did that rule apply only where engrafted trusts do not exhaust the beneficial interest in the trust property. Here the rule applied with the consequence that the grandchildren had absolute interests for a number of reasons. The language of the relevant clause was apt to create an absolute gift: the use of the phrase ‘Provided always that’ in introducing the engrafted trusts embodied the very structure identified in case law as often indicative of an absolute interest, and the use of the phrases ‘the share’ and ‘the Allotted Share’ similarly indicated that the beneficiaries were intended to own the share. Furthermore, the relevant provisions were of a conspicuously contrasting structure to other clauses in the deed which had been intended to grant only a life interest and not an absolute interest.
The fact that an interest in capital was liable to be defeated on the bringing into effect of an engrafted trust by eg the birth of a child, did not prevent it from being an interest in capital, unless and until the defeasance occurred. The word ‘prior’ in the phrase ‘prior interest’ refers to the order in which trust property is enjoyed and hence the consent of persons with interests subsequent to the capital beneficiary is not required by s32(c) Trustee Act 1925. The trustees are not entitled to disregard the interests of people with subsequent interests, but provided the trustees have considered those interests and made a balanced decision, they may exercise the power under s32. Here, the interests of the unborns, even were they to come into existence, would merely convert the otherwise absolute interest of their parents into a life interest. Since the parents’ life interests would be enjoyed before the interests of their children, and hence would still be prior to those of their children in the sense set out above, the consent of the unborns was not required for the exercise of the power. Thus the grandchildren has an absolute interest in capital, not subject to any prior interest, and hence the proposed advances were within the scope of the s32 power, and did not require the consent of the unborns.
The proposed exercises of the power were approved as being for the benefit of the beneficiaries, in assisting them to buy properties in which to live and to protect the assets against erosion owing to professional fees and inheritance tax charges.
JUDGMENT MASTER CLARK: [1] This is an application by Pt 8 claim form dated 8 July 2020 by the trustees (‘the Trustees’) of a trust created by a settlement dated 6 March 1992 (‘the Trust Deed’). They seek directions as to whether they can advance capital to certain beneficiaries pursuant to their power under s32 …Continue reading "Womble Bond Dickinson (Trust Corporation) Ltd & ors v Glenn & ors [2021] WTLR 737"