“Who do you Trust in the Power of Advancement”
Making a trust is a practicable method of helping to secure your families future. However, being a trustee can be confusing and complex leading to unnecessary apprehension. This is especially true when Section 32 of the Trustee Act 1925 comes into play.
A recent example we have come across is an elderly client who has a trust fund in place for her grandchildren. The trustees are her son and daughter in law with the beneficiaries being their respective children.
The trust allows for the estate to be divided equally among the beneficiaries once the eldest beneficiary attains the age of 25.
Under S 32 of the Trustee Act 1925, the trustees have the power to advance capital to certain beneficiaries or re-direct the shares. In this case, the trustees sought advice as to whether they could advance one of the beneficiary’s share prior to reaching 25, for a property purchase.
As the beneficiary is entitled to capital at a future date, advancement is possible but this proviso has limits in that unless there is an express condition stated, only half the relevant trust fund can be advanced, due to Section 32 of the Trustee Act 1925.
Furthermore, this provision will not apply if the beneficiary has only an entitlement to income not capital.
Apprehension can also arise around common queries such as what would happen if one of the beneficiaries dies or if the class of beneficiaries extends prior to all children reaching 25.
What does this mean for S 32?
If one of the beneficiaries die before obtaining their share of the settlement the capital shall form part of their estate and will not need to be repaid.
If the class of beneficiaries increases but one beneficiary has already received some of the settlement this will require a re-balancing of the overall fund for each of the beneficiaries.
If Trustees have a power of appointment, this can reduce the capital allocated to a beneficiary but will not prevent the trustees from making an advanced payment to the beneficiary.
For more information on the role of Trusts in careful estate planning and for tax considerations, call our friendly Trusts and Estates team for your free meeting with Paul Solomons our specialist trusts partner on 01202 802 807.
Paul Solomons is a member of the specialist Society of Estate and Trust Practitioners (STEP). STEP practitioners help families plan their long term financial future and assist with complex tax rules surrounding estates, trusts and inheritance.
Author: Paul Solomons