Introduction

• beneficiaries may wish to vary a trust & possible in some circumstances to do so
• may wish to vary due to out of date provision, changes in tax laws or circumstances of beneficiaries
• justification: beneficiaries are equitable owners of trust property & policy aim that trust property should not be tied up in trust too long

Variation of beneficial interests

• rule in Saunders v Vautier: provision for beneficiaries terminating trust or setting up new trust & conveying trust property to new trustees

  Saunders v Vautier (1841) 4 Beav 115

  • beneficiary can require trustees to transfer trust property to him or others (new trustees) & end the trust if:
    beneficiary is sui juris (over 18 yrs old & of sound mind)
    sole beneficiary entitled under trust
    has a vested interest
• rule in Saunders v Vautier extended to trusts with more than one beneficiary, if beneficiaries:
  in existence & ascertainable
  sui juris
  all agree
• rule in Saunders v Vautier can apply if successive interests, but only if beneficiaries meet criteria
• rule in Saunders v Vautier can apply to discretionary trusts

  Re Smith [1928] Ch 915

  • rule in Saunders v Vautier can apply to discretionary trusts if all objects ascertainable, sui juris & agree
• rule in Saunders v Vautier recognises that beneficiaries are equitable (true) owners of trust property
• uncertain whether Saunders v Vautier rule applies to Denley purpose trusts (valid trusts for non-charitable purposes due to direct or tangible benefit to ascertainable individuals)

  Re Denley's Trust Deed [1969] 1 Ch 373

  • held valid trust: trustees held land to provide sports ground for employees & employees sufficiently direct benefit to enforce trust through courts
  • debate whether employees had equitable interest in property or merely factual interest in the carrying out of the purpose
  • issue not addressed but court did endorse Re Bowes

  Re Bowes [1896] 1 Ch 507

  Facts:

  • money given on trust to plant trees on an estate

  Issue:

  • could the trust be ended?

  Held:

  • purpose merely motive behind gift
  • trust money belonged to owners of estate
  • Saunders v Vautier applied & trust could be ended
• if Denley purpose trust akin to Re Bowes: beneficiaries are equitable owners with Saunders v Vautier rights, but no authoritative case law
• court's consent may be sought to vary trust for benefit of beneficiaries

  Variation of Trusts Act 1958

  • s.1(1): court can approve variation for benefit of beneficiaries, on behalf of:
    s.1(1)(a): person with interest vested or contingent not sui juris (too young or incapable)
    s.1(1)(b): unascertained beneficiaries, remainder (should trust fail or beneficiary die)
    s.1(1)(c): person unborn
• variation may be sought for tax reasons

  Bernstein v Jacobson [2005] EWHC 3454

  • legitimate tax-saving is a benefit but tax evasion is illegal & clearly not be sanctioned by court
• variation to contingency may sought (from 18 to 25 if for benefit: more mature despite risk that won't reach 25)

  Re Cohen's WT [1965] 1 WLR 1229

  • court must be satisfied that it is making reasonable bargain which an adult would be prepared to make, there can be risk that individuals may not result in being better off
• some limits to court power under s.1(1) VTA 1958

  Re Holt's Settlement [1969] 1 Ch 100

  • court will only approve variation not resettlement

  Re Ball's Settlement [1968] 1 WLR 899

  • variation not resettlement: if leaves the substratum of the trust intact (beneficiaries unchanged even if interests altered)

  Wyndham v Egremont [2009] WTLR 1473

  • variation not resettlement: if trustees & administrative powers remain the same

  Goulding v James [1997] 2 All ER 239

  • in most cases does not matter if variation contrary to settlor's wishes

  Knocker v Youle [1986] 2 All ER 914

  • court has no power to consent on behalf of sui juris beneficiary

Settlor's control

• question arises: once trust set up, to what extent can settlor influence administration of the trust?
• settlor's can clearly choose trustees carefully, however trustees under duty to act in beneficiaries interest & not simply comply with settlor's wishes

  Turner v Turner [1983] 2 All ER 745

  • court set aside decisions of trustees of a power of appointment who merely did as settlor ordered without exercising their own discretion .
• trustees must obey settlor's directions set out trusts instrument & comely with duties under general law (including fiduciary duties not to allow personal interest to conflict with trust)
• settlor cannot sue for breach of trust: if trustees breach duties in trust instrument or general law (right to enforce trustee's duties lies with beneficiaries)
• once trust set up settlor cannot appoint or remove trustees unless provided for in trust instrument
• settlor may reserve power to appoint new trustees through clause in trust instrument: giving himself or nominee statutory power of appointment (under s.36 Trustee Act 1925)
• if settlor attempts to remove trustee simply because not following his wishes, removal may be challenged & court can declare removal is an invalid exercise of the power.
• settlor can also appoint himself as trustee if he wishes to have further control

Appointment & removal of trustees

• beneficiaries may wish to appoint new trustee as replacement or addition, possible methods:
  express power in trust instrument
  s.36 Trustee Act 1925 (TA)
  s.41 TA 1925
  s.19 Trusts of Land and Appointment of Trustees Act 1996 (TOLATA)
  court's inherent jurisdiction
• express power: trust instrument may give power to appoint & remove trustees or nominate someone to exercise statutory power under s.36 TA 1925
s.36 TA 1925 provides for removal of trustees on certain grounds but a new trustee must be appointed in their place

Trustee Act 1925

• s.36(1): grounds for replacing trustees:
  trustee outside UK for period of more than 12 months
  trustee refuses to act or wishes to retire
  trustee has died
  trustee is unfit to act (bankrupt)
  appointed trustee is an infant
  trustee is incapable of acting (through mental or physical infirmity)
• s.36(1): persons able to appoint trustees:
  person nominated by trust instrument (if none or refuses/incapable) then
  if replacing deceased trustee, surviving trustee will effect new appointment
  if not replacing deceased trustee, then continuing trustees will appoint new trustee
• s.36(1): removal & appointment of trustees should be in writing
• s.36(4): if no continuing trustees as all deceased, personal representatives can appoint new trustee
• s.36(6): additional trustees can be appointed if no vacancy, subject to:
  not exceed 4 trustees
  appointer cannot appoint himself as additional trustee
• s.36(8): continuing trustees include retiring trustee if willing to act

Re Stoneham's Settlement [1953] Ch 59

• trustees who are removed for reasons other than retiring are not considered continuing trustees for purposes of s.36 TA 1925
• appointment must be in writing & deed of appointment preferable as old trustees must transfer all trust assets to people who will be new trustees
• property will usually vest automatically under s.40 TA 1925, but company shares requires stock transfer form & registration of new trustees at company & new trustees of land will still need to be registered at the Land Registry
• s.36 TA 1925 allows trustees control of appointment of trustees unless trust instrument expressly provides for contrary arrangement
• courts may appoint trustees in certain circumstances

  Trustee Act 1925

  • beneficiaries can apply to court to appoint trustee if it is inexpedient, difficult or impracticable to appoint without the court's assistance
• under s.41 TA 1925: court can appoint new trustee as replacements or as additional trustees but they do not have power to remove trustees without a replacement
• court will not exercise power under s.41 TA 1925 if appointment can be made under s.36 TA 1925

  Re Higginbottom [1892] 3 Ch 132

  Facts:

  • M was illiterate & sole executrix of the surviving trustee of trust fund & entitled to exercise statutory power of appointing new trustees
  • M wanted to continue as sole trustee
  • majority of beneficiaries applied to the court to appoint X & Y as trustees

  Issue:

  • would court intervene under s.41 TA 1925?

  Held:

  • court would not appoint X & Y
• s.19 TOLATA 1996: may provide beneficiaries some rights regarding retirement & appointment of trustees, in relation to trusts of land & personalty

  Trusts of Land & Appointment of Trustees Act 1996

  • #: applies if no nominated person for appointing trustees & the beneficiaries are absolutely entitled & sui juris
  • s.19(2): beneficiaries may
    (a): give written direction to a trustee or trustees to retire
    (b): serve a written direction demanding the appointment of new specified trustees
  • s.19(3): trustee must declare retirement by deed, if:
    (a): given direction under s.19(2)(a)
    (b): reasonable arrangements for protection his rights (right to fees)
    (c): after retirement there wail be a trust corporation or at least two trustees
    (d): either another person is to appointed as trustee on his retirement or continuing trustees' consent to his retirement by deed
  • if trustee retires under s.19(3) he & continuing trustees shall vest property in continuing trustees (& new trustees)
• s.19 TOLTA 1996 can be excluded in trust instrument expressly or the settlor by nominating a person to appoint new trustees (s.19(1)(a) TOLATA 1996)

  Re Brockbank [1948] Ch 206

  • power under s.36 TA 1925 to appoint new trustees is a discretionary power belonging to the trustees & beneficiaries cannot dictate how it should be exercised
• however, if s.19 TOLATA 1996 is excluded & beneficiaries unable to persuade trustees to exercise s.36 TA 1925, beneficiaries may:
  be able to use rule in Saunders v Vautier (distribute trust property between themselves or convey to trustees of their choice)
  or ask court to apply inherent jurisdiction to remove trustees with or without replacement
• beneficiaries & trustees can apply to court to exercise its inherent jurisdiction to remove trustees & removed trustee does not have to be replaced
• no grounds for application but certain factors will influence court as to whether to exercise its jurisdiction

  Letterstedt v Broers (1884) 9 App Cas 3

  • main factor: welfare of beneficiaries
  • breach of trust not necessarily justify instant dismissal of trustee unless trust property is endangered or trustee is dishonest or incapable
  • in instant case, beneficiary alleged but could not prove trustee's misconduct but trustee was removed: friction between beneficiary & trustee would impede administration of the trust

  Re Consiglio Trusts [1973] 3 OR 326

  • reason for removal of all trustees: friction between trustees meaning that they cannot act unanimously

  Clark v Heathfield (No.2) [1985] ICR 606

  • unlawful acts on part of trustees justifies removal

Retirement of trustees

• trustees do not have to remain in office against their wishes: either by not accepting role or retiring
• trustees can retire:
  under s.36 TA 1925
  under s.39 TA 1925
  express power under trust instrument
  court granting order under its inherent jurisdiction
• s.36 TA 1925 applies if retiring trustee is to be replaced
• s.39 TA 1925 applies if retiring trustee is not to be replaced

  Trustee Act 1925

  • s.39: trustee may retire & not be replaced if
    there remain two or more trustees or a trust corporation
    remaining trustees & anyone nominated in trust instrument to appoint new trustees consent
    retirement effected by deed
• trustees remain liable for any breaches when in office & if a trustee retires knowing or suspecting other trustees may breach the trust he may still be liable (his duty is to remain in office & prevent breach)

Controlling trustees: beneficiaries

• if beneficiaries can compel trustees to carry out certain acts in administration of the trust, largely depends whether the issue is non-exercise of a power or duty
• beneficiaries can compel trustees to perform duties by obtaining court orders but if trustees are under no duty to exercise a power cannot compel them to do so
• two situations when trustees are under a duty but the way they exercise the duty is in their discretion
• investments: trustees under duty to invest in authorised investments but choice of authorised investment at their discretion
  beneficiaries can force authorised investment to be made but not dictate what constitutes authorised investment
• discretionary trusts: imposes duty on trustees to select an object or objects but discretion vested in trustee as to which object
  beneficiaries can apply to court for order that duty must be carried out but now how
• beneficiaries can make trustees perform administrative duties (management/investments) & dispositive matters (distribution of funds) but cannot compel to exercise powers

Controlling trustees: courts

• beneficiaries may wish to challenge way trustees implement powers or discretions
• if trustees have exercised power of appointment & given money to object A, can other objects challenge trustee decision to give money to object X?
• if trustees have exercised discretion under discretionary trust in favour of Y, can Z another object challenge the decision? (trustees under duty to carry out discretionary trust & choose object but at their discretion whether they choose Y or Z)
• courts reluctant to interfere with way trustees exercise discretions

  Tempest v Lord Camoys (1882) 21 Ch D 571

  • It is settled law that when a [settlor] 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 does prevent them from exercising it improperly
• courts will set aside decisions if trustees have acted outside their powers or breached a duty

  Turner v Turner [1983] 2 All ER 745

  • set aside: decisions of trustees with power of appointment to appoint money to objects, as trustees blindly followed settlor's instructions & so failed to consider from time to time whether to exercise the power

  Re Hastings-Bass [1975] Ch 25

  • set aside: exercise of trustees' discretions where trustees would have acted differently if had taken into account relevant considerations or had not taken into account irrelevant matters

  Pitt v Holt; Futter v Futter [2011] EWCA Civ 1970

  • set aside trustees' actions only if they resulted from a breach of the trustees' duties

  Re Manisty's Settlement [1974] Ch 17

  • set aside if capricious exercise of trustees' discretion: if exercise is irrational, perverse or irrelevant to any sensible expectation of the settlor

  Duke of Portland v Lady Topham (1864) 11 HL Cas 32

  • set aside: if it is fraud on a power (made with aim of benefitting a non-object)

Beneficiaries: right to information

• to successfully challenge decision, beneficiaries require evidence to show reasons why trustees reached their decisions (in order to prove duties were breached)

  Re Beloved Wilkes Charity (1851) 3 Mac & G 440

  • long established principle: trustees not obliged to provide beneficiaries with reasons explaining why they exercised a power or discretion

  Scott v National Trust [1998] 2 All ER 705

  • if an object has a legitimate expectation that a discretion will be exercised in his favour he is entitled to be warned if trustees decide to change their policy
• trustees duty: keep accounts of trust property & evidence of how trust fund is invested & allow beneficiaries to inspect
• question: whether beneficiaries have right to see documents detailing trustees' decisions (minutes of meetings & correspondence)

  O'Rourke v Darbishire [1920] AC 581

  • beneficiary's right to disclosure of trust documents: proprietary right arising from his proprietary (equitable) interest in trust property

  Re Londonderry's Settlement [1965] Ch 918

  • Court of Appeal: object of discretionary trust not entitled to disclosure of correspondence & minutes of trustees' meetings (which would show reasons for exercise of discretion) as confidential

  Schmidt v Rosewood [2003] 2 WLR 1442

  Facts:

  • C was object of discretionary trust & personal representative of object of power or appointment (C had no equitable interest)

  Issue:

  • did C have right to disclosure of records of trustees' decisions?

  Held:

  • no right under O'Rouke v Darbishire : as C did not own proprietary interest in trust property
  • Privy Council: no beneficiary or object has right to inspect trust documents but may ask a court to order disclosure
  • court has power under inherent jurisdiction to supervise & if necessary intervene in administration of trusts
  • court power to order disclosure includes documents showing trustees' confidential reasons relating to discretionary powers
  • court's jurisdiction not depend on C having proprietary interest in trust property
  • court should consider competing interests of beneficiaries, trustees & third parties (settlor)
• settlor's creating discretionary trust will often give trustees letters of wishes showing how he would like discretion to be exercise (this information is not contained in trust instrument as settlor wishes to keep confidential), these are not binding
• question: whether beneficiaries have right to disclosure of letters of wishes?

Breakspear v Ackland [2009] Ch 32

• reasons for not disclosing:
  settlor's provide on basis that confidential, if not may deter & trustees would lose helpful tool
  disclosure of settlor's wishes may cause family dissension
  people may be deterred from being trustees if their exercise of discretion open to scrutiny
• reasons for disclosing:
  relevant to question whether trust is being properly managed
  objects of discretionary trusts could plan more effectively if assess prospects of receiving trust funds
• trustees do not have to disclose unless believe that in interests of sound administration of trust: so can waive confidentiality of letters of wishes
• courts have discretion to order disclosure of ltters of wishes
• trustees may seek directions from court & are not obliged to give reasons why refused disclosure of document, but should consider partial disclosure
• beneficiaries may use Saunders v Vautier to close trust & insist old trustees transfer property to new trustees

  Stephenson v Barclays Bank [1975] 1 WLR 882

  • beneficiaries must accept decision of trustees or if Saunders v Vautier applies end the trust
  • beneficiaries cannot keep old trustees in office & merely insist that trustees follow their orders