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2. Private discretionary trusts |
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More modern precedents exist in cases relating to private discretionary trusts. The duties of the trustees of such a trust are in this context essentially the same as those of the trustees of a charitable trust. The trustees have a duty to apply the trust income for the benefit of a class of individuals or a class consisting of individuals and charities or other institutions in such proportions as they decide. |
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In re Locker's Will Trusts (1977) 1 WLR 1323 the trustees were required to distribute the income of a discretionary trust between a number of individuals and charitable and other institutions. The trustees were slow to do so. Goulding J said: |
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"It is common ground that it was the duty of the trustees to distribute the trust income within a reasonable time after it came into their hands .... In the case of a compelling trust to distribute income the failure to execute the trust promptly is an unfulfilled duty still in existence." |
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The judge referred to an earlier case Re Gourju's Will Trusts (1943) Ch 24 in which Simonds J had said in relation to the discretionary trusts in s.33(1)(ii) of the Trustee Act 1925: |
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"A further question is raised upon this summons which involves the construction of the Trustee Act 1925 s.33(1)(ii) that is whether the discretionary trust having arisen under the terms of that section the trustees may retain all or any part of the income if they think proper and postpone the application thereof for so long as they think fit; or alternatively whether they are bound to expend in each year the income of that year for the purposes indicated in the subsection. The language of the subsection appears to be clear. The obligation is to apply the income: |
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".... for the maintenance or support or otherwise for the benefit of ..." |
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all or any persons indicated. Following the decision of Eve J in Re Peel I think I must come to the conclusion that the obligation of the trustees is to apply the trust income as and when they receive it for the purposes indicated in the subsection with of course such necessary limitations upon absolute obligation as the practical necessities of the case demand. Putting it in a negative way they are not entitled regardless of the needs of the beneficiaries to retain in their hands the income of the trust estate." |
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It is clear from the words in italics that the understanding of the nature of the duty to apply the income of a trust promptly takes account of the fact that income may need to be retained in order that the trustees can properly discharge the purposes of the trust |
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There was more explicit focus on this issue in the case of Re Berkley (1968)Ch 744. In this case the rights of a beneficiary to receive trust income were held to have been properly postponed by the trustees. They needed to retain that income in order to guard against the risk that an annuity which was charged on the trust income might in the future need to paid partly out of retained income if current year trust income was not sufficient. |
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The process was not considered to be an accumulation of income (that is the conversion of income into capital) - had it been it would have been prevented by statute. It simply involved the exercise of an implied power of the trustees to retain income where that was considered necessary in order to be able properly to carry out the objects of the trust. |
