The court considered whether expenses, premiums paid in respect of life assurance policies, and the fees of professional investment managers, were properly to be set against the capital or income of a trust.
Held: Lord Templeman said: ‘Trustees are entitled to be indemnified out of the capital and income of their trust fund against all obligations incurred by the trustees in the due performance of their duties and the due exercise of their powers. The trustees must then debit each item of expenditure either against income or against capital. The general rule is that income must bear all ordinary outgoings of a recurrent nature, such as rates and taxes, and interest on charges and incumbrances. Capital must bear all costs, charges and expenses incurred for the benefit of the whole estate.’ and
‘In the present appeals, the appellant trustees of the Paul settlement paid the annual premiums on assurance policies effected by the trustees in order to obtain policy moneys corresponding to the amount of capital transfer tax payable out of the trust fund in the event of the death of the settlor before 20 November 1979. The appellant trustees of the Devonshire settlement paid the annual premiums on endowment policies assigned to the trustees and on other endowment policies effected by the trustees. All these premiums were paid by the Paul settlement trustees and the Devonshire settlement trustees for the benefit of the whole of their respective trust funds because the capital of the trust will be augmented by the policy moneys which will be received if and when the policies mature, and the income of the trust will be increased as and when such augmentation of capital takes place, but not before that event takes place.’ and
‘The Devonshire settlement trustees also paid annual fees to a firm of investment advisers to keep under review and to advise changes in investments comprised in the trust fund. This was a recurrent charge but not an ordinary outgoing and was incurred for the benefit of the estate as a whole because the advice of the investment advisers will affect the future value of the capital of the trust fund and the future level of income arising from that capital.’
Judges:
Lord Templeman, Lord Fraser of Tullybelton, Lord Roskill and Lord Brandon of Oakbrook
Citations:
[1985] 1 AC 1082
Statutes:
Jurisdiction:
England and Wales
Citing:
Approved – In re Bennett, Jones v Bennett CA 1896
The deceased’s estate held mainly an unsecured interest-bearing loan to a firm of which he had been a partner. On his retirement the loan was repayable on demand if conditions for the continued solvency of the firm were not met. The court was asked . .
Cited by:
Cited – HM Revenue and Customs v Trustees of the Peter Clay Discretionary Trust CA 19-Dec-2008
The court was asked whether the Commissioners had been correct to disallow in a closure notice, the attribution in part to income in the year 2000-01 of expenses incurred by the trustees of a United Kingdom resident discretionary trust. The expenses . .
Lists of cited by and citing cases may be incomplete.
Income Tax, Trusts
Updated: 02 May 2022; Ref: scu.279008
