Trustees: appointment, duties, powers, and liabilities - Tru...

Learning Outcomes

This article explains the trustees' statutory power to apply trust income for the maintenance, education, or benefit of beneficiaries, particularly minors, under section 31 of the Trustee Act 1925 (as amended by the Inheritance and Trustees’ Powers Act 2014). It develops when and how the power arises, its discretionary nature, and the interaction with the rules on accumulation and intermediate income. It clarifies what counts as an “interest carrying the right to intermediate income”, the effect of prior interests, the change in the beneficiary’s entitlement at age 18, and the destination of accumulated income based on whether the beneficiary’s capital interest is vested or contingent. It also distinguishes the power of maintenance (income) from the power of advancement (capital) under section 32. You will be able to identify:

• The conditions for exercising the s.31 power and when it is unavailable (for example, where a prior life interest exists or where the legacy is a contingent pecuniary sum that does not carry intermediate income).
• How trustees should apply and account for income during minority, including practical methods of application and record‑keeping.
• What changes at age 18, including the adult beneficiary’s entitlement to current income and the treatment of accumulations.
• The scope for variation or exclusion of s.31 by the trust instrument, and the differences for trusts created before and after 1 October 2014.
• The distinction between income maintenance under s.31 and capital advancement under s.32, including “bringing into account” and consent requirements.

SQE1 Syllabus

For SQE1, you are required to understand the practical application of trustees’ powers, including the statutory power of maintenance, and to identify when the power is available, assess the scope of the trustees’ discretion, and determine the consequences of its exercise or non‑exercise, with a focus on the following syllabus points:

• The requirements for the statutory power of maintenance under s.31 Trustee Act 1925 (as amended).
• The distinction between vested and contingent interests and whether an interest carries the right to intermediate income.
• The effect of a prior interest in income, preventing exercise of s.31 over that income.
• The trustees’ discretion when applying income during minority and the duty to accumulate unapplied surplus.
• The entitlement of adult beneficiaries to income as it arises at age 18.
• Treatment of accumulated income at age 18 depending on whether the beneficiary’s capital interest is vested or contingent.
• How the statutory power can be varied or excluded by the trust instrument (for example, postponing income entitlement to 21 or 25).
• Differences for trusts created before 1 October 2014 versus on or after that date (scope of discretion and factors to consider).
• The distinction between the power of maintenance (s.31) and the power of advancement (s.32) and their coordination in practice.
• The special rule for contingent pecuniary legacies: these do not carry intermediate income unless the will provides otherwise; note the historic “parent or in loco parentis” exception context.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Under s.31 Trustee Act 1925, when can trustees apply income for a minor beneficiary?
   1. Only if the beneficiary has a vested interest.
   2. Only if the beneficiary has a contingent interest.
   3. If the beneficiary has either a vested or contingent interest carrying the right to intermediate income.
   4. Only if expressly permitted by the trust instrument.

2. True or false: Trustees must apply income for a minor beneficiary's maintenance if the conditions under s.31 TA 1925 are met.

3. What must trustees do with trust income generated for a minor beneficiary if they decide not to apply it for maintenance, education, or benefit?
   1. Distribute it to the settlor.
   2. Accumulate it and add it to the capital.
   3. Distribute it to the minor beneficiary directly.
   4. Hold it in a separate account until the beneficiary is 18.
4. A beneficiary has a contingent interest in capital, conditional on reaching age 25. What happens to the trust income generated after the beneficiary turns 18 but before they turn 25?
   1. The trustees must continue to accumulate it.
   2. The trustees have discretion to apply it for the beneficiary's benefit.
   3. The trustees must pay it to the beneficiary as it arises.
   4. The income entitlement ceases until the beneficiary reaches 25.

Introduction

Trustees managing trust property for beneficiaries, especially minors, often face situations where beneficiaries require financial support before they become fully entitled to the capital. The Trustee Act 1925 provides statutory powers enabling trustees to use trust funds for beneficiaries in certain circumstances. This article focuses specifically on the statutory power of maintenance under section 31 of the Trustee Act 1925 (TA 1925), as amended by the Inheritance and Trustees’ Powers Act 2014. This power allows trustees to apply trust income for the benefit of beneficiaries who have not yet attained a vested interest in capital, typically minors. Understanding the scope, limitations, and application of this power is important for advising trustees and beneficiaries.

The Statutory Power of Maintenance (s.31 TA 1925)

Section 31 TA 1925 grants trustees a discretionary power to apply trust income for the “maintenance, education or benefit” of a beneficiary under the age of 18 (a minor). The power applies where the beneficiary has an interest (vested or contingent) in the trust property that carries the right to intermediate income. It operates subject to any contrary intention expressed in the instrument creating the trust.

Conditions for Exercise

The power under s.31 arises only if the beneficiary has an interest (vested or contingent) in the property and that interest carries the right to intermediate income. This means that the trust entitlement must include income arising before the capital falls into possession.

Key Term: Vested Interest
An interest that is unconditional. The beneficiary is certain to receive the trust property, although enjoyment might be postponed (for example, until they reach 18 or following the expiry of a prior life interest).

Key Term: Contingent Interest
An interest that depends on a future event occurring (which may or may not happen), such as reaching a specified age or qualifying for a profession. Until the contingency is met, the beneficiary has no absolute entitlement to capital.

There are two important limits:

• The power cannot be exercised if there is a prior interest affecting the income. For example, if property is held on trust for A for life, remainder to B (a minor), trustees must pay all income to A during A’s lifetime and cannot use that income for B’s maintenance.
• A contingent pecuniary legacy (for example, “£50,000 to X if X reaches 25”) generally does not carry intermediate income unless the instrument expressly provides otherwise. In such cases, there is no income to apply under s.31 while the contingency remains unmet.

Where the trust property is a residuary estate or a fund that produces income before capital is distributed, the interest will typically carry intermediate income. Where the gift is of money payable only on a contingency, it ordinarily will not carry intermediate income absent express provision.

Key Term: in loco parentis
A person who has undertaken parental responsibilities in relation to the beneficiary. Historically, some authorities considered that contingent pecuniary legacies created by a parent or a person in loco parentis could carry intermediate income. Current practice is to rely first on the express terms of the instrument.

Scope of Application: “Maintenance, Education, or Benefit”

The phrases “maintenance”, “education”, and “benefit” are interpreted broadly.

• Maintenance: reasonable support for living needs, including housing, food, clothing, and healthcare.
• Education: schooling and training costs, tuition fees, books, supplies, travel for study, and related expenses.
• Benefit: anything that improves the minor’s material position or well‑being, appropriately calibrated to the trust and the beneficiary’s circumstances (for example, extracurricular lessons, equipment, or therapy).

Trustees must exercise judgment and act in good faith. For trusts created on or after 1 October 2014, trustees may apply “the whole or such part” of the income as they think fit. For trusts created before that date, the statutory wording limited application to “such part of the income as may, in all the circumstances, be reasonable”, and required regard to the minor’s age and circumstances. Although this older wording applies to pre‑October 2014 trusts unless varied by the instrument, current practice is often governed by express clauses in modern instruments that standardise the position.

Trustees may apply income directly to expenses (for example, paying a school or landlord) or pay income to a parent or guardian to use for the minor’s benefit. Minor beneficiaries cannot themselves give a valid receipt, so trustees should apply funds directly or through a responsible adult and maintain records showing application for the minor’s benefit.

Discretionary Nature

The s.31 power is discretionary: trustees may decide whether to apply income and in what amount. The beneficiary or their parent/guardian cannot compel trustees to use income under this power. However, trustees must consider this discretion periodically and act with the duty of care applicable to their office.

If trustees decide not to apply income (or apply only part of it), they must comply with the statutory duty to accumulate surplus income.

Duty to Accumulate Surplus Income

Any income not applied for the minor beneficiary’s maintenance, education, or benefit must be accumulated. Accumulation means surplus income is retained and invested, and income produced from those investments is itself accumulated. Trustees should account for accumulations as part of the trust fund and keep appropriate records.

Key Term: Accumulation
The process of retaining and investing surplus trust income rather than distributing it, with accrued income being added to the accumulated fund.

Trustees may in subsequent years resort to accumulations to supplement the minor’s maintenance, education, or benefit as needs change during minority. If a beneficiary’s needs expand (for example, new tuition or medical costs), trustees can draw on both current year income and accumulated income.

Worked Example 1.1

A trust fund is held for Chloe, aged 10, contingent on her reaching 21. The trust generates £5,000 income per year. The trustees decide to apply £2,000 per year towards Chloe's school fees. What must they do with the remaining £3,000 income each year?

Answer:
The trustees must accumulate the surplus £3,000 each year by investing it in accordance with their duties. They may later use these accumulations (and any growth) for Chloe’s maintenance, education, or benefit during her minority if needed.

Attainment of Majority (Age 18)

The beneficiary’s status at age 18 changes significantly under s.31.

Entitlement to Income

When a beneficiary reaches 18 and has a vested or contingent interest in the trust property that carries the right to income, the trustees’ discretion under s.31 ceases and they come under a duty to pay current income to the beneficiary as it arises. This applies even if the capital interest is contingent (for example, payable only on reaching age 25). From 18 until the contingency is met (or the interest fails), the beneficiary is entitled to income; trustees cannot continue to accumulate current income unless the trust instrument postpones income entitlement or otherwise displaces s.31.

Worked Example 1.2

David is the beneficiary of a trust fund, contingent on him reaching 25. The fund produces £8,000 income annually. David has just turned 18. What are his income rights?

Answer:
Once David is 18, the trustees must pay the £8,000 annual income to him as it arises. Their s.31 discretion has ended. He will receive current income until his capital interest either vests at 25 or fails (for example, if he dies before 25 and the trust provides an alternative destination).

Treatment of Accumulated Income

The destination of income accumulated during the beneficiary’s minority depends on the nature of their capital interest:

• Vested capital interest: If the beneficiary had a vested interest from the outset (or their capital interest vests at 18), the beneficiary is ordinarily entitled to both current income and any accumulations at age 18. Accumulated sums are paid out rather than retained as capital.
• Contingent capital interest: If the capital interest remains contingent at age 18 (for example, payable at 25), accumulated income is added to capital and treated as part of the trust fund. The beneficiary will receive those accumulations only if their capital interest later vests. If the capital interest fails, the accumulations pass with capital under the trust terms.

Worked Example 1.3

Refer to Worked Example 1.1. Assume Chloe's interest vests at age 21. What happens to the income accumulated during her minority when she turns 18?

Answer:
Because Chloe’s capital interest is still contingent at 18 (she must reach 21), the accumulated income is added to capital and kept within the trust. From 18 until 21, Chloe is entitled to receive current income as it arises, but past accumulations remain part of capital and will only be distributed to her if and when her capital interest vests at 21.

What Counts as Carrying Intermediate Income?

Understanding whether an interest carries intermediate income is critical:

• Interests in an income‑producing trust fund (for example, residue or a settled fund of investments) generally carry intermediate income before capital is distributed.
• Contingent pecuniary legacies (for example, “£100,000 to Y if Y reaches 25”) do not carry intermediate income unless the instrument provides otherwise, so s.31 cannot be used to apply “income” from such sums during minority because, in law, there is no income payable until the contingency is met.
• Some historic authorities discussed exceptions where the legacy was created by a parent or a person in loco parentis; modern advice focuses on the instrument’s terms and the statutory framework.

Worked Example 1.4

A will leaves “£200,000 to Ben if he reaches 25”. The will contains no express clause about intermediate income. Ben is 16. Can trustees apply income under s.31 toward Ben’s maintenance?

Answer:
No. The gift is a contingent pecuniary legacy that does not carry intermediate income. There is no income to apply under s.31 until (and unless) Ben reaches 25 or the instrument expressly confers income rights earlier.

Exclusion or Variation by Trust Instrument

The settlor can expressly modify or exclude the provisions of s.31 TA 1925 in the trust instrument. Common variations include:

• Postponing the beneficiary’s right to receive income until a later age (for example, 21 or 25), thereby extending accumulation beyond age 18.
• Authorising or restricting the extent to which trustees may apply income during minority (for example, capping amounts or specifying purposes).
• Directing differently for the destination of accumulated income at 18.

Express terms override the default statutory position. Trustees must read and apply the instrument carefully before relying on the statutory power.

Worked Example 1.5

A trust clause states: “Section 31 TA 1925 shall apply as if references to 18 were references to 21.” The fund produces £6,000 p.a. for Emily, currently 19 and with capital contingent at 25. What should trustees do with current income?

Answer:
The clause postpones Emily’s entitlement to current income until 21. Trustees may continue to apply income at their discretion for her maintenance, education, or benefit during ages 19–20 and must accumulate any surplus. At 21, Emily will then be entitled to current income as it arises until her capital vests at 25 or fails.

Exam Warning

Always check the terms of the trust instrument provided in a scenario. An express clause relating to income will override the statutory provisions of s.31 TA 1925. Also, be mindful of the date the trust was created, as the statutory wording concerning discretion differs for trusts created before 1 October 2014. The default rules summarised above reflect current law.

Practical Administration and Duty of Care

Trustees must exercise powers under s.31 within their general fiduciary framework:

• Duty of care: Trustees must act with such care and skill as is reasonable in the circumstances, taking into account any specialist knowledge or experience (Trustee Act 2000, s.1).
• Impartiality: Trustees must act even‑handedly between beneficiaries with different interests (for example, between a life tenant and remaindermen, or between competing minors).
• Documentation: Trustees should minute decisions to apply or accumulate income, including reasons, amounts, and evidence of application for the minor’s benefit (for example, invoices or receipts).
• Method of payment: Where funds are paid to a parent or guardian, trustees should satisfy themselves that payment is appropriate and for the minor’s benefit. Minor beneficiaries cannot give valid receipts.
• Periodic review: Trustees should review the beneficiary’s circumstances and the trust’s income position annually, and reconsider whether to exercise s.31.

Worked Example 1.6

Trustees hold an income‑producing portfolio on trust for Priya, aged 15, with capital contingent at 25. Priya’s parent requests £3,000 from income to fund weekly sports therapy. Trustees are unsure if this is “maintenance”. What should they consider?

Answer:
Trustees should assess whether the expenditure benefits Priya’s physical and mental well‑being and is reasonable in context. If satisfied, they may apply income for this purpose and accumulate any surplus. They should document their due diligence (for example, medical recommendations and provider invoices), the decision, and the payment method.

Distinction from Power of Advancement (s.32 TA 1925)

Do not confuse s.31 (maintenance from income) with s.32 (advancement from capital).

• Maintenance (s.31): Application of income for a minor’s maintenance, education, or benefit. Discretionary during minority; duty to pay current income at 18 unless postponed or excluded.
• Advancement (s.32): Payment or application of capital for the advancement or benefit of a beneficiary with a vested or contingent interest in capital. After 2014 amendments, trustees may advance up to the whole presumptive share (previously limited to half), subject to prior interests. Any advance is normally “brought into account” when the beneficiary’s absolute entitlement arises (unless the instrument provides otherwise). If the beneficiary’s capital interest later fails, sums advanced are not repayable.

The two powers can be used together in appropriate cases: income for ongoing support under s.31, capital under s.32 to meet larger or one‑off needs (for example, buying tools or equipment for training). Trustees must ensure any prior life tenant consents where required and consider whether a capital advance is proportionate and consistent with the trust’s purposes.

Key Point Checklist

This article has covered the following key knowledge points:

• The statutory power of maintenance under s.31 TA 1925 allows trustees to apply trust income for a minor beneficiary’s maintenance, education, or benefit.
• The power is discretionary during minority; trustees must consider but need not exercise the power.
• It applies only if the beneficiary’s interest (vested or contingent) carries the right to intermediate income and there is no prior interest in the income.
• Trustees must accumulate any surplus income not applied during minority and may later use accumulations for the minor’s benefit.
• At 18, a beneficiary with an income‑carrying interest is entitled to current income as it arises; trustees’ s.31 discretion ceases.
• Accumulated income is paid out at 18 if the capital interest is vested; otherwise, accumulations are added to capital and paid only if and when the capital interest vests.
• The statutory power can be varied or excluded by the trust instrument (for example, postponing income entitlement).
• Do not confuse s.31 (income) with s.32 (capital). The power of advancement concerns capital, may involve up to the whole presumptive share post‑2014, and is normally brought into account on absolute entitlement.
• Trustees must comply with their duty of care, act impartially, document decisions, and apply income appropriately for the minor’s benefit.

Key Terms and Concepts

• Vested Interest
• Contingent Interest
• Accumulation
• in loco parentis