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You are here: BAILII >> Databases >> The Law Commission >> Capital and Income in Trusts: Classification and Apportionment (Consultation Paper) [2004] EWLC 175(7)(7) (12 July 2004)
URL: http://www.bailii.org/ew/other/EWLC/2004/175(7).html
Cite as: [2004] EWLC 175(7)(7)

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PART VII

CONSULTATION QUESTIONS

INTRODUCTION

In this Part we list the specific questions for consultees which we have asked in this Paper. We welcome comments from readers on any, or all, of these questions and on any other issues raised by this Paper.

It would be very helpful if, when responding, readers could note the paragraph number of the summary that follows.

CONSULTATION QUESTIONS

Human rights

We would welcome the views of consultees on the human rights implications of the provisional proposals described in this Paper.

(Paragraph 1.24)

Regulatory impact

We would welcome any information or views from consultees about the regulatory impact of our provisional proposals.

(Paragraph 1.25)

Classification

We provisionally propose that the existing rules for the classification of distributions by corporate entities to trustee-shareholders should be abolished. Do consultees agree?

(Paragraph 5.12)

We provisionally propose that cash distributions to trustee-shareholders by corporate entities (excluding payments made on liquidation or on an authorised reduction of capital), or distributions which trustees could have taken in cash, should be classified as income and all other distributions from corporate entities should be classified as capital. Do consultees agree?

(Paragraph 5.12)

We provisionally propose that the existing rules for the classification of trust receipts other than distributions from corporate entities should be retained. Do consultees agree?

(Paragraph 5.15)

We invite the views of consultees on whether the existing rules for the classification of trust receipts other than distributions from corporate entities should be placed on a statutory footing.

(Paragraph 5.15)

We provisionally propose that the law regarding the classification of trust expenses should remain unchanged. The rule laid down by the House of Lords in Carver v Duncan should continue to apply. Do consultees agree?

(Paragraph 5.17)

We invite the views of consultees on whether the rule in Carver v Duncan should be placed on a statutory footing.

(Paragraph 5.17)

We provisionally propose that the rules of classification for trust receipts and expenses should be subject to any contrary provision in the terms of the trust. Do consultees agree?

(Paragraph 5.18)

The duty to balance

We provisionally propose that there should not be a non-exhaustive statutory list of relevant factors to help trustees determine whether or not a balance has been struck between the competing interests of income and capital beneficiaries. Do consultees agree?

(Paragraph 5.26)

If consultees do not agree, we invite their views on which factors should be included in such a list.

(Paragraph 5.26)

We invite the views of consultees on whether or not a trustee's duty to balance the interests of income and capital beneficiaries should be given a statutory basis.

(Paragraph 5.28)

We provisionally propose that trustees should be subject to the duty to balance except insofar as the settlor expressly, or by necessary implication, excludes or modifies that duty in the terms of the trust. Do consultees agree?

(Paragraph 5.31)

We provisionally propose that the duty to balance should not be impliedly excluded insofar as it relates to the original trust property because that property constitutes an authorised investment, because it was the subject of a specific gift (including any gift of realty or any gift in an inter vivos settlement) or because there is a power to postpone conversion of the original trust assets. Do consultees agree?

(Paragraph 5.31)

Percentage trusts

We invite the views of consultees on the advantages and disadvantages of promoting percentage trusts within England and Wales.

(Paragraph 5.38)

A new trustee power of allocation

We provisionally propose that a statutory power of allocation should be made available to the trustees of private trusts to enable them to discharge their duty to balance and thereby to promote total return investment policies. Do consultees agree?

(Paragraph 5.48)

We provisionally propose that the exercise of the statutory power of allocation, where it is available, should be subject to a time limit from the date of a particular receipt or expense, after which time the default classification would become conclusive. Do consultees agree?

(Paragraph 5.48)

We invite the views of consultees on the appropriate length of such a time limit.

(Paragraph 5.48)

We invite the views of consultees on the practical implications of our provisional proposals, particularly in relation to accounting and keeping track of individual receipts.

(Paragraph 5.48)

We invite the views of consultees on whether the provisionally proposed power of allocation should be available on an opt-in or opt-out basis.

(Paragraph 5.55)

We provisionally propose that the personal circumstances of beneficiaries should not be a relevant factor in the exercise of the statutory power of allocation.

(Paragraph 5.66)

We invite the views of consultees on whether or not the Nestlé approach (that personal circumstances of the beneficiaries are a relevant factor in discharging the duty to balance through the formulation of investment policy) is correct.

(Paragraph 5.76)

If consultees believe the Nestlé approach to be incorrect, we provisionally propose that the duty to balance should be statutorily redefined to exclude the personal circumstances of beneficiaries as a relevant factor. Do consultees agree?

(Paragraph 5.76)

We invite any further views of consultees on factors which should be relevant (or irrelevant) to the duty to balance or to the exercise of the statutory power of allocation.

(Paragraph 5.77)

We provisionally propose that the exercise (or non-exercise) of the statutory power of allocation should be subject to review by the courts on the same basis as any other discretionary power conferred upon trustees. Do consultees agree?

(Paragraph 5.82)

We provisionally propose that, in principle, an action for breach of trust should lie against trustees who fail to discharge their duty to balance. Do consultees agree?

(Paragraph 5.82)

We invite the views of consultees on whether a special protocol concerning the resolution of disputes over the exercise of the proposed power of allocation would be of assistance to trustees and beneficiaries.

(Paragraph 5.82)

The equitable rules of apportionment

We provisionally propose that all the existing equitable rules of apportionment should be abrogated. Do consultees agree?

(Paragraph 5.85)

The Apportionment Act 1870

We provisionally propose that the statutory apportionment rule contained in section 2 of the Apportionment Act 1870 should not apply to trusts except insofar as the terms of the trust (expressly or by necessary implication) express a contrary intention. Do consultees agree?

(Paragraph 5.87)

We provisionally propose that when trustees receive a payment of income in respect of a period during which two (or more) individuals (or classes of individuals) were entitled to income, they should have a statutory power to apportion when, and in the manner in which, they, in their absolute discretion, deem it just and expedient. Do consultees agree?

(Paragraph 5.88)

Trusts for sale

We provisionally propose that where a settlor expressly creates or statute imposes a trust for sale (without a power to postpone sale), trustees should continue to be under a duty to convert the trust property and reinvest the proceeds. Do consultees agree?

(Paragraph 5.89)

We provisionally propose that the first branch of the rule in Howe v Earl of Dartmouth should be abrogated. Do consultees agree?

(Paragraph 5.91)

Scope of the provisional proposals

We provisionally propose that the scheme set out in this Part should be made applicable to all private trusts which are governed by the law of England and Wales and in which there is a division of the capital and income interests. Do consultees agree?

(Paragraph 5.92)

We invite the views of consultees on whether there are any specific types or categories of private trust to which the provisional proposals in this Part should not apply (or to which they should apply in modified form).

(Paragraph 5.92)

Transitional provisions

We invite the views of consultees on whether our provisional proposals should apply to trusts created before the proposals come into force if the proposed statutory power of allocation applies on an opt-out basis.

(Paragraph 5.96)

We invite the views of consultees on whether or not the trustees of pre-existing trusts should be able to opt in to the statutory power of allocation.

(Paragraph 5.98)

We invite the views of consultees on whether or not the trustees of pre-existing trusts, if they are able to opt in to the statutory power of allocation in order to adopt a total return investment policy, should be required to seek the approval of the court before adopting such policies.

(Paragraph 5.98)

We provisionally propose that any legislative reform based on our provisional proposals should take effect on the first day of the tax year following the enactment of any implementing legislation. Do consultees agree?

(Paragraph 5.99)

Tax implications of the provisional proposals

We would welcome comments of any nature on the tax implications of the provisional proposals contained in this Paper.

(Paragraph 5.101)

Charities

We provisionally propose that charity trustees should not be subject to any duty to balance. Do consultees agree?

(Paragraph 6.35)

We provisionally propose that the statutory power of allocation which is proposed for private trusts should not be available to charitable trusts. Do consultees agree?

(Paragraph 6.35)

We invite the views of consultees on whether the duty of charity trustees to consider the present and future needs of the charity and its objects should be placed on a statutory footing.

(Paragraph 6.35)

We provisionally propose that our proposed rules of classification for the receipts and expenses of private trusts should also apply to charitable trusts but should apply to give conclusive rather than default classifications. Do consultees agree?

(Paragraph 6.36)

We provisionally propose that charity trustees should have a general statutory power to invest on a total return basis. If the trustees chose to invest on a total return basis, they would be required to report this decision and submit the charity's accounts to the Charity Commission each year. Do consultees agree?

(Paragraph 6.61)

We invite the views of consultees on whether or not, if the current system of individual authorisations by the Charity Commission is maintained, the procedure for applying for and obtaining authorisation should be placed on a statutory footing.

(Paragraph 6.61)

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