Beneficiaries' right of occupation

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Atrust of land governed by the provisions of the TrustsOfLandAndAppointmentOfTrusteesAct1996 (TOLATA). Since 1997, all new trusts whose property is, or includes, land will be governed by this act, as will any trust for sale created before 1997. Asettled land act settlement can continue to exist, and remains governed by the 1925 legislation, but TOLATA prevents the creation of any new trusts of this sort.

It is significant that the TOLATA definition of a trust of land includes not just trusts of the land itself, but of anything that includes land. This provision ensures that a building and all its contents can be governed by the same trust.

There follows a brief description of how a TOLATA trust of land is administered

Disposition of the legal estate

In a TOLATA trust of land, the legal estate is held by the trustees, as in any other trust. This seems obvious, but it was not the case for an SLASettlment, where the legal estate was held by the tenant for life.

Powers of the trustees

The general approach of TOLATA is that the trustees have unfettered powers over the management of the land. Of course, they cannot sell it and spend the money on a holiday, because they still have a Fiduciary duty, that is, an obligation to act with loyalty to the beneficiaries.

In particular, the trustees are allowed to sell the land (in accordance with their fiduciary obligations, of course). The trustees are allowed to postpone sale, in spite of a contrary instruction in the trust instrument. This is important because the wording often used when creating trusts of land is something like my house in Dogpatch to my trustees, to sell and convert to money, for the benefit of X. This wording was necessary to create atrust for sale and thereby avoid the strictures of an SLA settlement. Of course, in creating a trust for sale there was a duty to sell. That duty had to be exercised if any one of the beneficiaries wanted to sell (there was a power to postpone sale, but a duty_ to sell). TOLATA ensures that even if a trust for sale is created, the trustees are not obliged to sell on the instructions of a single beneficiary. However, there is nothing in TOLATA that prevents a sale if the wording of the trust creates a trust for sale, and the trustees are not unanimous of wishing to postpone sale. The only remedy for the beneficiaries here is to seek to compel the offending trustee to retire.

The trustees also have powers to partition the estate between the beneficiaries, and to convey the estate absolutely when the beneficiaries are of full age. In short, the trustees have the power to bring the trust to an end when their involvement is no longer required.

Because the trustees have a wide discretion, TOLATA allows the settlor to place restrictions on the trustees powers as he sees fit, with the exception mentioned above that he cannot remove the trustees' power to postpone sale.

In short, it is possible for a carefully-worded trust to define very carefully what powers are held by whom; but if a trust is created careless or accidentally, the trustees will not find themselves without power to manage the land, as was often the case with accidentally-created SLA settlements.

Duty to seek consent

The trustees have a general duty to consult the beneficiaries before exercising any of their powers. In addition, the settlor of a TOLATA trust of land can require the trustees to seek the consent of any named individuals before exercising any power in respect of the land. Where there are a large number of people who consent must be obtained (typically this applies where there are large numbers of beneficiaries) it can be very difficult for a prospective purchaser of the estate to check that the trustees have complied with this obligation. A purchaser would be well-advised to buy elsewhere if he knows, or ought to know, that the trustees are selling in breach of their obligations, as they might end up having to account to the beneficiaries. However, TOLATA retains the provision of the 1925 legislation that, where consents are required, a purchaser can assume that consent has been obtained if it has been obtained from at least two relevant individuals. So, for example, if there are 20 beneficiaries, and the trust requires the trustees to obtain consent from all 20 before selling, the purchaser will be safe provided he has seen evidence that at least two have so consented.

As well as the creating obligations to seek consent, the trust may give the trustees powers to act without seeking consent where it would normally be sought. The trust may, for example, give the trustees powers to appoint trust properties to specific individuals, without seeking the consent of all beneficiaries. In addition, there is one specific power which does not require any consent -- the power to convey the estate to the beneficiaries and bring the trust to an end. This power can be exercised against the wishes of the beneficiaries.

Number and selection of new trustees

A trust of land must have between one and four trustees. In practice, there will usually be at least two trustees, because if the trust property is ever to be sold, two trustees are required for Overreaching to work.

There will be times when the trust requires new trustees, typically because the existing trustees retire or die. TOLATA modifies, but does not replace, the rules on the appointment of new trustees. Remember that the trustees are the legal owners of the land, so a measure of formality is required in their appointment. In outline, the people having the power to appoint new trustees are, in order of priority:

  1. anyone expressly assigned that power in the trust instrument, then
  2. the existing trustees, then
  3. if there are no surviving trustees, the personal representative of the last surviving trustee, then
  4. if all else fails, a court can appoint

However, except in the first case -- where the trust instrument dictates the procedure for appointment -- the beneficiaries, if they are of full age and capacity, and are unanimous, can direct the trustees whom to appoint.

The trustees may delegate sich powers as they see fit to any beneficiary of full age and capacity who is entitled to an interest in possession. It was deemed too dangerous to allowed trustees to delegate to those with an interest in remainder: it would be asking a great deal of such people to act in the best interests of the beneficiaries in possession, when to do so would often be entirely contrary to their own interests.

Where powers are delegated to beneficiaries, the question then arises whether these beneficiaries take on fiduciary responsibilities to their co-beneficiaries. After all, they are not required to account for their actions to the trustees. TOLATA explicitly states that the beneficiaries to whom powers are delegated will be liable in exactly the same way, to exactly the same extent, as a trustee would be. If a rogue beneficiary misuses his delegated powers, and then runs off with the proceeds, can the remaining beneficiaries hold the trustee liable for his delegation to an untrustworthy beneficiary? It would appear not -- TOLATA states that a trustee only need to exercise 'reasonable care' in delegation.

If a testator leaves residential property in his will, on trust for certain beneficiaries, it in many cases it will be clear that he intended someone to have the right to live it it. This is usually clear in domestic circumstances, where a person leaves his house to my wife for live then to our children, for example. However, where there are multiple beneficiaries, or where it is not clear that the land is suitable for occuption, it may not be clear whether the testator intended to provide a home, or an investment. This difficulty was exacerbated by the traditional wording of the the trust for sale, which imposed on the trustees a duty to sell. In a particular case, it could be unclear whether the testator intended the trustees to sell and invest, or was merely using the form of words that created a trust for sale and avoided the SLA. The effect of using the formula of the trust for sale was to give the beneficiaries an interest in the proceeds of sale, not in the property itself. Although clearly undesirable, the effect was that there could be no right of occupation.

Under TOLATA, where nothing is specified in the trust, beneficiaries have a right of occupation so long as:

  1. they have an interest in possession (not a future interest)
  2. the land is not already occupied by someone else
  3. the trust has the 'purpose' of providing for occupation

Where there are multiple beneficiaries, the trustees are empowered to determine which of them will be allowed occupation, and to order the occupier to compensate the beneficiaries that are denied occupation.

Conclusion

Some trusts of land are created intentionally and carefully. On the whole, a trust which sets out exactly what powers and duties are assigned to which parties will work the same under TOLATA as under previous provisions. Some administrative technicalities are different -- for example, the trustees hold the legal title, whereas in an SLA settlement the tenant for life held. In addition, TOLATA provides certain powers to certain people that cannot be withdrawn or modified by the trust instrument. One such provision is the power of the trustees to bring the trust to an end when all beneficiaries reach majority. This power had expressly to be granted previously.

Where there are large differences between TOLATA trusts and old-style SLA settlements and trusts for sale is where trusts are created accidentally, or by statute. All co-owners of propery, for example, hold on trust for each other; previously such a statutory trust would have been conisidered a trust for sale; now it is a TOLATA trust of land. Similarly, if a testator leaves property in his will to an infant, this would previously have created an SLA settlement, whatever his intentions; now it also creates a TOLATA trust of land. Since there is no express trust instrument in such cases, the powers of trustees and the rights of beneficiaries are governed by statute. As we have seen, these powers and rights are very different between the old-style and new-style trusts.





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UK LAW