TRUSTEE DISCRETION AND CAPITAL ENCROACHMENTS - PART I
Hello, my name is Bianca La Neve and I am an associate at Hull & Hull LLP. This week, I will be blogging on trustee discretion and capital encroachments. An important part of advising clients with respect to the administration of an estate is providing them with advice as to their duties and responsibilities in ongoing trust administration matters.
In this week's blogs, I want to tackle the issue of capital encroachments in the context of trust arrangements established in Wills. Specifically, I will address whether or not a trustee has the power to encroach on capital and if so, what considerations need to be taken into account by the trustee in determining the amount of the encroachment.
Does the Will Allow the Trustee to Encroach upon Capital?
In determining whether a trustee has the power to encroach upon capital and the scope of such power, one must first look to the specific wording of the Will. Typically, a testator's Will establishes a trust that provides for income to be paid to a life tenant over their lifetime and capital to be distributed on the death of the life tenant to capital beneficiaries. It is also typical in such a trust arrangement to grant the trustee the discretion to encroach upon capital for the benefit of the life tenant. The following provision is what I consider a typical example of a wide power to encroach upon capital:
...to my said trustees to pay to my wife for the benefit of my said wife, such part or parts or the whole of the capital of the residue of my estate as, in their uncontrolled discretion, my said trustees consider advisable.
In interpreting the relevant provisions in a Will, one must endeavor to give effect to the testator's intentions as ascertained from the express language of the Will and the surrounding circumstances. If the language of the Will and/or the specific capital encroachment provision is unclear, then an Application for the advice and direction of the Court should be brought to determine the extent of the power to encroach. Tomorrow, I will begin to tackle the scope and extent of a trustee's power to encroach on the capital of a trust.
Have a wonderful day!
--Bianca
