X v A & Ors

A trustee power to apply capital for a beneficiary’s benefit may, in principle, support a charitable payment made to discharge a moral obligation recognised by that beneficiary. The payment must nevertheless improve the beneficiary’s material situation in a legally meaningful sense. The beneficiary’s personal belief that the payment is morally required is insufficient. The court must assess the existence and extent of the obligation objectively, having regard to the beneficiary’s circumstances, resources and the size of the trust fund.

Where the proposed exercise substantially reduces other beneficiaries’ interests, trustees must consider their individual circumstances and potential future needs. The court should exercise caution when asked to bless the transaction.

The trustees of a 1964 marriage settlement sought directions concerning a proposed revocation and re-appointment. They wished to release most of the trust capital to the life tenant, the settlor’s wife, so that she could devote it to charitable purposes, while retaining £750,000 for a wider class of family beneficiaries, including persons excluded from the original settlement.

The application engaged both the court’s construction jurisdiction and its supervisory jurisdiction to bless a proposed trustee transaction. The central issues were whether the proposed charitable advance was within the power to apply capital for the wife’s benefit and, if so, whether the trustees had properly considered the interests of the other beneficiaries.

1. Jurisdiction and approach. The court’s jurisdiction included determining the ambit of the trustees’ powers and deciding whether to bless a proposed transaction without exercising the trustees’ discretion itself. Following the formulation in Richard v Mackay, the court had to be satisfied that the transaction was lawful, within the power, and one which ordinary, reasonable and prudent trustees could properly regard as benefiting the beneficiaries or trust estate. Caution was required because authorisation could deprive beneficiaries of later remedies for breach of trust.
2. Meaning of benefit. The authorities, particularly Re Clore’s Settlement Trusts and Re Hampden’s Settlement Trusts, established that benefit need not be a direct financial advantage. It may include relieving a beneficiary of a moral or social obligation, including an objectively appropriate obligation to make charitable donations. The phrase nevertheless requires some improvement in the beneficiary’s material situation.
3. Application to the proposed advance. The power was capable in principle of being used to advance money to or for the wife so that she could discharge a moral obligation to charity. The proposed transaction did not, however, satisfy the benefit requirement. The advance exceeded the wife’s free resources and could not realistically be regarded as relieving an obligation which she would otherwise discharge from her own assets. Her subjective recognition of a moral obligation was insufficient.
4. Alternative supervisory ground. Even if the power could properly have been exercised in the proposed manner, the trustees had not demonstrated adequate consideration of the effect on the other beneficiaries, including minors and unborn beneficiaries. General views about the disadvantages of inherited wealth were irrelevant to the trustees’ fiduciary decision. The trustees needed to examine in detail existing resources, likely future needs and the impact of substantially reducing the trust interests.
5. The trustees were not at liberty to enter into the proposed transaction. The trustees and the third to seventh defendants were awarded their costs out of the fund on the indemnity basis. The first defendant, appearing in person, was also awarded her reasonable disbursements and time costs.

First-instance decision. No appellate history was stated in the judgment.