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To my professional colleague, Enong, thank you for your support and feedback. Have you gone through my older post? Kindly informed that for ‘Trust’ section it is to be indicated by the ‘old moot court’ picture and for ‘Will and Distribution’ it is to be indicated by the ‘new moot court’ picture. Click ‘older post’ hyperlink at the bottom of my blog to view previous posts. Every post comes with numerical heading e.g Administration of Trust [13th Post (Power of Advancement)]. Thus, it is the 13th post. Feel free to review the other 12. J

Power of Advancement

Payments by way of advancement are sums advanced from capital to cover major costs such as setting up the infant in his profession, buying a business, or a house for him on marriage. Such advancement is for certain non-recurrent beneficial purpose.

The power of advancement permits trustees to pay capital sums to or on behalf of a beneficiary some time before he is entitled to claim the fund. The power may be given by the trust instrument or the power contained in Section 37 of the Trustee Act 1949 may be used.

Section 37 allow trustees at any time to pay or apply capital money for the ‘advancement or benefit’ of any person entitled to that capital or a share thereof. The trustee can give beneficiaries some of his entitlement before the time. There powers are wide applying whether the interest is vested or contingent. The trustees’ discretion whether to exercise their power of advancement is absolute, so long as it is for the ‘advancement or benefit’ of the beneficiary.

‘Advancement or benefit’ under section 37 have been construed to mean setting up the beneficiaries in life as opposed to making mere casual payments to the beneficiaries. It may cover purposes such as purchasing business premises, a settlement on marriage, providing the means to enter into apprenticeship or supplying further capital to an existing business.

The power of investment is subject to several restrictions under Section 37:

Section 37(a)

Money advanced shall not exceed RM10,000 half of share, whichever is greater.

Section 37(b)

The money advanced must be accounted for and deducted accordingly upon absolutely indefeasibility.

Section 37(c)

[Illustration] A trust stated ‘To Ahmad for life, remainder to Busu and Camellia in equal shares. As Ahmad has a life interest the capital is held on trust to produce income for his benefit. Thus, to make any advancement during Ahmad’s life would deprive him of his entitlement by reducing the income he receives. However, if Ahmad consents in writing to an advancement to either Busu or Camellia, then an advancement is possible, but Ahmad must be of full age and consents in writing.

Cases

1. Re Evan ‘s Settlement

The trust instrument provided that the trustees could advance up to $5000, therefore excluded the statutory power of advancing up to half shares.

2. Advancement is allowed when;

a) Discharge of debt of the beneficiaries himself (Lawther v Bentick).

b) Paying the debt of a beneficiary’s husband (Re Kershaw). However, in Molyneux v Fletcher, where the trustees made an advance to a daughter-beneficiary to enable her to pay her father’s debt to one of the trustees and was held to be an improper exercise of the power since trustees should not make an advancement to benefit themselves.

c) An advancement to avoid tax (Pilkington v IRC).

3. Re Pauling ‘s Settlement Trust

Advance must be for the benefit of the beneficiaries and that it is applied for the purpose specified and if they fail to do so they will be personally liable to replace the money where the children filed a suit against the trustees for advancing money to their parents who used the money for their extravagant lifestyle.

Trustees must be satisfied that the advance will be for the benefit of the advancee. If the trustees decide to make the advancee an advance for a particular purpose, they must ask themselves whether the advancee will carry it out. Trustees should not make a payment for a purpose and then leave the advancee free to do with it as he pleases.

4. Pilkington v IRC

The trustees proposed to advance one half of the share of a two year old girl (Penelope) and resettle it. The child was in no need of the moneys advanced, and too young for the traditional purposes of advancement to be relevant. The only benefit to her would be the effect of saving estate duty, and one of the issues was whether this was a sufficient ‘benefit’. The house of Lord held that it was, and there was no need to show that the advance was to meet some personal need of the beneficiary; the saving of estate duty was itself a sufficient benefit. Nor was it relevant that other person might also benefit from the resettlement if the provision as a whole would benefit Penelope.