New World Order For Trusts?: The Meaning Of 'Prior Interest' In Section 32 (Video)

• Published date: 26 June 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Trials & Appeals & Compensation, Trusts
• Law Firm: Wilberforce Chambers
• Author: Robert Ham QC

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The statutory power of advancement conferred by section 32 of the Trustee Act 1925 is a valuable tool for trustees given them as an aid to enable trust property to be used for the fullest benefit of a beneficiary with an interest in capital: see Lord Inglewood v IRC [1983] 1 WLR 366, 372-3 per Fox LJ, a judgment which contains a useful catalogue of ways in which the power has been exercised.¹

But the power is not unrestricted:

• Unless section 69(2) it applies only if and so far only as a contrary intention is not expressed in the trust instrument and takes effect subject to the terms of that instrument.
• For trusts created before October 2014 it is limited to one half, unless extended by the trust instrument.
• Paragraph (c) of the proviso to section 32(1) says that no advance may be made that would prejudice any person entitled to any prior life or other interest, whether vested or contingent, unless that person is in existence and of full age and consents in writing to the advance.

In Womble Bond Dickinson Trust Corporation v Glenn [2021] EWHC 624 (Ch) Master Clark had to consider how that last restriction applied to a trust in Hancock v Watson [1902] AC 14 form, that is to say a trust where there there is an absolute gift to a beneficiary in the first instance and trusts are engrafted or imposed on the interest of the beneficiary. In such cases, the court reconciles the two inconsistent dispositions made by the absolute gift, on one hand, and by the engrafted trusts, on the other hand, by imputing to the settlor an intention to modify the absolute gift only in so far as necessary to give effect to the engrafted trusts. If the engrafted trusts fail for any reason, the result is that the initial absolute gift stands except to the extent to which it is cut down in the events which have actually happened.

The Hancock v Watson principle does not apply where there is no separate initial gift but merely a gift coupled with a series of limitations over so as to form (as it is put) one system of trusts - for example .where a trust fund is divided into shares, each held on trust for a beneficiary for life, with remainder to his/her children and an ultimate trust for the beneficiary if the share is not wholly disposed of, without an initial trust of the share for the beneficiary.

In the Womble Bond Dickinson case, there was a trust in favour of a class of beneficiaries made up of the settlor's present and future grandchildren contingently on attaining the age...