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SQE – Equity and Trust – The Power of Advancement
Introduction
The power of advancement is one of the most important statutory powers available to trustees. It allows trustees to distribute trust capital to a beneficiary before the date on which that beneficiary becomes absolutely entitled under the trust. The purpose of the power is to provide flexibility in trust administration and to enable trustees to respond to the changing needs and circumstances of beneficiaries.
For example, a trust may provide that beneficiaries receive their inheritance at the age of 25. However, a beneficiary may require financial assistance at age 20 to fund university education, purchase a home, or establish a business. Rather than requiring the beneficiary to wait until the vesting date, trustees may exercise the power of advancement to release part or all of the beneficiary’s future entitlement in advance.
The power is principally governed by section 32 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.
Nature of the Power
The power of advancement is a discretionary power rather than a right belonging to the beneficiary.
This means that beneficiaries cannot demand an advancement simply because they would like early access to trust capital. The decision remains entirely within the discretion of the trustees, who must consider whether exercising the power would be appropriate in the circumstances.
When exercising the power, trustees must act in good faith, consider relevant factors, disregard irrelevant considerations, and act in the best interests of the beneficiaries and the trust as a whole.
Statutory Basis
Section 32 of the Trustee Act 1925 authorises trustees to apply capital belonging to a beneficiary before the beneficiary becomes absolutely entitled to receive it.
The power allows trustees to:
Advancement Must Be for the Beneficiary’s Benefit
A fundamental requirement of section 32 is that any advancement must be made for the advancement or benefit of the beneficiary.
The courts have adopted a broad interpretation of this requirement.
Advancement does not merely refer to financial gain. It encompasses any arrangement that improves the beneficiary’s overall material, social, educational, professional, or personal circumstances.
Consequently, trustees enjoy considerable flexibility when determining whether a proposed advancement satisfies the statutory requirement.
Re Pilkington’s Will Trusts [1964] AC 612
The leading authority on the meaning of “advancement or benefit” is Re Pilkington’s Will Trusts.
In this case, the House of Lords adopted a broad interpretation of the concept of benefit. The court held that advancement is not limited to situations involving immediate financial improvement.
Instead, the term includes arrangements that improve the beneficiary’s overall situation or future prospects.
The decision reflects the courts’ willingness to recognise a wide range of benefits capable of justifying an advancement.
Example – Educational Advancement
Suppose trustees hold a trust fund for a beneficiary who will become entitled at age 25.
At age 19, the beneficiary wishes to study medicine overseas and requires £100,000 to cover tuition fees and living expenses.
The trustees conclude that the education will improve the beneficiary’s future prospects and career opportunities.
Applying Re Pilkington, the advancement would almost certainly be regarded as beneficial and therefore fall within section 32.
Moral Obligations and Advancement
The courts have recognised that benefit may include the discharge of moral obligations.
This principle was demonstrated in Re Clore’s Settlement Trusts [1966] 1 WLR 955.
The trustees sought to advance trust funds to charities established by the settlor. The court accepted that satisfying the settlor’s moral wishes could constitute a benefit to the beneficiaries and approved the advancement.
The decision illustrates the broad and flexible approach adopted by the courts.
Limits to the Concept of Benefit
Despite the broad interpretation of benefit, there are limits.
In X v A [2005] EWHC 2706 (Ch), trustees sought to advance trust funds to a beneficiary who intended to donate the money to charity.
The court refused to authorise the advancement.
Unlike Re Clore’s Settlement Trusts, the proposed transaction offered no genuine benefit to the beneficiary herself. The advancement would simply transfer value away from the trust without improving the beneficiary’s circumstances.
The case demonstrates that the beneficiary must receive a real benefit from the advancement.
Bringing Advancements into Account
A beneficiary who receives an advancement is generally required to bring that advancement into account when the trust is finally distributed.
This means that the value of the advancement is deducted from the beneficiary’s eventual entitlement.
The purpose of this rule is to ensure fairness among beneficiaries and prevent double recovery.
Example
Assume Sarah is entitled to £400,000 from a trust when she reaches age 25.
At age 20, trustees advance £100,000 to assist her in purchasing a home.
When Sarah reaches age 25, the advancement will ordinarily be deducted from her entitlement.
Instead of receiving £400,000, she will receive £300,000, reflecting the earlier distribution.
Consent of Prior Interest Holders
Where another person holds a prior interest in possession, trustees must obtain consent before exercising the power of advancement.
This requirement protects individuals whose existing rights could be adversely affected by an advancement of trust capital.
Failure to obtain the necessary consent may render the advancement invalid and expose trustees to liability for breach of trust.
Historical Limits on Advancements
Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 32 limited trustees to advancing no more than one-half of the beneficiary’s vested or presumptive share.
This restriction often created practical difficulties because trustees were unable to advance sufficient capital to achieve the desired objective.
Consequently, trust instruments frequently included express provisions removing or modifying the statutory limitation.
Reform Under the Inheritance and Trustees’ Powers Act 2014
The Inheritance and Trustees’ Powers Act 2014 substantially reformed section 32.
The most significant change was the removal of the one-half restriction.
For trusts created, or interests arising, on or after 1 October 2014, trustees may now advance the entire share of a beneficiary if appropriate.
This reform greatly increased trustee flexibility and reflected modern approaches to trust administration.
Advancement of Assets
The 2014 reforms also clarified that trustees may advance assets as well as cash.
Consequently, trustees may transfer:
Bringing Trusts to an End Early
The removal of the one-half restriction has practical significance where all parties wish to terminate a trust before the vesting date.
Historically, trustees could not generally bring a trust to an end through the advancement power alone because only half of the beneficiary’s share could be distributed.
Following the 2014 reforms, trustees may be able to advance the entirety of a beneficiary’s entitlement, thereby effectively terminating the trust before the original vesting date.
This can be particularly useful where the trust has become uneconomic to administer.
Relationship with the Rule in Saunders v Vautier
Before the 2014 reforms, early termination often depended upon the rule in Saunders v Vautier (1841) 49 ER 282.
Under that rule, beneficiaries could collectively terminate a trust if they:
Case Study
Facts
A trust provides that Emma will receive £600,000 at age 25.
At age 21, Emma wishes to establish a professional architectural practice and requests financial assistance from the trustees.
The trustees investigate her business proposal and conclude that it is realistic and likely to improve her future financial position.
They decide to advance £250,000 from the trust fund.
Analysis
The advancement is for Emma’s benefit because it improves her professional and financial prospects.
Applying Re Pilkington’s Will Trusts, the proposed business venture constitutes a sufficient benefit.
The trustees have exercised their discretion appropriately and have made reasonable enquiries regarding the proposed use of the funds.
Outcome
The advancement would likely be valid under section 32 of the Trustee Act 1925.
When Emma ultimately receives her remaining entitlement, the value of the advancement will ordinarily be brought into account and deducted from her final share.
Conclusion
The power of advancement provides trustees with valuable flexibility in responding to beneficiaries’ changing needs. Section 32 of the Trustee Act 1925 permits trustees to distribute trust capital before the vesting date where doing so advances or benefits the beneficiary. The courts have interpreted benefit broadly, encompassing educational, professional, social, and personal advantages, as demonstrated in Re Pilkington’s Will Trusts and Re Clore’s Settlement Trusts. The Inheritance and Trustees’ Powers Act 2014 significantly expanded the usefulness of the power by removing the former one-half limitation and permitting the advancement of assets as well as cash. As a result, the power of advancement has become an increasingly important tool in modern trust administration, allowing trustees to balance flexibility with the protection of beneficiaries’ long-term interests.
References
Re Pilkington’s Will Trusts [1964] AC 612.
Re Clore’s Settlement Trusts [1966] 1 WLR 955.
X v A [2005] EWHC 2706 (Ch).
Saunders v Vautier (1841) 49 ER 282.
Trustee Act 1925, s 32.
Inheritance and Trustees’ Powers Act 2014.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
Introduction
The power of advancement is one of the most important statutory powers available to trustees. It allows trustees to distribute trust capital to a beneficiary before the date on which that beneficiary becomes absolutely entitled under the trust. The purpose of the power is to provide flexibility in trust administration and to enable trustees to respond to the changing needs and circumstances of beneficiaries.
For example, a trust may provide that beneficiaries receive their inheritance at the age of 25. However, a beneficiary may require financial assistance at age 20 to fund university education, purchase a home, or establish a business. Rather than requiring the beneficiary to wait until the vesting date, trustees may exercise the power of advancement to release part or all of the beneficiary’s future entitlement in advance.
The power is principally governed by section 32 of the Trustee Act 1925, as amended by the Inheritance and Trustees’ Powers Act 2014.
Nature of the Power
The power of advancement is a discretionary power rather than a right belonging to the beneficiary.
This means that beneficiaries cannot demand an advancement simply because they would like early access to trust capital. The decision remains entirely within the discretion of the trustees, who must consider whether exercising the power would be appropriate in the circumstances.
When exercising the power, trustees must act in good faith, consider relevant factors, disregard irrelevant considerations, and act in the best interests of the beneficiaries and the trust as a whole.
Statutory Basis
Section 32 of the Trustee Act 1925 authorises trustees to apply capital belonging to a beneficiary before the beneficiary becomes absolutely entitled to receive it.
The power allows trustees to:
- pay trust capital directly to the beneficiary;
- transfer trust assets to the beneficiary;
- apply trust capital for the beneficiary’s benefit indirectly.
Advancement Must Be for the Beneficiary’s Benefit
A fundamental requirement of section 32 is that any advancement must be made for the advancement or benefit of the beneficiary.
The courts have adopted a broad interpretation of this requirement.
Advancement does not merely refer to financial gain. It encompasses any arrangement that improves the beneficiary’s overall material, social, educational, professional, or personal circumstances.
Consequently, trustees enjoy considerable flexibility when determining whether a proposed advancement satisfies the statutory requirement.
Re Pilkington’s Will Trusts [1964] AC 612
The leading authority on the meaning of “advancement or benefit” is Re Pilkington’s Will Trusts.
In this case, the House of Lords adopted a broad interpretation of the concept of benefit. The court held that advancement is not limited to situations involving immediate financial improvement.
Instead, the term includes arrangements that improve the beneficiary’s overall situation or future prospects.
The decision reflects the courts’ willingness to recognise a wide range of benefits capable of justifying an advancement.
Example – Educational Advancement
Suppose trustees hold a trust fund for a beneficiary who will become entitled at age 25.
At age 19, the beneficiary wishes to study medicine overseas and requires £100,000 to cover tuition fees and living expenses.
The trustees conclude that the education will improve the beneficiary’s future prospects and career opportunities.
Applying Re Pilkington, the advancement would almost certainly be regarded as beneficial and therefore fall within section 32.
Moral Obligations and Advancement
The courts have recognised that benefit may include the discharge of moral obligations.
This principle was demonstrated in Re Clore’s Settlement Trusts [1966] 1 WLR 955.
The trustees sought to advance trust funds to charities established by the settlor. The court accepted that satisfying the settlor’s moral wishes could constitute a benefit to the beneficiaries and approved the advancement.
The decision illustrates the broad and flexible approach adopted by the courts.
Limits to the Concept of Benefit
Despite the broad interpretation of benefit, there are limits.
In X v A [2005] EWHC 2706 (Ch), trustees sought to advance trust funds to a beneficiary who intended to donate the money to charity.
The court refused to authorise the advancement.
Unlike Re Clore’s Settlement Trusts, the proposed transaction offered no genuine benefit to the beneficiary herself. The advancement would simply transfer value away from the trust without improving the beneficiary’s circumstances.
The case demonstrates that the beneficiary must receive a real benefit from the advancement.
Bringing Advancements into Account
A beneficiary who receives an advancement is generally required to bring that advancement into account when the trust is finally distributed.
This means that the value of the advancement is deducted from the beneficiary’s eventual entitlement.
The purpose of this rule is to ensure fairness among beneficiaries and prevent double recovery.
Example
Assume Sarah is entitled to £400,000 from a trust when she reaches age 25.
At age 20, trustees advance £100,000 to assist her in purchasing a home.
When Sarah reaches age 25, the advancement will ordinarily be deducted from her entitlement.
Instead of receiving £400,000, she will receive £300,000, reflecting the earlier distribution.
Consent of Prior Interest Holders
Where another person holds a prior interest in possession, trustees must obtain consent before exercising the power of advancement.
This requirement protects individuals whose existing rights could be adversely affected by an advancement of trust capital.
Failure to obtain the necessary consent may render the advancement invalid and expose trustees to liability for breach of trust.
Historical Limits on Advancements
Before the reforms introduced by the Inheritance and Trustees’ Powers Act 2014, section 32 limited trustees to advancing no more than one-half of the beneficiary’s vested or presumptive share.
This restriction often created practical difficulties because trustees were unable to advance sufficient capital to achieve the desired objective.
Consequently, trust instruments frequently included express provisions removing or modifying the statutory limitation.
Reform Under the Inheritance and Trustees’ Powers Act 2014
The Inheritance and Trustees’ Powers Act 2014 substantially reformed section 32.
The most significant change was the removal of the one-half restriction.
For trusts created, or interests arising, on or after 1 October 2014, trustees may now advance the entire share of a beneficiary if appropriate.
This reform greatly increased trustee flexibility and reflected modern approaches to trust administration.
Advancement of Assets
The 2014 reforms also clarified that trustees may advance assets as well as cash.
Consequently, trustees may transfer:
- shares;
- land;
- investment portfolios;
- business interests;
- other trust property.
Bringing Trusts to an End Early
The removal of the one-half restriction has practical significance where all parties wish to terminate a trust before the vesting date.
Historically, trustees could not generally bring a trust to an end through the advancement power alone because only half of the beneficiary’s share could be distributed.
Following the 2014 reforms, trustees may be able to advance the entirety of a beneficiary’s entitlement, thereby effectively terminating the trust before the original vesting date.
This can be particularly useful where the trust has become uneconomic to administer.
Relationship with the Rule in Saunders v Vautier
Before the 2014 reforms, early termination often depended upon the rule in Saunders v Vautier (1841) 49 ER 282.
Under that rule, beneficiaries could collectively terminate a trust if they:
- were all adults;
- possessed full capacity;
- were absolutely entitled to the beneficial interest.
Case Study
Facts
A trust provides that Emma will receive £600,000 at age 25.
At age 21, Emma wishes to establish a professional architectural practice and requests financial assistance from the trustees.
The trustees investigate her business proposal and conclude that it is realistic and likely to improve her future financial position.
They decide to advance £250,000 from the trust fund.
Analysis
The advancement is for Emma’s benefit because it improves her professional and financial prospects.
Applying Re Pilkington’s Will Trusts, the proposed business venture constitutes a sufficient benefit.
The trustees have exercised their discretion appropriately and have made reasonable enquiries regarding the proposed use of the funds.
Outcome
The advancement would likely be valid under section 32 of the Trustee Act 1925.
When Emma ultimately receives her remaining entitlement, the value of the advancement will ordinarily be brought into account and deducted from her final share.
Conclusion
The power of advancement provides trustees with valuable flexibility in responding to beneficiaries’ changing needs. Section 32 of the Trustee Act 1925 permits trustees to distribute trust capital before the vesting date where doing so advances or benefits the beneficiary. The courts have interpreted benefit broadly, encompassing educational, professional, social, and personal advantages, as demonstrated in Re Pilkington’s Will Trusts and Re Clore’s Settlement Trusts. The Inheritance and Trustees’ Powers Act 2014 significantly expanded the usefulness of the power by removing the former one-half limitation and permitting the advancement of assets as well as cash. As a result, the power of advancement has become an increasingly important tool in modern trust administration, allowing trustees to balance flexibility with the protection of beneficiaries’ long-term interests.
References
Re Pilkington’s Will Trusts [1964] AC 612.
Re Clore’s Settlement Trusts [1966] 1 WLR 955.
X v A [2005] EWHC 2706 (Ch).
Saunders v Vautier (1841) 49 ER 282.
Trustee Act 1925, s 32.
Inheritance and Trustees’ Powers Act 2014.
Alastair Hudson, Equity and Trusts (11th edn, Routledge 2022).
James Penner, The Law of Trusts (12th edn, Oxford University Press 2020).
Graham Virgo, The Principles of Equity and Trusts (5th edn, Oxford University Press 2024).
John McGhee (ed), Snell’s Equity (35th edn, Sweet & Maxwell 2024).
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