I’ve an unusual situation. The 21-year accumulation period of a pre-2010 trust is about to end. The trustees are invested in a bond which produces no income. They would ideally just like to continue. Can they simply carry on, on the basis that they would have to distribute income if any were arising, but since none is there is nothing to distribute.
Or do forum members think there is an obligation to reinvest in income-producing assets in order to have some income to distribute?
Adding to my own question above I confirm there is no interest in possession, and no beneficiary wishing to receive any income from the fund. The only issue I’m asking about is the termination of the accumulation period.
Hard to be definitive without sight of the trust instrument, and not even being told the nature of the equitable interests. (Just noticed the PS that no beneficiary is in fact agitating for income, which might affect whether the trustees are acting properly despite having a requisite power). The PAA 2009 s.13 is assumed not to apply the abolition of the accumulation period to this trust: s.15(1).
Often trustees are specifically allowed to invest without obligation to strike a balance between income and capital beneficiaries. Instinctively if the trustees had power initially to invest in a bond they almost certainly have power to retain it, particularly if it was originally settled rather than acquired by the trustee out of other settled funds and moreover if it would be intrinsically disadvantageous to deal with the bond otherwise than by retaining it. Reviewing that periodically is now an obligation under s.4 Trustee Act 2000.
The Trustee Act 2000 s.3 gives the trustees a very wide default power of investment that is subject only to ss. 4-6 and the duty of care in s.1 and para 1 Sch 1. Unlike the 2009 Act it applies to existing trusts: s.7. The trust instrument may restrict this new statutory power: s.6
This new approach is thus unlikely to inhibit retention of the bond as long as ss.4-6 are complied with. And also the general rule of equity that trustees’ decisions, including whether and if so how to exercise a power clearly vested in them, responsibly and not capriciously, taking into account only relevant matters. That is highly fact-dependent.
S.6 also saves the application of a restriction on or exclusion of the new power imposed by any enactment or subordinate legislation. S.13 of the 2009 Act is arguably not one such, because if there were any income it could not be accumulated but as we say in Sarf Lunnon “there ain’t not none”: in my view this is not an enactment restricting what kind of investment trustees may invest in as a matter of principle within s.6 TA 2000
Jack Harper