This session continues our examination of present entitlement and what it means for a trustee to “apply” trust income. We return to Commissioner of Inland Revenue (NZ) v Ward [1970] NZLR 1, where a trustee resolved that a year’s income “be held for the credit of” four infant children. Nothing was paid out, and the resolution was recorded in the trust’s books only after the end of the income year. The central question is whether those actions were sufficient to “apply” the income so that the beneficiaries became presently entitled to it.
Last session we worked through the meaning of “apply” — tracing Montgomerie and Re Vestey’s Settlement, and testing the idea that “apply” is closer to “set aside” than to “pay” — and through the nature of payment itself, taking Jenkins LJ’s point that there can be no payment without a hand to receive and a recipient capable of giving a receipt, and so no payment to a minor at all. Much of the session went to what it means to apply income “for the benefit of” a minor, using the school fees example: whether meeting fees for which the parent is legally liable benefits the parent rather than the child, and why imprudent or excessive expenditure is a breach-of-duty question rather than a failure of application. We also spent time on gift, acceptance and disclaimer, and on the position where money is credited to a bank account without the recipient’s knowledge.
We again only scratched the surface, so we will continue where we left off. Building on that discussion, we will keep working through the three judgments and the key issues on which they differ, including whether a mere crediting in the trust accounts is sufficient, whether the application must be completed before the end of the income year, and whether an application requires the creation of a debtor-creditor relationship or a separate trust.
Required Reading:
If you have not already done so, please read the three judgments closely and come prepared to discuss those questions.
Discussion led by Adrian Cartland