© Reuters
Experimental feature

Listen to this article

00:00
00:00
Experimental feature

My grandmother put a considerable amount of money into a trust fund for me before she passed away, to enable me to get on the housing ladder. Her express instructions were that the money was to be re-invested until such time as the fund’s assets reached £1m and could be used to pay for a property for me.

I am now 25 and have fallen in love with a property — which my parents agree would be a good investment. However, the value of the trust has not yet reached £1m. Given that it was my grandmother’s intention to enable me to buy a property, is there a way I can access the trust even though it is yet to reach the pre-determined value?

Jeremy Curtis, partner at law firm Pemberton Greenish, says this is going to come down to the exact terms of the trust and depending on those, the co-operation of the trustees. It will also turn on the distinction between a trust and a power: a trust is an obligation and a power is something a trustee can choose to do, or not do.

It would be extremely unusual to draft a trust that precludes the trustees from distributing funds before they had reached a certain value — all family trusts have a date by which they must end and it is more than theoretically possible that the value is never reached.

More likely, this is a discretionary trust backed by a letter of wishes. That is to say a trust in which the trustees decide who gets what and when, and they are guided by a non-legally binding letter which they can choose to follow or ignore as they see fit. In this way the trustees know what was originally intended and can choose to honour the intentions for as long as it is practical and permitted to do so.

Jeremy Curtis, partner at Pemberton Greenish

If that is so then as long as the trustees act within their powers all you can do is petition them. But they are not stopped from distributing, whatever they may want you to think.

Although the trustees can on the face of it decide not to give you anything, or at least not until some future date, they also have an overriding duty to consider the needs and act in the best interests of those who are to benefit from the trust (the beneficiaries). So if you can make a compelling case as to why it is a good idea to buy a property now — perhaps because you need somewhere to live and property prices are rising faster than the trust fund is growing — then the trustees will have to think hard as to why denying you that opportunity is in your best interests.

However, whether and whom to benefit is ultimately a decision for the trustees; something the courts recognise and rarely interfere with.

There are two other possible courses — the first is that you might persuade the trustees, instead of distributing money to enable you to buy the property, to buy the property on your behalf within the trust and to distribute to you when the value of the property has reached the magic £1m.

The other is that if you are the only possible beneficiary of the trust you could demand that the trustees hand over the entire trust fund, as a sole beneficiary over the age of 18 is absolutely entitled to the whole thing.

Sarah Clacker, associate in the private wealth team at Seddons, says you need to look at the trust in detail and determine the type of trust that your grandmother set up and find out who the trustees are.

There are three main types of lifetime trusts: a bare trust, a life interest trust and a discretionary trust, each having the benefit of express powers contained in the trust deed and statutory powers dictated by law.

A bare trust means you are absolutely entitled to the trust assets when you reach 18 years old. A life interest trust would give you the right to the income for life, but the capital would be preserved for a different beneficiary or beneficiaries. The characteristics of a discretionary trust are that they can run for 125 years from implementation, there are a number of “potential” beneficiaries and the trustees have full control of who should benefit and when.

Sarah Clacker, associate in the private wealth team at Seddons

Based on your comments, I suspect that your grandmother set up a lifetime discretionary trust and you are one of the potential beneficiaries. Usually, the settlor (the person who sets up the trust) would draw up a letter of wishes setting out how they would like the trust to be run to act as guidance for the trustees. It is likely that the express wishes of your grandmother that you address (the trust fund to be used to purchase you a property once the fund reaches £1m) are contained in that letter rather than expressly in the trust deed.

If this is the case then, as the letter of wishes that your grandmother prepared simply acts as guidance and is not legally binding on the trustees, they can use their discretionary powers to release the trust assets to you earlier than anticipated.

I suggest you make contact with the trustees, explain your current situation and request that they release the funds early, to ensure that you do not lose your dream property.

In my opinion, provided the property is, as you say, a good investment and does not contradict any other terms of the trust or the letter of wishes, whilst the trust fund has not yet reached £1m and bearing in mind you wish to use the funds to purchase a property rather than something very different from your grandmother’s wishes, I would not expect the trustees to raise any issues with the request.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com

Our next question

I am an extremely wealthy individual and, although I will pass some of my private wealth on to my children, I am keen for a substantial majority of it to be used for public good. I have considered the idea of making a commitment where over the course of my life I will donate 95 per cent of the value of my current shareholding to charitable initiatives chosen by myself, corresponding to the areas I am passionate about, for example, education. Can you provide some insight into the most beneficial ways to initiate and structure something like this?

Get alerts on Next Act when a new story is published

Copyright The Financial Times Limited 2018. All rights reserved.

Follow the topics in this article