Trustee Power of Advancement: s32 Trustee Act 1925
Section 32 Trustee Act 1925 allows trustees to advance capital to a beneficiary before their interest vests. Since 2014 the whole share (not just half) can be advanced. Any advancement is set off (hotchpot) when the full interest eventually falls due.
2014 reform: full share now advanceable
Before the Inheritance and Trustees' Powers Act 2014: trustees could advance at most one-half of a beneficiary's presumptive share under s32. From 1 October 2014 (for trusts created on or after that date): the one-half restriction is removed — trustees can advance the whole of the beneficiary's share. Trusts created before that date retain the old half-share limit unless the trust deed expressly extends it.
Frequently Asked Questions
What is the statutory power of advancement under s32 Trustee Act 1925?
Section 32 of the Trustee Act 1925 gives trustees a power to pay or apply capital money (not just income) from a trust for the 'advancement or benefit' of any beneficiary who has an interest in the trust capital — whether that interest is vested or contingent. 'Advancement or benefit' is interpreted broadly: it covers not just a direct payment to the beneficiary but any arrangement that benefits them financially or otherwise (Pilkington v IRC [1964]). Before the Inheritance and Trustees' Powers Act 2014, trustees could advance a maximum of one-half of the beneficiary's presumptive share. From 1 October 2014, for trusts created on or after that date, the restriction on amount was removed — trustees can now advance the whole of the beneficiary's share if appropriate.
What is the 'hotchpot' rule when an advancement is made?
Under s32(1)(b) Trustee Act 1925, any amount advanced to a beneficiary must be brought into account ('hotchpot') when the beneficiary's full interest eventually vests. This prevents double recovery: if a beneficiary was entitled to £100,000 on reaching 25 and received a £30,000 advancement at age 20, they receive only £70,000 when they reach 25 (not £100,000 plus the advancement). The hotchpot rule ensures the advancement is treated as an early payment of part of the beneficiary's entitlement, not an additional benefit. The advancement is charged against the beneficiary's share only — it does not affect the shares of other beneficiaries.
Is the consent of other beneficiaries required for an advancement?
Yes — where any other person has a prior interest in the capital being advanced (for example, a life tenant who is entitled to the income before the remainderman receives the capital), that person must consent to the advancement in writing. Their consent is required because the advancement reduces the capital on which their interest is calculated. Trustees cannot advance capital over the objection of a prior interest holder. Where there is no prior interest — for example, a straightforward discretionary trust for children — no consent is required from other potential beneficiaries, but trustees must exercise their discretion in good faith for the benefit of the beneficiary in question.
What counts as 'advancement or benefit' under s32?
The courts have given 'benefit' a wide meaning. In Pilkington v IRC [1964] AC 612, the House of Lords confirmed that 'benefit' includes any arrangement that improves the beneficiary's material or financial position — even indirect benefits. Trustees have used s32 to: (1) advance capital to fund education or a business start-up; (2) resettle capital into a new trust for tax planning purposes (including to avoid IHT on the beneficiary's death — confirmed as valid in Pilkington); (3) enable the beneficiary to purchase a property; (4) make advance payments to adult children who are waiting for a contingent interest to vest. The advancement must genuinely benefit the beneficiary — trustees cannot use it to benefit third parties or to circumvent the trust's purpose.
Can s32 be modified or excluded in a will or trust deed?
Yes — like s31, the s32 power is a default statutory power that can be excluded, restricted, or extended by the trust instrument. Common modifications include: (1) expressing the power in wider terms (e.g. 'for such purposes as the trustees in their absolute discretion consider beneficial'); (2) removing the hotchpot condition so the advancement is treated as an outright gift rather than an advance on account; (3) restricting the amount that can be advanced or requiring unanimous trustee consent; (4) extending the power to apply to income as well as capital. Professional will drafting often replaces the statutory s32 with a bespoke clause giving trustees full flexibility to make payments of income or capital for any purpose. Where the will is silent, the 2014 amended statutory power applies to trusts created on or after 1 October 2014.
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