Commentary on Sections Section 1: Disapplication of apportionment etc rules
24.Section 1 disapplies the specified statutory and equitable rules of apportionment for all trusts created or arising on or after the day on which the section comes into force: subsection (5). This includes a trust created by will, or arising under the intestacy rules, in relation to a death on or after that day; a trust established by a settlor in his or her lifetime; and a separate trust created by the exercise of a power associated with a trust already in existence. The rules are described at paragraph 12 above.
25.Subsection (1) disapplies the time apportionment rule imposed on trustees by section 2 of the Apportionment Act 1870. The effect is that an income receipt is due to the beneficiary who is entitled to income at the time when it arises. There is no longer any requirement to apportion an income receipt where the entitlement to income has changed during the period over which it accrued.
26.A further effect of subsection (1) is relevant to trusts where the trustees have power to maintain a class of beneficiaries out of income to which they are not yet absolutely entitled – for example, a trust “for the children of C”. Subsection (1) makes it unnecessary, when a child is born, to carry out an apportionment calculation to ascertain the income from which that child can be maintained.(4) Instead, income as it arises is available for the maintenance of the beneficiaries entitled to be maintained from it.
27.Subsection (2)(a) disapplies the first part of the rule in Howe v Earl of Dartmouth. The effect of subsection (2)(a) is that trustees will not be under an immediate obligation to sell residuary personalty where it consists of an unauthorised investment of a wasting and hazardous nature. They may still choose to do so in any event; but in some circumstances immediate sale would be unwise, and without the rule the trustees can exercise their discretion in the context of their general duty of care. Subsection (3) specifies that the trustees have power to sell where previously they had a duty to sell.
28.Subsection (2)(b) disapplies the second part of the rule in Howe v Earl of Dartmouth. The effect of the disapplication of the rule is that where a trust for interests in succession holds unauthorised investments consisting of hazardous or wasting property, and a trust for sale applies, the income beneficiary will be entitled to the actual income from such investments as it arises.
29.Subsection (2)(c) disapplies the rule in Re Earl of Chesterfield’s Trusts. The effect is that, where a trust for interests in succession holds property that does not in fact produce any income until it falls into possession (such as a reversionary interest), such property will be treated as capital when it comes into the possession of the trustees.
30.Subsection (2)(d) disapplies the rule known as the rule in Allhusen v Whittell. The effect of the disapplication of the rule is that where a testator’s residuary estate is left on trust for interests in succession, the debts, legacies, annuities and other charges payable from the residuary estate will only be payable out of capital.
31.Subsection (4) provides that subsections (1) to (3) are subject to contrary provision in the trust instrument, or in any power by which the trust was established. The effect of this subsection is that settlors or testators who wish to include any of the rules disapplied in subsections (1) and (2) may do so by excluding the section or by expressly invoking the rule by name in the trust instrument.