Can the trustee in its absolute discretion distribute or apply all or any of the capital of the trust at such time(s) and in such amount(s) as it deems fit? Can the settlor impose a condition in the trust deed requiring the trustee to obtain the prior consent of the settlor or any other person appointed by the settlor under the trust deed (protectors) in order to exercise certain powers which are vested in the trustee under the trust deed? Can the settlor retain the power to direct the trustee to open a bank and to make specific investments?
Section 11 of the Indian Trusts Act, 1882 prescribes two main duties of the trustees—to fulfil the purpose of the trust and to obey the directions of the author of the trust given at the time of the creation of the trust.
Consequently, the trustee is bound to act in fulfilment of the above objectives and to administer the trust accordingly. Departure from directions is not permissible on mere grounds of expediency. The aforesaid section, however, permits an exception, where all the beneficiaries of the trust who are competent to contract give their “consent” to a modification to the directions of the settlor. It may also be noted that the purpose of the trust must be indicated at the time of the creation of the trust. If the discretion and powers of the settlor are such that the purpose of the trust is not clear, then the trust may not take effect.
Further, though the trustees are bound to obey the directions of the author of the trust, this section excuses them from the obedience of directions “when to do so would be impracticable, illegal or manifestly injurious to the beneficiaries”.
Therefore, in order that a trustee is able to distribute the capital of the trust at any time, the same must be permitted by the provisions of the trust deed. If the trust deed so provides, the trustee in its absolute discretion can distribute all or any of the capital of the trust at such time(s) and in such amount(s) as it deems fit to the settlor and the beneficiaries provided the same is not modified by the consent of all the beneficiaries of the trust who are competent to contract.
In terms of section 11, the settlor can impose a condition in the trust deed requiring the trustee to obtain the prior consent of the protectors in order to exercise certain powers that are vested in the trustee under the trust deed. The trustee would need to obtain such consent in order to exercise the said powers.
Similarly, the settlor can retain the power to direct the trustee to open bank and custody accounts and the trust deed can authorize the settlor to direct the trustee to make specific investments. In this regard, section 20 (dealing with investment of trust money) stipulates the securities in which a trustee can invest trust property comprising of money. However, the trust deed may provide for other specific means in which the trustee would be permitted to invest such amounts.
— Shabnum Kajiji, Partner, Wadia Ghandy & Co. Advocates, Solicitors and Notaries
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