TSEM8020 - Trust management expenses: introduction: sources that govern expenses

In managing a trust, the trustees have to decide whether to charge expenses to capital or income. Expenses may be referred to as ‘capital’ or ‘income’ expenses depending on which fund they are to be paid out of.

The administrative powers of trustees derive from four sources, any one or more of which might govern expenses:

  1. an order of the Court in a specific case
  2. the provisions of the trust deed
  3. trust statute
  4. general trust law (case law)

When considering whether they should charge an expense to capital or income, the trustees look first to any Court order regarding the trust, then to the trust deed, then to any relevant trust statute, and then to general trust law.

For tax purposes also, where there is a Court Order that specifies how an expense should be charged, or specific statute, the terms of the Court Order or the provisions of the statute take priority. But the provisions of the trust deed and general trust law have varying effects for tax purposes depending on which type of trust.