HARRIET BROWN BARRISTER AND JERSEY ADVOCATE OLD SQUARE TAX CHAMBERS

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1 HARRIET BROWN BARRISTER AND JERSEY ADVOCATE OLD SQUARE TAX CHAMBERS

2 I am an English barrister and Jersey advocate and represent clients regularly in courts in both jurisdictions. I advise taxpayers, in relation to UK tax matters, primarily on all direct tax matters for private and corporate clients as well as in the context of trusts and estates. In addition to advising extensively on traditional private client matters, I also advise in relation to international matters such as double tax treaties, TIEAs, FATCA/CRS, disclosure facilities and conflict of laws issues arising in a tax context. I can be contacted as follows: Old Square Tax Chambers 15 Old Square Lincoln s Inn, London WC2A 3UE T: (020) F: (020) harrietbrown@15oldsquare.co.uk

3 How to vary trusts: Introduction Express clauses Types of variation Variations under an express power Variations under the rule in Saunders v Vautier Variations under VoTA 1958 Variations in relation to IHTA, section 142

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5 Express clause in the trust giving some person the power to vary a trust (NB: power may be restricted to only allowing variation of administrative provisions) The rule in Saunders v Vautier: if all beneficiaries of a trust are of full age and capacity may be possible to vary trust under this rule VoTA 1958: court cannot vary trust per se, but can supply consent of minor, unborn and unascertained beneficiaries where a general law variation is desired IHTA, section 142: again not a way to vary a trust but in certain circumstances can prevent the undesirable tax consequences of varying a trust settled by will MCA 1973 and similar provisions: the legislation of many jurisdictions provides ways in which dispositions into trusts, or trusts themselves may be varied upon divorce

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7 Clause gives power to some person to vary the provisions of a trust Provision may allow variation of any provisions of the trust May only allow variation of administrative provision

8 Variation of administrative provision only: The Trustees shall have power at any time or times during the Trust Period by deed or deeds to revoke or vary any of the administrative provisions of this Settlement or to add any further administrative provisions as the Trustees may consider expedient for the purposes of this Settlement and without prejudice to the generality of the above for ensuring that at all times there should be a trustee of this Settlement and that the Trust Fund shall be fully and effectively vested in or under the control of such trustee and that the trusts of this Settlement shall be enforceable by the Beneficiaries

9 Provided always that the power conferred by this clause shall only be exercisable if the Trustees shall be advised in writing by a lawyer of at least ten years' standing qualified in the law of the jurisdiction which for the time being is the proper law of this Settlement that it would be expedient for the purposes of this Settlement that the administrative provisions be revoked varied or added to in the manner specified and that such power shall be exercisable only by the Trustees executing a deed in a form appropriate to carry such advice into effect

10 Variation of any provision: Subject to the overriding restrictions imposed by clause [X] hereof, the Trustees shall have power by instrument to vary, amend, add to or delete any of the provisions, trusts and powers of this Settlement or to rectify any manifest errors in this Settlement when they consider the same in their absolute discretion to be for the benefit of all or any one or more of the Beneficiaries PROVIDED ALWAYS that nothing in this clause shall enable the Trustees nor any other person to vary, amend, add to or delete any of the provisions of clause [X] hereof

11 Variation of proper law: Notwithstanding the provisions of clause [1] above but subject to clause [2] below the Trustees may at any time and from time to time during the subsistence of the trusts of this settlement but during the Trust Period by deed declare that this settlement shall from the date of such deed take effect in accordance with the law of some other place in any part of the world and that the governing law of the settlement shall from such time be the law of that place and this settlement shall from such time be construed and take effect according to and be governed exclusively by such law

12 Variation of proper law (likely restrictions): So often as any such declaration as stated above shall be made the Trustees may at any time or times afterwards but before the end of the Trust Period by deed make such consequential alterations in the trusts powers and provisions of this settlement as the Trustees in their absolute discretion shall consider necessary or desirable to secure that so far as may be possible such trusts powers and provisions shall be as valid and effective under the law of the place named in such declaration as they are under the law of

13 Variation of proper law (likely restrictions): Notwithstanding anything contained in this clause: the Trustees shall not at any time have the power to take any action under this clause which: might directly or indirectly result in this settlement becoming revocable or unenforceable or might in any way make any alteration in the beneficial trusts and powers of this settlement (or in the persons beneficially entitled under this settlement) which could not then have been made by the Trustees in exercise of the powers conferred on them by this settlement in so far (if at all) as such powers are then still subsisting and exercisable with immediate effect.

14 Extent of the power will be determined by the clause s contents Same with procedure! Even if not specified in the clause it is sensible to: Record decisions of the trustees to vary trust in writing Take advice as to whether or not proposed variation is within the power if unsure Ensure that any variation is properly recorded in a deed/instrument amending the constitutive document of the trust so that the variation is apparent in future

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16 By his will the testator bequeathed to his executors and trustees all the East India stock which should be standing in his name at his death on trust to accumulate the dividends until his great-nephew, V, should attain twenty-five, and then to transfer the principal, together with such accumulations, to V, his executors, administrators, or assigns absolutely. The will also contained a residuary bequest. The testator had 2,000 pounds East India stock standing in his name at his death Lord Langdale MR (in HC, but affirmed by Lord Cottenham LC): Where all the beneficiaries are identified, sui juris and absolutely entitled, then they can require the trustee to distribute the funds as the beneficiaries agree

17 Thus can be very simple, for example where there is a single absolutely entitled adult beneficiary or a number of adult beneficiaries who between them are absolutely entitled More difficult where there are unascertained/unborn beneficiaries Important to remember, the rule in Saunders v Vautier applies to a distribution thus while it can be used to agree among the beneficiaries to vary the terms of the trust all that the trustees can be forced to do is distribute the property they need not agree to continue to act as trustee on a varied basis If trustee refused to continue to act as trustee post S v V variation alternative trustee could be appointed

18 Where all beneficiaries are qualified under the rule in S v V this should be straightforward. Written directions from all the beneficiaries should be given to the trustee who should then act in accordance with them in most circumstances Again, trustees should record their decision to act in accordance with written directions from all the beneficiaries If trustees are unsure whether or not they can act on these written directions then advice should be taken

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20 Gives court power to consent to variation on behalf of beneficiaries who cannot themselves consent (i.e. not qualified under the rule in S v V) VOTA 1958, section 1 provides: (1) Where property, whether real or personal, is held on trusts arising, whether before or after the passing of this Act, under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of (a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting, or

21 (b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court, or (c) any person unborn, or (d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined,

22 any arrangement (by whomsoever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts: Provided that except by virtue of paragraph (d) of this subsection the court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.

23 Civil Prcoedure Rules Applications under the Variation of Trusts Act 1958 for a hearing before the Judge will be listed for hearing in the General List. The previous practice of listing these applications before a Judge without reference to the Master no longer applies should be made by a Part 8 claim form. Evidence is dealt with by PD 64A paragraph 4

24 Where any children or unborn beneficiaries will be affected by an arrangement under the Act, evidence must normally be before the court which shows that their litigation friends (in the case of children) or the trustees (in the case of unborn beneficiaries) support the arrangement as being for their benefit, and exhibits a written opinion to this effect. In complicated cases a written opinion is usually essential to the understanding of the litigation friends and the trustees, and to the consideration by the court of the merits and fiscal consequences of the arrangement If the written opinion was given on formal instructions, those instructions must be exhibited. Otherwise the opinion must state fully the basis on which it was given. The opinion must be given by the advocate who will appear on the hearing of the application. Where the interests of two or more children, or two or more of the children and unborn beneficiaries, are similar, a single written opinion will suffice

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26 Again, not a power to vary per se, but a legislative provision giving benefits to variations made in accordance with it However, must be possible to vary the trust in question in any event in order for the section to apply

27 (1) Where within the period of two years after a person's death (a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred. (2) Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons, to the effect that they intend the subsection to apply to the variation. (2A) For the purposes of subsection (2) above the relevant persons are (a) the person or persons making the instrument, and (b) where the variation results in additional tax being payable, the personal representatives. Personal representatives may decline to make a statement under subsection (2) above only if no, or no sufficient, assets are held by them in that capacity for discharging the additional tax.

28 Need to be able to make the variation so will be unable to: Detrimentally vary a charity s share under the will Vary a gift to a minor unless VoTA 1958 can be applied Must comply with the practical requirements proper drafting is a primary concern Must be carried out in the 2 year period after death to have the beneficial IHT treatment