Variation of Trusts

Requirement for Variation

Generally, a trust must be implemented and given effect in accordance with its terms. Otherwise, the trustees may be in breach of trust. Apart from the statutory powers, a court will not, save in limited circumstances, allow the performance of acts which constitute a breach of trust.

Trust may need to be adapted to meet changed circumstances both from a practical, legal and fiscal perspective.  The trust may incorporate provisions and mechanisms for variation. Such a provision is less common in the case of older trusts.

Where all beneficiaries are of full age and have legal capacity, they collectively may terminate the trust, or they may vary it as they agree. This power may be used to vary the trust.

However,  there will frequently be unborn or untraceable unascertained beneficiaries, which may make this course impossible. Trusts sometimes empower trustees to resettle the trust assets on new terms and conditions.  The below power may be available to effect amendments to the trust.

Application to Court

The Land and Conveyancing Law Reform Act, 2009 confers a general jurisdiction on courts to vary trusts.  An “appropriate person” may apply to court in relation to a trust for an order to approve an arrangement specified in the application for the benefit of a “relevant person.”

The proposed arrangement must have been agreed upon by the other persons who are beneficially entitled to the trust assets and are capable of assenting to the arrangement.

The appropriate person (the applicant), in relation to a relevant trust, is the trustee, beneficiary or another person that the court considers appropriate to make an application. An arrangement is one for the purpose of varying, revoking or resettling the trust.  It may also vary, enlarge, add or restrict the powers of the trustees to manage and administer the trust.

“Relevant Person”

A relevant person, in relation to the trust, is any of the following

• a person who has a vested or contingent interest under the trust but is incapable of assenting by reason to an arrangement by reason of lack of capacity;
• an unborn child;
• a person whose identity, existence or whereabouts cannot be established by taking reasonable measures; or
• a person with a contingent interest but who does not fall within the above category.

The power applies to any trust, whether made before or after the commencement of the 2009 legislation. However, it does not include occupational pension scheme trusts, trusts created by statute, or trusts created for a charitable purpose.

The court shall not hear the application unless it is satisfied that the application has given notice in writing to the Revenue Commissioners and such other persons as may be prescribed by Rules of Court at least two weeks in advance.

Criteria

The court may decide an application in relation to a trust by making an order approving the arrangements specified if it is satisfied that the carrying out of the arrangement would be for the benefit of the relevant person and any other relevant persons.  It may refuse to make an order where it is not so satisfied or where the Revenue Commissioners are satisfied, or the court determines that the application is motivated by a desire to reduce or avoid tax.

In deciding whether an arrangement would be for the benefit of the relevant person, the court may have regard to any benefit or detriment, financial or otherwise, that may accrue to the person directly or indirectly.

The legislation does not affect the general rules of law and the jurisdiction of courts to may make orders in respect of charities. It does not affect other power, whether conferred by statute or otherwise, to vary, revoke or resettle the trust or to vary, enlarge, add to or restrict the powers of a trustee under a trust or any other rule of law relating to termination or revocation of trusts.

It is necessary to show a legitimate need for the variation of the trust.  The court will have regard to the interest of unborn, minor or unascertained beneficiaries.

Other Inherent Powers

The court has an inherent power to allow a variation as necessary to avoid the destruction of or to preserve the trust property.  The so-called “salvage” jurisdiction may be exercised where some unforeseen event occurs and where it is necessary to take action.

This may arise, for example, where trust assets are in disrepair, and it is necessary to sell some assets in order to raise money or to borrow and grant security to repair the relevant asset. The extent of this older power is unsettled.

In older cases, the Irish courts have allowed mortgages to be raised on real property for the purpose of repairs on real property in older cases.  In newer cases, the English courts have allowed schemes of reconstruction, which are advantageous to the parties, without any apparent urgent necessity. However, the courts have emphasised that the power will be exercised with great caution.

The courts may authorise a variation of the trust in order give effect to a compromise or settlement of a dispute.  There must be a genuine dispute and not simply one brought about by a desire to vary the trust itself.

Maintenance

Maintenance may be paid under section 43 of the Conveyancing Act 1881, out of trust funds. The court may allow maintenance to be paid out of accumulated interest.

This may be permitted on the basis of an inference that the person who created the trust, in creating that trust, would not have intended that the beneficiaries be left without reasonable means.  It is based on an interpretation of the testator’s presumed intentions.