Variation of Trusts
Land and Conveyancing Law Reform Act 2009
Variation of Trusts
Interpretation of Part 5.
23.— In this Part—
“ appropriate person ”, in relation to a relevant trust, means—
(a) a trustee of, or a beneficiary under, the trust, or
(b) any other person that the court, to which the application concerned under section 24 is made, considers appropriate;
“ arrangement ”, in relation to a relevant trust, means an arrangement—
(a) varying, revoking or resettling the trust, or
(b) varying, enlarging, adding to or restricting the powers of the trustees under the trust to manage or administer the property the subject of the trust;
“ relevant person ”, in relation to a relevant trust, means—
(a) a person who has a vested or contingent interest under the trust but who is incapable of assenting to an arrangement by reason of lack of capacity (whether by reason of minority or absence of mental capacity),
(b) an unborn person,
(c) a person whose identity, existence or whereabouts cannot be established by taking reasonable measures, or
(d) a person who has a contingent interest under the trust but who does not fall within paragraph (a);
“ relevant trust ”—
(a) subject to paragraph (b), means a trust arising, whether before, on or after the commencement of this section, under a will, settlement or other disposition,
(b) does not include—
(i) a trust created for a charitable purpose within the meaning of the Charities Acts 1961 and 1973 and the Charities Act 2009,
(ii) an occupational pension scheme within the meaning of the Pensions Act 1990 established under a trust,
(iii) a trust created by a British statute,
(iv) a trust created by a Saorstát Éireann statute, or
(v) a trust created by an Act of the Oireachtas, whether passed before, on or after the commencement of this section.
Jurisdiction of court to vary, etc., trusts.
24.— (1) An appropriate person may make, in respect of a relevant trust, an application to the court for an order to approve an arrangement specified in the application for the benefit of a relevant person specified in the application if the arrangement has been assented to in writing by each other person (if any) who—
(a) is not a relevant person,
(b) is beneficially interested in the trust, and
(c) is capable of assenting to the arrangement.
(2) The court shall not hear an application made to it under subsection (1) in respect of a relevant trust unless it is satisfied that the applicant has given notice in writing of the application—
(a) to the Revenue Commissioners, and
(b) to such persons as may be prescribed by rules of court,
at least 2 weeks before the hearing of the application.
(3) The court may hear an application made to it under subsection (1) otherwise than in public if it considers that it is appropriate to do so.
(4) The court shall determine an application made to it under subsection (1) in respect of a relevant trust—
(a) subject to paragraph (b), by making an order approving the arrangement specified in the application if it is satisfied that the carrying out of the arrangement would be for the benefit of—
(i) the relevant person specified in the application, and
(ii) any other relevant person,
(b) by refusing to make such an order in any case where—
(i) the court is not satisfied as referred to in paragraph (a), or
(ii) the Revenue Commissioners have satisfied the court that the application is substantially motivated by a desire to avoid, or reduce the incidence of, tax.
(5) In determining under subsection (4) whether an arrangement would be for the benefit of a relevant person, the court may have regard to any benefit or detriment, financial or otherwise, that may accrue to that person directly or indirectly in consequence of the arrangement.
(6) Nothing in this section shall be construed as derogating from or affecting the operation of—
(a) the Charities Acts 1961 and 1973 and the Charities Act 2009,
(b) any power of a court, whether under an enactment or rule of law, to—
(i) vary, revoke or resettle a trust (including a relevant trust), or
(ii) vary, enlarge, add to or restrict the powers of the trustees under a trust (including a relevant trust) to manage or administer the property the subject of the trust,
or
(c) any rule of law relating to the termination or revocation of a trust (including a relevant trust).
Cases
Re Johnson’s Settlement
[1944] IR 529
GAVAN DUFFY J “This equitable tenant for life is in a peculiarly advantageous position, and the trustees in the present case appear to be bare trustees with no powers of manag ment. In these circumstances the trustees themselves come into Court and rely on the principle of salvage to justify this application, outside the Settled Land Acts, having, as they say, no other means of saving the situation. Where trustees are not trustees for sale and have no power of sale or management, and where the limitations are equitable, I hold that the Court can, as a last resort if no other way is open, apply the principle of salvage in order to sanction the expenditure out of capital
of the money necessary for doing such repairs, constituting permanent improvements, as are essential to the preservation of the settled property.I need refer only, in support of this view, to In re Hotchkys (1886) 32 Ch D 408, In re Freman [1898] 1 Ch 28 (decided by the same learned Judge who decided the case of In re Lord de Tabley; Leighton v. Leighton (1896) 75 LTR 328), and to In re Smiths Settled Estates [1901] 1 Ch 689, to which I may add Neill
v. Neill [1904] 1 IR 513. I am satisified that the items marked a (1) to a (10) (inclusive) and a (12) toa (15) (inclusive) in the estimate referred to in the architect’s affidavit represent essential work within this principle and I shall sanction accordingly the raising of a sum of money not exceeding the estimated cost, according to Mr. Miller’s affidavit, of those items, together with an addition of 15 per cent upon that sum, the addition being due to possible fluctuation of prices asa result of the present emergency conditions; to this sum may be addeda reasonable sum not exceeding one hundred guineas for the architect’s fees.
I authorise the trustees to mortgage or concur in a mortgage of the settled lands for the purpose of raising this money, and the income of the tenant for life will, of course, be reduced accordingly.
UK Cases
CD (a minor)
[2004] EWHC Ch 1036, Chancery Division
LLOYD J: … by virtue of proviso (a) to section 32(1), no more than half of the presumptive or vested share or interest of the beneficiary may be paid or applied by way of advancement. That limit is com monly relaxed in modern trust deeds, but there is nothing to that effect in the documents in the present case.
On the evidence I am satisfied that it would be for C’s benefit for the limit imposed by section 32 on the application of the capital of the fund for her education to be lifted. The question is whether and on what basis the court has power to achieve this result. There are two possible sources of jurisdiction. The Court of Chancery had an ancient jurisdiction to authorise the application of income and, in more limited circumstances, capital, for the maintenance of a minor even if this was not authorised by the terms of the trust. This jurisdiction is recognised in the speeches inChapman v. Chapman (1954] AC 429: see in particular Lord Morton of Henryton at pages 455-6 and Lord Asquith of Bishopstone at 469. As to the application of capital, Lewin on Trusts, 17th ed., refers to a number of cases at paragraph 32-06. One of them, in which specific reference was made to the court’s ability to authorise the expend iture of capital to which a minor was absolutely entitled for his or her maintenance, is Worthington v.
M’Craer (1856) 23 Beav 81. It seems to me that this would be a possible basis on which the court could proceed in the present circumstances.
However, since the decision in Chapman v. Chapmon, the relevant area of law has been transformed by the Variation of Trusts Act 1958. While this Act does not take away any jurisdiction that the court already had, it seems to me that it would be more appropriate to proceed under the Act if that is pos sible.
The 1958 Act applies “where property … is held on trusts arising …under any will settlement or other disposition”. On the face of it, the proceeds of the insurance policies are held on trusts arising under a settlement, albeit that they are held for the three children in equal shares absolutely. The idea of varying a bare trust might perhaps seem a little odd, and but for the beneficiary not being of full legal capacity it is difficult to imagine how the question could arise. Given that lack of capacity, and the con straints on the extent of the statutory provisions which do authorise the trustees to act in certain ways, it does not seem to me so surprising that the Act should apply to property held on a bare trust, at least for a minor. [para. 14.]
A similar point, though in relation to a fund of a very different kind, was argued before Eveleigh J in the Queen’s Bench Division, in Allen v. Distillers Company (Biachemica/s) Ltd [1974) QB 384. That con cerned the funds to be received pursuant to the compromise of the thalidomide litigation, and the desire of many of the parents of children affected to ensure that the sums held for their children should not become their absolute property at the age of 18.The judge held that he did have power to achieve that, but he rejected the argument that he could do so under the 1958 Act. He was shown authority
under the 1958 Act for the proposition that the Act could be used to defer the vesting of property in a beneficiary, if it would be for that person’s benefit to do so.He did not dispute that, but he held that the Act did not apply to the money to be paid pursuant to the compromise. At page 394 he said this:
“I do not think that the payment out to the trustees in the first instance gives rise to the kind of trust contemplated by the Act. As a common lawyer struggling with this problem I am reminded of the first sentence in the chapter on trusts contained inSnell’s Principles of Equity 25th edition: ‘No one has yet succeeded in giving an entirely satisfactory definition of a trust’. An agent may hold and deal with property of his principal in such circumstances as to constitute him a trustee for his principal but leaving aside the manner in which the trust is created, no one would con template the possibility of there being a trust of the kind referred to in the Act. The Act contem plates the situation where a beneficial interest is created which did not previously exist and probably one which is related to at least one other beneficial interest. Moreover the Act is designed to deal with the situation where the original disposition was intended to endure according to its terms but which in the light of changed attitudes and circumstances it is fair and reasonable to vary. In any event I do not think that the so-called variation would be a variation at all. It would be a new trust made on behalf of an absolute owner.” [para. 15.]
Eveleigh J was not considering the sort of case of absolute entitlement with which I am concerned. In the case before him there was no prior trust of any kind. Despite the potential width of the word “dis position”, it would be difficult to conclude that money paid by an alleged tortfeasor by way of compen sation for injury to a minor was “property. . held on trusts arising … under any will settlement or other disposition”. Accordingly I would not venture to disagree with his conclusion that the 1958 Act did not apply to the fund that he was concerned with.
His observation that the Act is concerned with a trust where there is more than one beneficial inter est was not necessary to his decision. If it were right the Act could not apply to C’s Fund, at any rate once it is split off from the rest of the fund. In my judgment it is not correct. Whether it could be appro priate in any circumstances to exercise the power conferred by the 1958 Act in relation to a fund held for a minor absolutely so as to reduce his or her entitlement in any respect, for example as was sought in the Allen case by deferring the date when the person in question can call for the fund, I do not need to decide. What is proposed in the present case would have the effect, in a sense, of accelerating the benefit for C, by allowing the whole of the fund to be used for her benefit while she is still under age. In other circumstances it may be possible to use the power under section 32 in such a way that the trust property does not become vested in the beneficiary: see Re Pilkington’s Will Trusts [1964] AC 612. On the present and foreseeable facts of this case this is no more than theoretical. It could not be for C’s benefit to divert any part of the fund from her. [para. 17.]
In my judgment both the whole trust fund, and C’s Fund separately, are “property … held on trusts arising … under any will settlement or other disposition”. It is therefore open to the court to exercise the powers conferred by the 1958 Act in relation to the funds, so long as it is satisfied that the proposed variation of the trusts is for the benefit of the relevant beneficiary. I am satisfied that it is for C’s benefit to vary the trusts applying to her fund so that the whole fund, not merely one half,may be applied pur suant to section 32 of the Trustee Act 1925. I have therefore approved on her behalf a variation of the trusts applying to C’s Fund so as to permit the powers under section 32 to be exercised in relation to the whole, not only half, of the fund.
Re Pilkington’s WT
[1964] AC 612
VISCOUNT RADCLIFFE : I think, with all respect to the Commissioners, a good deal of their argument is infected with some of this confusion. To say, for instance, that there can not be a valid exercise of a power of advancement that results in a deferment of the vesting of the bene ficiary’s absolute title (Miss Penelope, it will be remembered, is to take at 30 under the proposed settlement instead of at 21 under the will) is in my opinion to play upon words. The element of antici pation consists in the raising of money for her now before she has any right to receive anything under the existing trusts: the advancement consists in the application of that money to form a trust fund, the provisions of which are thought to be for her benefit. I have not forgotten, of course, the references to powers of advancement which are found in such cases as Re Joicey [1915] 2 Ch 115, CA, Re May’s Settlement [1926] Ch 136 and Re Mewburn’s Settlement [1934] Ch 112, to which our attention was called, or the answer supplied by Cotton U in Re Aldridge (1886) 55 LT 554, 556 to his own question ‘What is advancement?’
It is a payment to persons who are presumably entitled to, or have a vested or contingent inter est in, an estate or a legacy, before the time fixed by the will for their obtaining the absolute interest in a portion or the whole of that to which they would be entitled;
but I think that it will be apparent from what I have already said that the description that he gave (it can not be a definition) is confined entirely to the aspect of anticipation or acceleration which renders the money available and not to any description or limitation of the purposes for which it can then be applied.
I have not been able to find in the words of s. 32, to which I have now referred, anything which in
terms or by implication restricts the width of the manner or purpose of advancement. It is true that, if this settlement is made, Miss Penelope’s children, who are not objects of the power, are given a pos sible interest in the event of her dying under 30 leaving surviving issue. But if the disposition itself, by which I mean the whole provision made, is for her benefit, it is no objection to the exercise of the power that other persons benefit incidentally as a result of the exercise. Thus a man’s creditorsmay in certain cases get the most immediate advantage from an advancement made for the purpose of paying them off, as in Lowther v Bentinck (1874) LR 19 Eq 166; and a power to raise money for the advancement of a wife may cover a payment made direct to her husband in order to set him up in business (Re Kershaw’s Trusts (1868) LR 6 EQ 322). The exercise will not be bad therefore on this ground.
Stephenson (Inspector of Taxes) v Barclays Bank Trust Co. Ltd
[1975] 1 WLR 882
WALTON J: I now turn to a consideration of the phrase ‘absolutely entitled as against the trustee’, which is now of course fairly closely defined in the Finance Act 1969, sch. 19, para. 9. It is there defined as meaning that the person concerned-
has the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustees to resort to the asset for payment of duty, taxes, costs or other outgoings, to direct how that asset should be dealt with.
Now it is trite law that the persons who between them hold the entirety of the beneficial interests in any particular trust fund are as a body entitled to direct the trustees how that trust fund is to be dealt with, and this is obviously the legal territory from which that definition derives. However, in view of the argu ments advanced to me by counsel for the respondents, and more particularly that advanced by him on the basis of the decision ofVaisey Jin Re Brockbank [1948] Ch 206 [above], I think it may be desirable to state what I conceive to be certain elementary principles. (1) In a case where the persons who between them hold the entirety of the beneficial interest in any particular trust fund are all sui juris and acting together (‘the beneficial interest holders’), they are entitled to direct the trustees how the trust fund may be dealt with. (2) This does not mean, however, that they can at one and the same time override the pre-existing trusts and keep them in existence. Thus, in Re Brockbank itself the beneficial interest holders were entitled to override the pre-existing trusts by, for example, directing the trustees to trans fer the trust fund to X and Y, whether X and Y were the trustees of some other trust or not, but they were not entitled to direct the existing trustees to appoint their own nominee as a new trustee of the exist ing trust. By so doing they would be pursuing inconsistent rights. (3) Nor, I think, are the beneficial inter est holders entitled to direct the trustees as to the particular investment they should make of the trust fund. I think this follows for the same reason as the above. Moreover, it appears to me that once the beneficial interest holders have determined to end the trust they are not entitled, unless by agreement, to the further services of the trustees. Those trustees can of course be compelled to hand over the entire trust assets to any person or persons selected by the beneficiaries against a proper discharge, but they cannot be compelled, unless they are in fact willing to comply with the directions, to do any thing else with the trust fund which they are not infact willing to do. (4) Of course, the rights of the bene ficial interest holders are always subject to the right of the trustees to be fully protected against such matters as duty, taxes, costs or other outgoings; for example, the rent under a lease which the trustees have properly accepted as part of the trust property.
Chapman v Chapman
[1954] AC 429
LORD SIMONDS LC: My Lords, this appeal raises questions of considerable importance and for that rea son, though I have had the privilege of reading the opinion which my noble and learned friend, Lord Morton of Henryton, is about to deliver and agree with it in its reasoning and conclusions, I think it desir able to make some observations upon the main argument of the appellants. By way of preliminary explanation, it is only necessary to say that your Lordships are invited to hold that a judge of the Chancery Division of the High Court of Justice has an inherent jurisdiction in the execution of the trusts of a settlement to sanction on behalf of infant beneficiaries and unborn persons a rearrangement of the trusts of that settlement for no other purpose than to secure an adventitiousbenefit which may be and, in the present case, is, that estate duty, payable in a certain event as things now stand, will, in conse quence of the rearrangement, not be payable in respect of the trust funds.
My Lords, I am unable to accept as accurate this view of the origin, development and scope of the jurisdiction of the Court of Chancery. I do not propose to embark on the arduous task of tracing to its sources this peculiar jurisdiction. Many volumes have been devoted to it and I have refreshed my mem ory by reference to some of them. Nowhere can I find any statement which would support the broad proposition for which the appellants contend. Moreover, the law reports contain many cases in which the scope of the jurisdiction has been discussed, every one of them a work of supererogation if its scope was unlimited.
In my opinion, the true view that emerges from a consideration of this jurisdiction through the cen
turies is not that at some unknown date it appeared full-fledged and that from time to time timid judges have pulled out some of its feathers, but rather that it has been a creature of gradual growth, though with many setbacks, and that the range of its authority can only be determined by seeing what juris diction the great equity judges of the past assumed and how they justified that assumption. It is, in effect, in his way that the majority of the Court Appeal in the present case have approached the prob lem and, in my opinion, it is the right way.It may well be that the result is not logical,and it may be asked why, if the jurisdiction of the court extended to this thing, it did not extend to that also. But, my Lords, that question is as vain in the sphere of jurisdiction as it is in the sphere of substantive law. We are as lit tle justified in saying that a court has a certain jurisdiction, merely because we think it ought to have it, as we should be in declaring that the substantive law is something different from what it has always been declared to be merely,because we thinkit ought to be so.It is even possible that we are not wiser than our ancestors. It is for the legislature, which does not rest under that disability, to determine whether there should be a change in the law and what that change should be.
…There is no doubt the Chancellor (whether by virtue of the paternal power or in the execution of a trust, it matters not) had and exercised the jurisdiction to change the nature of an infant’s property from real to personal estate and vice versa, though this jurisdiction was generally so exercised as to preserve the rights of testamentary disposition and of succession. Equally, there is no doubt that from an early date the court assumed the power, sometimes for that purposes ignoring the direction of a settler, to provide maintenance, for an infant, and, rarely, for an adult, beneficiary. So, too, the court had power in the administration of trust property to direct that by way of salvage some transaction unauthorized by the trust instrument should be carried out. Nothing is more significant than the repeated assertions by the court that mere expediency was not enough to found the jurisdiction. Lastly, and I can find no other than these four categories, the court had power to sanction a compromise by an infant in a suit to which that infant was a party by next friend or guardian and litem. This jurisdiction, it may be noted, is exercisable alike in the Queen’s Bench Division and the Chancery Division and whether or not the court is in course of executing a trust.
This brings me to the question which alone presents any difficulty in this case. It is whether this
fourth category, which I may call the compromise category, should be extended to cover cases in which there is no real dispute as to rights and, therefore, no compromise, but it is sought by way of bar gain between the beneficiaries to rearrange the beneficial interests under the trust instrument and to bind infants and unborn persons to the bargain by order of the court.
My Lords, I find myself faced at once with a difficulty which I do not see my way to overcome. For though I am not as a rule impressed by an argument about the difficulty of drawing the line since I remember the answer of a great judge that, though he knew not when day ended and night began, he knew that midday was day and midnight was night, yet in the present case it appears to me that to accept this extension in any degree is to concede exactly what has been denied. It is the function of the court to execute a trust, to see that the trustees do their duty and to protect them if they do it, to direct them if they are in doubt and, if they do wrong, to penalize them. It is not the function of the court to alter a trust because alteration is thought to be advantageous to an infant beneficiary. It was, I thought, significant that counsel was driven to the admission that since the benefit of the infant was the test, the court had the power, though in its discretion it might not use it, to override the wishes of a living and expostulating settler, if it assumed to know better than he what was beneficial for the infant. This would appear to me a strange way for a court of conscience to execute a trust. If, then, the court had not, as I hold it has not, power to alter or rearrange the trusts of a trust instrument, except within the limits which I have defined, I am unable to see how that jurisdiction can be conferred by pleading that the alteration is but a little one.
Knocker v Youle
[1986] 1 WLR 934,
WARNER J: What is said by counsel on behalf of the plaintiffs, and is supported by counsel for Mrs YouIe’s children, is that I have power under s. 1(1) (b) of the Variation of Trusts Act 1958 to approve the arrangement on behalf of the cousins.
There are two difficulties. First, it is not strictly accurate to describe the cousins as persons ‘who may become entitled …to an interest under the trusts’. There is no doubt of course that they are members of a ‘specified class’. Each of them is, however, entitled now to ar, interest under the trusts, albeit a con tigent one (in the case of those who are under 21, a doubly contigent one) and albeit also that it is an interest that is defeasible on the exercise of the general testamentary powers of appointment vested in Mrs Youle and Mr Knocker. None the less, it is properly described in legal language as an interest, and it seems to me plain that in this Act the word ‘interest’ is used in its technical, legal sense. Otherwise, the words ‘whether vested or contingent’ in para. (a) of s. 1(1) would be out of place.
What counsel invited me to do was in effect to interpret the word ‘interest’ ins. 1(1) loosely, as a lay man might, so as not to include an interest that was remote. I was referred to two authorities: Re Moncrieff’s Settlement Trusts [1962] 3 All ER 838, [1962] 1 WLR 1344 and the earlier case of Re Suffert’s Settlement, Suffertv Martyn-Linnington [1960]3 All ER 561, [1961] Ch 1.Inboth those cases, however, the class in question was a class of prospective next of kin, and, of course it is trite law that the prospective or presumptive next of kin of a living person do not have an interest. They have only a spes successionis, a hope of succeeding, and quite certainly they are the typical category of persons who fall withins. 1(1)(b). Another familiar example of a person falling within that provision is a potential future spouse. It seems to me, however, that a person who has an actual interest directly conferred on him or her by a settlement, albeit a remote interest, cannot properly be described as one who ‘may become’ entitled to an interest.
The second difficulty (if one could think of a way of overcoming the first) is that there are, as I indi cated earlier, 17 cousins who, if the failure or determination of the earlier trusts declared by the settle ment had occurred at the date of the application to the court, would have been members of the specified class, in that they were then living and over 21. Therefore, they are prima facie excluded from
s. 1(1)(b) by what has been conveniently called the proviso to it, that is to say the part beginning ‘so however that this paragraph shall not include … ‘ They are in the same boat, if I may express it in that way, as the first cousins in Re Suffert’s Settlement and the adopted son in Re Moncrieff’s Settlement Trusts.The court cannot approve the arrangement on their behalf; only they themselves can do so.
Counsel for the plaintiffs suggested that I could distinguish Re Suffert’s Settlement and Re Moncreieff’s Settlement Trusts in that respect for two reasons.
First,he suggested that the proviso applied only if there was a single event on the happening of which one could ascertain the class. Here, he said, both Mr Knocker and Mrs Youle must die without exercising their general testamentary powers of appointment to the full before any of the cousins could take any thing. But it seems to me that what the proviso is referring to is the event on which the class becomes ascertainable, and that that is a single event. It is, in this case, the death of the survivor of Mrs Youle and Mr Knocker, neither of them having exercised the power to the full; in the words of cl 7 of the settlement, it is ‘the failure or determination of the trusts hereinbefore declared concerning the trust fund.’
The second reason suggested by counsel for the plaintiffs why I should distinguish the earlier author ities was that the event hypothesised in the proviso was the death of the survivor of Mr Knocker and Mrs Youle on the date when the originating summonses were issued, that is to say on 6 January 1984. There is evidence that on that day there were in existence wills of both of them exercising their testa mentary powers to the full. The difficulty about that is that the proviso does not say’…so however that this paragraph shall not include any person who would have become entitled if the said event had hap pened at the date of the application to the court’. It says:
… so however that this paragraph shall not include any person who would be of that descrip tion, 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.
So the proviso is designed to identify the presumptive members of the class at the date of the applica tion to the court and does not advert to the question whether at that date they would or would not have become entitled.
I was reminded by counsel of the principle that one must construe Acts of Parliament having regard
to their purpose, and it was suggested that the purpose here was to exclude the need to join as parties to applications under the Variation of Trusts Act 1958 people whose interests were remote. In my view, however, that principle does not enable me to take the sort of liberty with the language of this statute that I was invited to take. It is noteworthy that remoteness does not seem to be the test if one thinks in terms of presumptive statutory next of kin. The healthy issue of an elderly widow who is on her deathbed, and who has not made a will, have an expectation of succeeding to her estate; that could hardly be described as remote. Yet they are a category of persons on whose behalf the court could, subject of course to the proviso, approve an arrangement under this Act. On the other hand, people in the position of the cousins in this case have an interest that is extremely remote. None the less, it is an interest, and the distinction between an expectation and an interest is one which I do not think that I am entitled to blur. So, with regret, having regard to the particular circumstances of this case, I have to say that I do not think that I have jurisdiction to approve these arrangements on behalf of the cousins.
Re Robinson’s ST
[1976] 1 WLR 806,
TEMPLEMAN J: This is an application under the Variation of Trusts Act 1958 which involves the division of a trust fund between life tenant and remaindermen. One of the remaindermen is an infant of about 17. Under what might be termed the old-fashioned calculations for estate duty, such a division was com paratively simple. The rates of estate duty were such that the amount which a remainderman stood to inherit if nothing was done was usually very small. In most schemes it was possible to make a division whereby the remainderman took more in any event than he would otherwise take on the death of the
life tenant.
Into that simple form of division complications were introduced by the abolition of estate duty and its replacement by capital transfer tax. Evidence in these proceedings demonstrates that the old cal culations simply do not fit the new tax. For example, whereas in the old days a tax was payable on death and so all one had to do was to find out what would be left on death after deduction of estate duty, now capital transfer tax is payable on the coming into operation of the division effected by the arrangement.
For that and for other reasons it is very difficult to provide for every possible contingency. The impact of the tax has also this quirk, that the actuarial value of the interest of the life tenant is much reduced. In the present instance figures have been produced which show, for example, that if nothing is done and capital transfer tax is paid on the death of the life tenant, the share of the infant will be somewhere between £58,000 and £60,000 if no alterations in the law are made in the meantime. Under the pro posed arrangement, produced as a result of the independent advice of actuaries, the share which the remaindermen get is of a gross value of £58,000, and if capital transfer tax is payable-as to which there is a doubt in the present instance-the tax will reduce the share by something like £11,000 or
£14,000. This entails a serious possibility of a loss accruing to the remaindermen. I was much pressed by all counsel, including counsel for the third defendant, with the observations of Stamp J in Re Cohen’s Settlement Trusts [1965] 3 All ER 139 at 144, [1965] 1 WLR 1229 at 1236 and of Danckwerts J in Re Cohen’s Will Trusts [1959] 3 All ER 523, [1959] 1 WLR 865 to the effect that a reasonable view of a bar gain must be taken. It is not necessary to insist that in all possible circumstances the infant is bound to benefit. It is said that capital transfer tax may not be payable and, if it is, then even taking into account the possible shortfall of £14,000, there will be acceleration of the income of the share which the infant is to take, and her mother, the life tenant, is only about 55 years old, and so, in the normal course of events, acceleration will catch up with the shortfall.
Acceleration of income, at present rates of taxation on income, will take a good deal of catching up to compensate for a shortfall of £14,000. I cannot assume that the life tenant will live long enough to procure that the arrangement viewed as a whole will benefit the infant. I must be satisfied that the arrangement is beneficial.
I expressed doubts and sent the parties away to consider insurance. In the old days of estate duty insurance could be effected by the life tenant to make good any shortfall so far as the reversion was concerned. Capital transfer tax introduces a new complication in that an insurance policy effected and kept up by the life tenant may itself be liable to capital transfer tax with disastrous consequences.
Therefore, although it is slightly anomalous, if the infant is to be protected against the possibility of shortfall, that protection can only be, to some extent, at the expense of the infant in that a policy must be kept up out of income.
I am quite satisfied that it would not be sensible to leave matters entirely as they are. There are other people interested besides the infant, and to preserve the present trusts with present, and future, rates of income and capital taxation does not seem sensible. I am satisfied that the life tenant will only receive under the arrangement a reasonable and fair proportion having regard to the value of her life interest in her present situation.
In these circumstances I think I can accept the arrangement,provided that the infant’s income is to a certain extent made available for insurance in order to protect the infant’s own share against loss caused by the premature death of the life tenant. A quotation has been obtained, and it would appear that to insure a shortfall of £14,000 would cost about £800 a year. Having regard to the amount of the income that seems to me to be weighing too much on the future and not enough on the present. A pol icy for £8,000, which with profits will yield something over £11,000 in ten years and more thereafter, will only cost about £400 a year. That will still leave a substantial income for the infant to receive straight away.
It seems to me if insurance of £8,000 with profits is effected, I can, relying on the observations of Stamp [1965] 3 All ER 139 at 144, [1965] 1 WLR 1229 at 1236 and Danckwerts JJ [1959] 3 All ER 523, [1959] 1 WLR 865, approve this arrangement, although I still think it is a borderline case. Great powers of advocacy were used to persuade me that capital transfer tax has made such a change that the pos sible result of a death must be disregarded, the actuarial division accepted and a risk taken. I do not take that view. I start with the principle that all these schemes should,if possible, prove that an infant is not going to be materially worse off. There are difficulties with capital transfer tax, and borderline cases, and one may then have to take a broad view, but not a galloping, gambling view.
In my judgment, taking a reasonably prudent view, insurance of £8,000 in the present instance will be sufficient, and I am prepared to sanction the arrangement thus amended.
Re Cohen’s ST,Eliot-Cohen v Cohen
[1965] 1 WLR 1229, [1965] 3 All ER 139,
STAMP J: What is proposed is to substitute a fixed date in place of the death of the plaintiff as the date when the persons to take capital are to be ascertained. The fixed date is to be 30 June 1973, and this is a date which the plaintiff is most unlikely to survive. Subject to a qualification which I need not mention, the persons who will take the capital will be the grandchildren of the settlor living on the fixed date and the issue then living of the deceased grandchild, issue taking in the same way as under the settlement. Since the fixed date is likely to be a later date than the actual date of the death of the plaintiff, any infant issue of a grandchild will have a better chance of taking a share of the capital than he has today because his parent is more likely to have died: and when there is the added chance of avoiding a possible and heavy claim for duty, there is no doubt that the proposed variation is for the benefit of each of the infants.
If in fact the plaintiff survives 30 June 1973, some infant may in the event be worse off than he would have been under the settlement as it stands; for an infant child of a grandchild of the settlor who dies on 1 July 1973 would, as matters now stand, take a share in that event, whereas under the variation he would take nothing. Nevertheless, on balance the proposal is largely for his benefit and a good bargain and his chance of taking free from a heavy claim for duty is improved.
I am invited to say that the proposed variation has similar advantages to any person unborn. I do not think that this is so. If I have to consider whether the variation is for the benefit of a person now unborn who comes into existence after 30 June 1973, then I can only answer that question in the negative. The plaintiff may outlive that date and if hedoes, a person born on or after 1July 1973, while the plaintiff was still living, would, as the settlement now stands, thereupon become beneficially interested under the trusts of the settlement; but by the effect of the proposed variation such a person would take nothing.
Clearly, there may be a person now unborn who will come into existence after 30 June 1973, and if I must consider the variation from the point of view of such a person, I cannot approve it on his behalf for the variation deprives him of any chance of taking and in this respect the position is different from that of one on the infants.
Nevertheless what is said is that I do not have to consider the matter from the point of view of an unborn person having the characteristic that he will be born after 30 June 1973, but must regard the unborn persons on whose behalf I am asked to sanction the variation as having no characteristics at all. All unborn persons it is urged would have a greater chance of taking under the varied settlement than under the original settlement because the period during which they must come into existence in order to become potential beneficiaries is under the variation likely to be a longer period. Moreover each unborn person, so the argument runs, would by the effect of the variation obtain a better chance of being born and so taking an interest than he has at present, and this outweighs the disadvantage that he would suffer by the effect of the variation if he came into existence after 30 June 1973, while the plaintiff was still living.It was put by counsel for the trustees that one of the conditions or contingencies which each person unborn must at present satisfy in order to take is that he should be born during the life of the plaintiff and that for this condition or contingency there is to be substituted a condition or contingency likely to be more easy to satisfy, namely, that of being born during a period which is likely to be a longer period.
Now it is of course perfectly true that as a result of this variation there would be a greater chance of there being some person or persons now unborn becoming beneficially interested in the trust fund, but to say that some particular unborn person will, immediately on the variation taking effect, have a bet ter chance of being born within the qualifying period or a better chance of satisfying the necessary con ditions seems to me to involve an excursion into metaphysics, on which I am unwilling to embark. Such a proposition seems to me to involve the logical conclusion that the court must regard one whose body may come into the existence in the future as having nevertheless such a present imaginary existence as to enable the court to ascribe to him a present chance of coming into existence at some specific time or during some specified period. My mind recoils at the idea of the unborn having prior to his birth such an identity as to enable the court to ascribe to him any such chance, or to enable one to say that he can more or less easily satisfy a condition of coming into existence during some particular period.
No doubt the very expression ‘unborn persons’ which appears in the Act of 1958 itself gives colour to the arguments which have been put; but no authority has been cited to show that a still unembodied spirit can be regarded as a person under our law; and I cannot think that the legisla ture used that expression otherwise than in the sense of future persons and to connote those future persons who will, if there is no variation, become interested under the trusts of the instrument which it is sought to vary, and without whose consent the proposed variation may not insome event be binding on him. It cannot be that the court is to approve on behalf of all persons who will come into this world but, in my judgment, only those who do in the event by reason of their birth to such and such a person on such and such a day acquire that legal identity which qualifies them as beneficiaries and the approval which is to be given is in my judgment so to speak an approval nunc pro tune.
Re Holt’s ST
[1969] 1 Ch 100
MEGARRY J: I can deal with the merits of this application quite shortly. It seems to me that, subject to one reservation the arrangement proposed is for the benefit of each of the beneficiaries contemplated by the Variation of Trusts Act 1958, s. 1(1). The financial detriment to the children is that the absolute vesting of their interests will be postponed from age twenty-one to age thirty. As against that, they will obtain very substantial financial benefits, both in the acceleration of their interests in a moiety of the trust fund and in the savings of estate duty to be expected in a case such as this. Where the advantages of the scheme are overwhelming, any detailed evaluation, or ‘balance sheet’ of advantages and disad vantages, seems to me to be unnecessary; but I can imagine cases under the Act where it may be important that an attempt should be made to put in evidence a detailed evaluation of the financial and other consequences of the changes proposed to be made, so that it may be seen whether on balance there is a sufficient advantage to satisfy the proviso to s. 1(1) of the Act of 1958. But this is not such a case, and I say no more about it. I should, however, state that I fully concur in the view taken by Mrs Wilson that, speaking in general terms, it is most important that young children ‘should be reasonably advanced in a career and settled in life before they are in receipt of an income sufficient to make them independent of the need to work’. The word ‘benefit’ in the proviso to s.1(1) of the Act of 1958 is, I think, plainly not confined to financial benefit, but may extend to moral or social benefit, as is shown by Re Towler’s Settlement Trusts [1964) Ch 158.
The point that at one stage troubled me concerns the unborn issue. Counsel for the trustees, as in duty bound, put before me a contention that it was possible to conceive of an unborn infant who would be so circumstanced that the proposed rearrangement would be entirely to his disadvantage.He pos tulated the case of a child born to Mrs Wilson next year, and of Mrs Wilson dying inchildbirth, or shortly after the child’s birth. In such a case, he said the benefit of the acceleration of interest resulting from Mrs Wilson surrendering the moiety of her life interest would be minimal, and there would be no saving of estate duty. All that would happen in regard to such an infant would be that the vesting of his inter est would be postponed from age twenty-one to age thirty, and the only possible advantage in that would be the non-financial moral or social advantage to which I have just referred. In support of this contention he referred me to the decision of Stamp J in Re Cohen’s Settlement Trusts. There, the scheme originally proposed was not approved by the court because there was a possibility of there being a beneficiary who would get no advantage whatsoever from the proposed arrangement; it would merely be to his detriment.
Counsel for the plaintiff, however, points out that there is an essential distinction between that case and this; for there, whatever the surrounding circumstances, the unborn person contemplated could not benefit from the arrangement. In the present case, he says, all that counsel for the trustees has done is to put forward the case of an infant who might be born next year; and it would be a result of the surrounding circumstances, and not of the time of birth or the characteristics of the infant, that that infant might derive no benefit from the arrangement proposed. Counsel for the plaintiff referred me to Re Cohen’s Will Trusts [1959] 3 All ER 523, where Danckwerts J held that in exercising the jurisdiction under the Act of 1958 the court must, on behalf of those persons for whom it was approving the arrangement, take the sort of risk which an adult would be prepared to take. Accordingly, says counsel for the plaintiff, counsel for the trustee’s special infant to be born next year was in the position that although there was the chance that its mother would die immediately afterwards, there was also the alternative chance that its mother would survive his birth for a substantial period of time. In the latter event, which was the more probable, the advantages of the arrangement would accrue to the infant. In short, he distinguished the decision of Stamp J in Re Cohen’s Settlement Trusts on the footing that that was the case of an unborn person whose prospects were hopeless, whatever the events, whereas in the present case the hypothetical unborn person has the normal prospects of events occurring which will either improve or not improve his position. Such an unborn person falls, he says, into the category of unborn persons on whose behalf the court should be prepared to take a risk if the arrangement appears on the whole to be for their benefit.
It seems to me that this is a proper distinction to make, and I accept it. Accordingly, I hold that the arrangement is for the benefit of the classes of persons specified in s. 1(1) of the Act of 1958, and I approve it.
Re Ball’s ST
[1968] 1 WLR 899
MEGARRY J: The second point in this case concerns the jurisdiction of the court. The originating sum mons asks for the approval of the court of an arrangement ‘revoking the trusts of the above-mentioned settlement and resettling the subject matter of the above-mentioned settlement’. Whats. 1(1) of the Act of 1958 authorises the court to approve is
any arrangement … 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.
The word ‘resettling’ or its equivalent nowhere appears. Accordingly, while there is plainly jurisdiction to approve the arrangement insofar as it revokes the trusts, in my view there is equally plainly no juris diction to approve the arrangement as regards ‘resettling’ the property, at any rate eo nomine. In this connexion, I bear in mind the words of Wilberforce J in Re Towler’s Settlement Trusts. He there said [ [1964] Ch 158 at p. 162):
..Ihave no desire to cut down the very useful jurisdiction which this Act has conferred on the co1;rt, but I am satisfied that the proposal as originally made to me falls outside it. Though pre sented as ‘a variation’ it is in truth a complete new re-settlement. The former trust funds were to be got in from the former trustee and held on totally new trusts such as might be made by an absolute owner of the funds. I do not think that the court can approve this.
It seems to me that the originating summons correctly describes what is sought to be done in this case, and as so described there is clearly no jurisdiction for the court to approve the arrangement. But it does not follow that merely because an arrangement can correctly be described as effecting a revocation and resettlement, it cannot also be correctly described as effecting a variation of the trusts. The ques tion then is whether the arrangement in this case can be so described. In the course of argument I indi cated that it seemed desirable for the summons to be amended by substituting the word ‘varying’ for the word ‘revoking’ and deleting the reference to ‘resettling’, and that I would give leave for this amend ment to be made. On the summons as so amended the question is thus whether the arrangement can fairly be said to be covered by the word ‘varying’ so that the court has power to approve it.
There was some discussion of the ambit of this word inRe Holt’s Settlement [1968] 1 All ER 470.It was there held that if in substance the new trusts were recognisable as the former trusts, though with vari ations, the change was comprehended within the word ‘varying’, even if it had been achieved by a process of revocation and new declaration. In that case, the new trusts were plainly recognisable as the old trusts with variations.In the present case, the new trusts are very different from the old All that
remains of the old trusts are what I may call the general drift or purport, namely that a moiety of the trust fund is to be held on certain trusts for each son and certain of hisissue.Is the word ‘varying’ wide enough to embrace so categorical a change?
If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust. But if an arrangement, while leaving the substratum, effectuates the purpose of the original trust by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.
I am, of course, well aware that this view carries me a good deal farther than I went in Re Holt. I have felt some hesitation in the matter, but on the whole I consider that this is a proper step to take. The juris diction of the Act of 1958 is beneficial and, in my judgment, the court should construe it widely and not be astute to confine its beneficent operation. I must remember that in essence the court is merely con tributing on behalf of infants and unborn and unascertained persons the binding assents to the arrangement which they, unlike an adult beneficiary, cannot give. So far as is proper, the power of the court to give that assent should be assimilated to the wide powers which the ascertained adults have. In this case, it seems to me that the substratum of the original trusts remains In the events which
are likely to occur, the differences between the old provisions and the new may, I think, fairly be said to lie in detail rather than in substance. Accordingly, in my judgment, the arrangement here proposed, with the various revisions to it made in the course of argument, can properly be described as varying the trusts of the settlement. Subject to the summons being duly amended, I therefore approve the revised arrangement. I may add that since the hearing of this case I have considered the speeches of their lordships in Re Holmden’s Settlement Trusts, /RC v Ho/mden [1968] 1 All ER 148, but although these suggest certain questions of interest and difficulty, I find in them nothing to make me resile from the views that I have expressed.