Variation of Trusts

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Introduction

There may be times that the terms of the trust may need to or it will be useful to vary the terms. A trust may be varied by:

  • Trust instrument
  • Consent of beneficiaries
  • Court
  • Statute

It may be done for the following reasons:

  • Emergencies and Salvage
  • Compromise

The first question in determining whether a trust may be varied, either by the trustees or at the request of the beneficiaries, is to see whether such a power is conferred by the trust instrument

If there is no provision in the trust instrument, and the beneficiaries are not sui juris, the court has an inherent jurisdiction in cases of salvage and emergency and in cases of compromise, in addition to its powers under a number of statutes, including:

  • Trustee Act 1925,
  • Settled Land Act 1925,
  • Matrimonial Causes Act 1973 and
  • Mental Capacity Act 2005.
  • The court also has power under the Variation of Trusts Act 1958.

Emergencies and salvage

The court has an inherent power to authorize a departure from the terms of a trust where an unforeseen emergency arises (i.e. something unexpected happened) or for the purposes of salvage (the trust property is going to be destroyed in some way)

In Re Jackson (1882), trust property was literally in need of being salvaged (i.e. it was going to fall down). The court exercised its inherent jurisdiction to vary the terms of the trust i.e. allow the property to be mortgaged to get money to repair it

In Re New [1901], the court allowed the trustees to use money to save the company and even buy more shares in the company. So the company wasn't per se falling apart, but restructuring it was highly beneficial in salvaging it

However, in Re Tollemache [1903], Re New was described as the ‘high watermark’ of the exercise of the inherent jurisdiction, and, in that case, the Court of Appeal refused to approve an amendment to the trustees’ powers of investment

Compromise

Where there is doubt or dispute about the rights of the beneficiaries the court has an inherent jurisdiction to approve a compromise on behalf of an infant beneficiary, between the beneficiaries

  • So this is saying that settlements are not always clearly drafted → so where there is dispute about the rights of the beneficiaries the court has an inherent jurisdiction to approve a compromise on behalf of an infant beneficiary (or unborn beneficiary)
  • But there must actually be doubt or dispute as to what the rights of the beneficiaries are

In a number of cases, this doctrine was used to approve a change in the terms of the trust where such a variation was not disputed by the beneficiaries and was not, therefore, a compromise.

Chapman v Chapman [1954]: property was held in trust for them settlors’ grandchildren under 3 trusts. The trusts were liable for estate duty so the trustees wanted to take this term out as it would clearly benefit the beneficaries. The House of Lords held they had no jurisdiction to vary trusts where there is no doubt or dispute

  • This case led to the introduction of the Variation of Trusts Act 1958 (below)

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CONTENT

Statutory Powers

Variation of Powers of Investment

s.57 Trustee Act 1925

Basically, this gives the power of variation for administration and management costs

So this subsection overlaps the ‘emergency’ jurisdiction (above), and widens it

It is only available in questions arising in the management or administration of property; so it is not available for remoulding beneficial interests or for tax saving generally

In Re Thomas; Thomas v Thompson [1930]: trustees wanted to sell land but were unable to get the joint consent of the beneficiaries to do this. The court said the trust could be varied to allow for the partition of the property between the life tenants and those who want to sell can sell

Re Shipwrecked Fishermen and Mariners Benevolent Fund [1959]: this was a charity whose investment powers were restricted to mortgages of property and government securities. This meant that the capital of the charity was being steadily eroded. The court held that it could allow a wider power of investment by s.57 TA 1925

General Power to Vary Trusts

Variation of Trusts Act 1958

The court has jurisdiction, under section 1, to sanction “any arrangement (by whomsoever proposed) 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”.

This power must be exercised on behalf of specified classes of person, which are those without capacity by virtue of age or mental incapacity, those whose interest is not yet vested, and those unborn who may become beneficiaries.

  • This is also one instant where the trust instrument CANNOT trump the statute

Re Tinker’s settlement [1960]: A trust provided that if a brother died his share would go to his sister, but if the sister died her share would go to her children. The trustees regarded this as an obvious mistake and sought an alteration to the trust deed. The court did not allow the variation. Russell J said that this “is one of the weakest claims for rectification” he has ever seen

In re Seale's Marriage Settlement [1961] and Re Weston’s Settlement [1969]

  • In both cases, the trustees sought a variation of trust to allow property to be transferspaned to another jurisdiction. In Seale, the family had emigrated to Canada. In Weston, the family were moving to Jersey for tax reasons. In Seale the variation was approved. In Weston, the Court of Appeal distinguished Seale, holding that going into tax exile was not for the benefit of the children
  • However, as a general rule, avoiding tax is to the benefit of the beneficiaries and courts will approve variations for that reason → see Wyndham v Egremont

New Settlement

Where aspanvariation of a trust amounts to a new settlement (i.e. a new trust), the new trust is subject to the rule against remoteness of vesting (the rule against perpetuities).

While the perpetuity period for trusts created after April 2010 is 125 years, the period for trusts and wills executed before that date is a life in being plus 21 years. A variation of a trust created before that date which meant that the property would not vest absolutely within the original perpetuity period would be void.

  • See Pilkington v IRC [1964]: So this case says, as with advancements (above), if variations will save the trust from failing for perpetuities the court will allow it

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