Analysis
By a deed dated 24 July 1986, the ninth defendant (D9) made an accumulation and maintenance trust for IHT purposes (the settlement) for the benefit of his children (a class which has now closed): the claimant (C), the sixth defendant (D6) and the eighth defendant (D8).
The settlement provide d an initial trust for C, D6 and D8 at 25 in equal shares with a provision that each child’s share should be retained and held on engrafted trusts which have since been superseded. There was also a wide power of appointment in favour of the children, their spouses and issue, subject to restrictions to preserve the IHT status of the trusts with an ultimate trust in favour of D9’s two nephews. The settlement incorporated an 80-year perpetuity period and defined the ‘Vesting Day’ as the day upon which that period should expire, although there was a power for the trustees to accelerate that day.
By a deed of appointment dated 2 December 2014 the trustees exercised powers of revocation and re-appointment to resettle the entire fund on discretionary trusts for the benefit of any existing children and future children of C, D6 and D8 with a stirpital default trust in favour of their living issue on the Vesting Day and an ultimate trust in favour of C, D6 and D8 or their estates.
At the time of the hearing, C and her husband (A) had five children, the first to fifth defendants (all of whom were under the age of 16), and D6 and his wife had a baby daughter (D7). A acted as litigation friend for the interested minors. The trustees of the settlement were D9, D10, D6 and D8. C would become a trustee in the event of any vacancy. The settlement was of substantial value, consisting of holdings in two companies.
Since 6 April 2006, the settlement constituted relevant property and attracted the decennial IHT charge due to arise on 24 July 2016. The court was asked to make an order pursuant to s1 of the Variation of Trusts Act 1958 (the Act) to approve an arrangement for variation of the trusts of the settlement to (a) incorporate a power to accumulate income to meet the future periodic inheritance tax charges and (b) extend the trust period. D6 and D8 assented to the arrangement.
On 9 March 2015, Mr Jeremy Cousins QC, sitting as deputy judge of the Chancery Division, made an order approving the arrangement, being satisfied that it was for the benefit of the interested minors and all unborn persons who might become interested. All counsel in the matter invited the court to provide its reasons as to why it was satisfied that the arrangement did not give rise to a resettlement of the fund.
The issue considered by the court in this judgment therefore is whether the proposed arrangement gave rise to a resettlement of the fund or any part or share thereof.
Counsel for C submitted that there is no jurisdiction under the Act to approve an arrangement which effects in substance a resettlement of trust property. However, if the proposed variation were permitted, the trust assets and existing trustees would remain the same, the existing administrative powers would remain in force and whilst the beneficial class would become potentially capable of enlargement, there would be no actual enlargement for half a century. Therefore the settlement would remain recognisably the same.
Counsel for the interested minors supported C’s submissions and submitted that since the beneficial interests under the original trusts of the settlement are not exhausted by the proposed arrangement and the default trust remains, the arrangement is not a resettlement.
Held:
- 1) There is no single litmus test or bright line test to determine the issue (referred to Swires v Renton [1991] STC 490 and Wyndham v Egremont [2009] WTLR 1473).
- 2) However, it is easy in this case to ascertain what were the intentions of the parties (applying the approach of Lord Wilberforce in Roome v Edwards [1982] AC 279 and Hoffman J in Swires [1991] STC 490).
- 3) The terms of the settlement were to remain in force under the proposed arrangement, save that the trust period would be extended, and the purpose was to further the interests of the settlement by supplementing its provisions, thereby protecting it from the need to sell assets to meet future charges. The beneficial interests were not exhausted and the administrative powers and trustees remained unchanged. The parties intended the trusts to continue, but with modifications.
4) The arrangement fell clearly on the side of a variation, not a resettlement.
JUDGMENT MR JEREMY COUSINS QC: [1] On 9 March 2015, I made an order pursuant to the provisions of s1 of the Variation of Trusts Act 1958 (the 1958 Act) whereby the court approved an arrangement for the variation of the trusts of a settlement known as ‘Sir Adrian Swire’s Grandchildren’s Trust’ (the settlement) which …Continue reading "Allfrey v Allfrey & Ors [2015] EWHC 1717 (Ch)"