Trusts 15: Variation of trusts – Flashcards

must be carefully designed so as to benefit all the Bs under the T, and it is this concern, that a variation does not disadvantage any of the Bs, which has generated the current legal regime.

essentially to require each sui juris beneficiary, (i.e. of full age and sound mind), to consent to a proposed variation, while the court will consent on behalf of those not sui juris. It will not, however, do so unless it is convinced that a genuine benefit has been conferred on such incapable beneficiaries by the proposed variation.

typically that a B or a group of Bs who is or are sui juris, and who is/are absolutely entitled under the T, may 'call' for the T Rs representing their interests to be conveyed to them. By the same token, sui juris Bs can instead consent to a variation of T - a change in the terms upon which the T Rs are held.

1. re Brockbank [1948] Bs, though sui juris, are not entitled to direct the Tee in the exercise of his discretions under the T. They can collapse the T or insist upon a variation, but they are not entitled to 'micromanage' the T by themselves, taking the decisions that a Tee is authorised to take to give effect to the T. That would completely defeat the point of there being a T. 2. . Only sui juris Bs can consent to a variation. Under-age Bs, or those who are otherwise unable to act for themselves, for example, the mentally disabled, cannot consent.

Court of EQ has an inherent supervisory jurisdiction over T.

House firmly opposed the existence of any such jurisdiction. The inherent jurisdiction of the Court was limited to: 1. granting additional administrative powers to the Tee in 'emergency' situations, e.g. situations where the limitations upon, for example, investment in the T instrument jeopardised the functioning of the T, and 2. sanctioning maintenance payments to a B otherwise not provided for. Variation of Trusts Act 1958: provides the powers courts lacked

Denning LJ's sense that the court's inherent jurisdiction is actively facilitative (a kind of approach you may recognise having studied other of his lordship's decisions in other subjects on the course). Denning looks historically important thing to notice in all these cases is that court did not only emergency or necessity, but only for benefit of infant, and it sanctioned transaction, even though not in T instrument. jurisdiction is not confined to cases where a dispute about extent of beneficial interests, nor to cases of emergency or necessity, but extends wherever a bargain about beneficial interests which is for benefit of infants or unborn persons. Saving taxes (death duties). In Chapman mistake would mean losing 30000 in taxes. Jurisdiction of court should include correcting mistakes of solicitor. court, whose function it is to protect interests of grandchildren, shows itself to be their own worst enemy. grandparents are ready and anxious to correct mistake. So is everyone else. If grandchildren and unborn persons were at liberty to consent, any prudent adviser would tell them that they ought to consent because scheme is so greatly advantageous to them. Lord Simonds LC is clearly more concerned that the court does not take it upon itself to re-write settlements just because it might be beneficial so to do. He is also much more concerned that the law develop piecemeal over time, rather than founding the scope of the court's inherent jurisdiction on a broad, abstract principle of 'doing good' for the Bs. to accept any suggestion that court has an inherent jurisdiction to alter a man's will because it thinks it beneficial. It seems to me that is quite impossible." . . It should then be asked what are exceptions to this rule. They seem to me to be reasonably clearly defined. change nature of an infant's property from real to personal estate and vice versa, though this jurisdiction was generally so exercised as to preserve Rs of testamentary disposition and of succession. Equally, no doubt that from an early date court assumed power, sometimes for that purpose ignoring direction of a settlor, to provide maintenance for an infant, and, rarely, for an adult, B. So, too, court had power in administration of T property to direct that by way of salvage some transaction unauthorized by T instrument should be carried out. Nothing is more significant than repeated assertions by court that mere expediency was not enough to found jurisdiction. extended to cover cases in which no real dispute as to Rs and, therefore, no comP, but it is sought by way of bargain between Bs to rearrange beneficial interests under T instrument and to bind infants and unborn persons to bargain by order of court. function of court to execute a T, to see that Tees 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 function of court to alter a T because alteration is thought to be advantageous to an infant B. It was, I thought, significant that counsel was driven to admission that since benefit of infant was test, court had power, though in its discretion it might not use it, to override wishes of a living and expostulating settlor, if it assumed to know better than he what was beneficial for infant.

extends the court's power to confer upon Tees additional administrative powers to cases where 'in the opinion of the court' it is 'expedient' to do so. Thus, by virtue of the statute, the situation need not be one of 'emergency', to which cases the House in Chapman v Chapman said the inherent jurisdiction was confined.

Tees of the British Museum successfully persuaded the court to extend their powers of investment so that they would continue to be able to amass the funds necessary to enhance the museum's collection by purchases from time to time. used s57

The court's inherent jurisdiction with regard to the variation of administrative powers is restricted to 'emergency' situations, and the Tees of the British Museum could not argue that an extension of their investment powers was necessary to prevent an emergency. But as it was sensible and 'expedient', the court could allow the variation under s 57.

As a corollary of the principle in Saunders v Vautier, sui juris Bs can consent to any variation of T, but those under-age or otherwise incompetent cannot. The court's inherent jurisdiction is limited to the grant of further administrative powers in cases of 'emergency' powers, though s.57 of the Tee Act 1925 enlarges the power to any case where the enlargement of powers is expedient, and, with respect to dispositive provisions of a T, to allowing maintenance payments. The court can consent to a comP of rights, but this is not properly seen as a power to vary dispositive T provisions. Chapman establishes that the court has no inherent jurisdiction to consent to the variation of T on behalf of those not sui juris, however much in those Bs' interests such a variation might be.

reverses the decision in Chapman, empowering the court to consent to a variation on behalf of Bs who are not sui juris. appears merely to authorise the court to approve a variation of the T on behalf of certain Bs; the remaining Bs (essentially all those who are sui juris and ascertainable) must give their own consent if they are to be bound by the variation (IRC v Holmden [1968] AC 685; re Holt's Settlement T [1969] IMPORTANT:was assumed that the court in effect made an order of variation, but would do so only when all the sui juris Bs consented and the court was able to consent on behalf of the others.

Under the Variation of T Act the court does not itself amend or vary the T of the original settlement. The Bs are not bound by variations because the court has made the variation. Each B is bound because he has consented to the variation. If he was not of full age when the arrangement was made he is bound because the court was authorised by the Act to approve of it on his behalf and did so by making an order. If he was of full age and did not in fact consent he is not affected by the order of the court and he is not bound. So the arrangement must be regarded as an arrangement made by the Bs themselves. The court merely acted on behalf of or as representing those Bs who were not in a position to give their own consent and approval.

In earlier cases, it was assumed that the court in effect made an order of variation, but would do so only when all the sui juris Bs consented and the court was able to consent on behalf of the others. The difference is substantial, for arguably, if the sui juris Bs' consent to the variation agreement effects the variation of the T, rather than the court's order, they 'dispose' of their equitable interests under the T, and must do so in writing or, by s.53(1)(c) , such variation is void If this were indeed the law, variations would be more inconvenient and many past variations would be void BUT cf Holt

53 Instruments required to be in writing. (1)Subject to the provision hereinafter contained with respect to the creation of interests in land by parol— (a)no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; (b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will; (c)a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will. (2)This section does not affect the creation or operation of resulting, implied or constructive trusts.

although, from one perspective, the sui juris Bs 'dispose' of their equitable interests under the T when they consent to the variation and so fall within s.53(1)(c), the court's declared consent on behalf of the other Bs is sufficient to make the variation effective, even in the absence of writing. The court may give its approval on behalf of the classes of Bs set out in s.1 of the Act. s 1(1)(a) comprises minors and others lacking capacity to consent.

(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 (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. 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.

court may approve on behalf of those who may in the future become entitled under a T, except for ascertainable, i.e. identifiable, persons who would become entitled on the happening of a single event - such persons, if sui juris, must give their own consent. So for example, if Paul, aged 25 and mentally competent, will become entitled to an interest under the T if his widowed mother re-marries, then he must consent to any proposed variation; the court cannot consent for him. s 1(1)(c) comprises the unborn, while s.1(1)(d) comprises those persons who would be Bs under the discretionary T following the extinction of the principal T under a protective T NOTE: court must be satisfied that any variation benefits each member of classes (a), (b), or (c) before giving its approval on their behalf.

financial advantage is not sufficient to justify variation Provided a scheme is legal, the court found that there was nothing improper or contrary to public policy in approving the variation of trusts for the purpose of avoiding or reducing tax liability. Lord Denning noted that there are a number of cases where the court approved variations that were proposed for that purpose (for a recent example, see Re N's 1989 settlement [1999]). However, the court held that it should not just consider the financial benefit to the infants or unborn children, but also the educational or social benefit. In other words, would it be for the benefit of beneficiaries to emigrate just to save money? As Lord Denning put it: 'The avoidance of tax may be lawful but it is not yet a virtue.' The court considered whether the ties of patriotism were greater or less than the fiscal advantages of the proposed variation. Lord Denning's comments showed his views clearly: • 'there are many things more worthwhile than money' • 'one of these things is to be brought up in this our England, which is still the envy of less happier lands'; and • 'children are like trees: they grow stronger with firm roots'. He found it was not for the benefit of the children to be uprooted from England simply to avoid tax. Moving the trusts to Jersey would only give the beneficiaries an even greater fortune than they would have had if the trusts were still in England and subject to taxation. Here, educational and social considerations outweighed tax-saving benefits. court will be concerned with securing a financial benefit for the beneficiaries, this will not be the only type of benefit it will consider. Non-financial benefits are also relevant.

financial advantage is not necessary to accept a variation The court affirmed Lord Denning in Re Weston in holding that 'benefit' encompasses more than financial benefit. In this case: An important question is the extent to which, if at all, the court should have regard to the settlor's intention. Clearly, the court may override the settlor's plan where it is satisfied that the variation is of benefit to the Bs

here the outcome of the arrangement cannot be predicted with certainty then the Court should be prepared to take on behalf of a minor, a risk which an adult would be prepared to take

settlor's intentions are relevant only in so far as they assist the court in determining what is of benefit to the Bs on behalf of whom the court consents - the court is not bound by the settlor's intention, and the sui juris Bs are not bound by them either. This principle of English T law stands in contrast to the 'material purpose' doctrine prevalent in many US jurisdictions and which has been imported by statute elsewhere; under this doctrine, no variation of a T, even if all the Bs are sui juris, may occur if a 'material purpose' of the settlor in creating the T may yet be fulfilled. This doctrine detracts from the principle of Saunders v Vautier no for UK

The Act requires any ascertainable contingent B who is sui juris to consent to a variation even if the likelihood of his becoming entitled to a benefit under the T is slight; as a result, many individuals who have no real interest under the T must be found and properly advised in order for a variation to proceed, which can cause substantial cost and inconvenience. The situation is no different than it would be under the general law principle in Saunders v Vautier, but the possibility of such cases suggests that the Variation of T Act 1958 should have allowed courts to consent on behalf of such Bs.

duty imposed by section 1 of the Act of 1958 was not confined to inquiring into the effect of a proposed scheme on those on whose behalf approval was sought, but required also consideration on behalf of any person or persons who might have an interest under the discretionary trusts, and whose presence prevented the sole beneficiary from putting an end to the settlement. The proposal had to be looked at as a whole to see whether it was proper to be sanctioned by the court, and the court had to have regard not only to the material benefit of the person who was unable to give his consent because he was not in a position to do so, but to the purpose of the trust. The views of the trustees were relevant though not conclusive That the court should not interfere with the exercise of the trustees' discretionary powers in fulfilment of the duty imposed by the will.