Can Trustees disclaim legacy ?


(rogerhancock) #1

T has left the Nil Rate Band into a pilot discretionary settlement. Everyone wishes to wind up and ideally advantage would be taken of s142 to read back to will - for this Trustees would need to be able to vary or disclaim. Of course the settlement has no express power to do either. Can the trustees do either under the general law ? - seems to me this would be at variance with their duty to act in best interests of the trust. The discretionary nature of the settlement and unborn beneficiaries etc would render an indemnity from the beneficiaries impossible and an application to the court expensive with uncertain outcome. The settlement provides that the trustees “may” accept further receipts to the settlement - can this imply that they have a power to disclaim any gift which is made to the settlement ?

Roger Hancock


(Paul) #2

Normally in the situation you describe the trustees would exercise their trust powers to transfer or appoint the trust fund to the intended recipient, in which case, ‘reading back’ is achieved under s 144 (rather than 142).

Paul Davies
DWF LLP


(Simon James Northcott) #3

Appoint out of the pilot trust to whoever is to get it and this will be read back for IHT under S.144 if done within 2 years of death. There is no read back for CGT but if done before residue is ascertained for CGT, then
no CGT will apply.

Simon Northcott


(Paul Saunders) #4

In the absence of an express power, trustees cannot vary the terms of a trust.

Any beneficiary, even a trustee, can disclaim a testamentary gift. However, the consequences for a trustee so doing could be dire.

When considering a decision to disclaim, the trustee would need to adopt the same thought processes as if they were exercising a discretion (if any) given to them under the trust instrument. This would include being satisfied any benefit accrues to the objects of the discretion and not to “strangers”.

If the trustees sought to appoint to those beneficiaries who are also objects of the discretion, with a view to them compensating the other beneficiaries by increasing their benefit under the will by way of a deed of variation, this could run into difficulties in the light of s.142(3) IHTA 1984 as such arrangement, however organised, could well be deemed to include “consideration” for the making of the variation.

As regards the final point, if trustees are to have power to disclaim without attracting personal liability, the power needs to be specific and a power to accept further receipts into a settlement cannot be equated with a power to disclaim.

Paul Saunders


(Michael Dew) #5

As trustees are the legal owners of the trust assets but not the
beneficial owners in equity, I can’t see how they could disclaim the
benefit of a legacy. The most they can do, in my opinion, is to disclaim
the office of trustee in relation to the legacy: probably in this case
leaving the executors holding the nil rate band on identical trusts
until new trustees are appointed.

Michael Dew


(malcfinney1) #6

I had hoped someone might respond to Michael Dew’s point.

Is it not the case that trustees can disclaim, the effect of which is that any beneficial interest simply remains with the settlor/deceased’s PRs as the trust does not itself fail [Mallett v Wilson [1903] 2 Ch 494]?

Malcolm Finney


(Paul Saunders) #7

I have seen a number of instances where a trustee has disclaimed a testamentary legacy, and the estate has been administered on the basis the legacy, and thus the trust, fails. Due to the unusual nature of such action, legal advice would have been obtained to ensure the disclaimer achieved the intended effect.

Although Mallott v. Wilson [1903} is generally referred to in the same breath as “a trust will not fail for the want of a trustee”, which points to the disclaimer of the trusteeship and not an attempt to extinguish the trust before it was constituted, Hayton & Mitchell (14th Edition) @ 8-007 supports Michael Dew’s view that the property or the beneficial interest therein remains in the personal representatives of the testator to be held upon the trusts of the will. Hayton & Mitchell further references that Mallott v. Wilson was held to be good law by the Court of Appeal in Harris v. Sharp [2003}.

I shall know better in the future, should this question ever arise again.

Paul Saunders