As ever, it is hard to answer a query about a trust document without sight of it in its in entirety, not to mention, if the Settlor is later unhappy with it, as Paul indicates, the background circumstances to its creation and advice given to her may matter, even amount to equitable mistake.
I presume that there is no âsettlor exclusion clauseâ in the DT.
This is not the place to embark upon the general classification of powers and their extent and limitations (see Thomas on Powers) but the nature of any given power must be analysed as matter of construction.
A settlor has no power over the trustees or trust property unless the trust instrument reserves it to her. If it reserved a âgeneralâ and ânon-fiduciaryâ power to her the trust would surely be a non-trust as not having the requisite âirreducible coreâ of trustee obligations; because the holder of a such a power could rewrite the trust at will. It comes close to being a trust where the settlor is the only beneficiary (a general power allows the holder to appoint to herself) which is not a trust at all.
A settlor can reserve âspecialâ powers, the most common being the right to appoint an additional or replacement trustee or remove a trustee. The first is usually unrestricted but the latter usually prescribes limited circumstances for exercise.
Trustee powers are always fiduciary and so must be exercised in good faith and for a proper purpose and are subject to conflict of interest principles (which the trust deed may ameliorate).
The identity of the beneficiaries, even in a DT as far as their classes of eligibility if not named or individually described, is set once the trust deed is executed. If the life tenant cannot have capital appointed to her by exercise of an express power, the trustees are stuck with that. s32 TA 1925 does not apply to her. Much depends on whether the DT is a remainder after her death, as here it seems. She could not herself be an eligible beneficiary of a remainder DT, as an appointment cannot be made to a dead person, only to those benefitting from her estate if that is permitted by the DT.
Some DTs are drafted as overriding powers which will enable the life tenant to receive capital if she is an eligible beneficiary of it, with no IHT consequences if she has a QIIP. This is a post-2006 lifetime trust and so an RPT for IHT. An appointment out of an overriding DT would be a chargeable event.
For this reason modern trusts often include a power of the trustees, not the settlor, to add/remove beneficiaries, This is a fiduciary power so the trustees cannot add themselves unless specifically permitted. The power is often made subject to the Settlorâs consent and she may even have the right to nominate (not demand) a specific person. (She can probably nominate without a right unless specifically precluded). She is normally under no restrictions as to whether she consents or about whom she can nominate.
Her right is described here as a âpower to appoint further beneficiariesâ. This is most unusual and I have never seen it in practice. The possibility entrenches on the exercise of trustee discretions; is it relevant or not to any exercise of their powers? Can she add herself? Only if her power is to be properly construed as a general non-fiduciary power. That is not a general power apparently within s5(2) as it does not in itself allow her to dispose of non-settled property and a power to do that is no longer an asset for IHT under s47A (ironically enacted to prevent a Melville avoidance scheme: IHTM04470!).
Can she nominate herself? I would have thought she could unless specifically precluded but it might arouse suspicion that she always intended that. It puts the trustees in a very difficult position. If they add her then arguably an appointment to her of all the trust property is not void for âexcessive executionâ (she is now an eligible beneficiary) but the trustees must still consider whether they have taken into account all relevant considerations and ignored irrelevant ones. I have seen Counsel endorse a plenary appointment to one discretionary object who was non-domiciled and non-resident to save UK tax but he was not added and was not the settlor. The other main living objects provided their written support. Objects of a non-exhaustive DT have the minimum right to be considered by the trustees, so unborns are technically a risk, for what that right is worth and it can often be properly ignored in context.
If this trust does not have a suitable power to add, the beneficial limitations cannot be changed apart from Saunders v Vautier and VTA 1958. Many trusts state specifically that they are irrevocable but this will be implied unless a power of revocation is reserved. So a trust, unlike a contract, cannot be re-negotiated by the agreement of settlor and trustees. Flexibility if desired has to be drafted into the original trust deed. If the settlor can add further beneficiaries without the consent of the trustees or anyone else she can probably add herself, if that is not prohibited. The trustees will have the unenviable duty to consider whether it is proper to distribute to her the whole trust fund and ignore the objects of the DT. Critical will be why she wants it back.
A power of this kind must be a serious candidate for a GROB even in the absence of the life interest. So a deemed PET under s102(4) FA 1986 on an appointment out to her. Crazy stuff.
Jack Harper