Winding up a Trust via Saunders v Vautier?

Trusts Discussion
1

Please excuse any mistakes in the below, it is my first time contacting the Trusts Discussion Forum. I would really appropriate any advice regarding the possibility of winding up a trust using Saunders v Vautier.

We act as Trustee for a large Indian family trust. The trust was set up in 1962 by the Settlor.

During the Settlor’s lifetime, the trustees were to pay income to him and on his death the income was to be paid to his wife for her lifetime. The Settlor and his wife have since died.

On the death of the Settlor and his wife, the trust income and capital was split into 18 stripes. These 18 stripes have then been distributed amongst 12 interest in possession trusts for each of the Settlor’s children and children-in-law (the Life Tenants).

Each interest in possession trust is to pay the income that arises from the stripe to the Life Tenant during their lifetime. The capital and income is then to go to the Life Tenant’s children who have attained the age of 21 (the Remaindermen).

The Remaindermen are now all above the age of 21 and some of the Life Tenants have since died. The family wish to wind up the trust as they are finding it an annoyance and it is producing very little income (around £2,000 pa).

The trust deed does not have a power of appointment and therefore I believe we would have to rely on s.32 TA 1925 for the statutory power of advancement. I understand that the life tenants will have to consent via writing that they are happy for the trustees to advance the capital to the remaindermen. Since the trust was created before 1 Oct 2014 however, I am aware that the trustees can only appoint out half what the beneficiaries are entitled to.

I know that the family want to bring the whole trust to an end so only distributing out half is not going to satisfy them.

I have also been told that one of the Life Tenants has Alzimhers although we believe there may be a Power of Attorney in place.

I have been considering whether we may be able to wind up the trust under the rules of Saunders v Vautier as all of the beneficiaries are over 18, they are all together absolutely entitled to the trust and, after reading Chapter 24 of Lewin on Trusts, it states that in principle trustees are bound to act on a consent given on behalf of a beneficiary lacking capacity given by a donee of a power of attorney.

What I would like to know is:-

  1. do you think we can use Saunders v Vautier in this circumstance to wind up the trust; and
  2. if so, is there any procedure to follow in regards to winding up a trust via Saunders v Vautier?

Any advice would be most welcome.

Thank you
Amelia Bell
Kingston Smith

2

The “rule” in Saunders v. Vautier only applies if all the beneficiaries are adult and, between them are absolutely entitled to the whole of the trust fund.

Accordingly, Saunders v. Vautier would only apply if the class of remaindermen is closed, so that no more can be borne (or adopted?) into it.

As the class of remaindermen is said to be such of the life tenants’ children who attain age 21, I do not believe the “rule” applies. All the time there are living life tenants, further children could be born into the class. There is no presumption of inability to have children and, in Figg v. Clarke [1997], where it is proven to be physically impossible for the life tenant to father further children, the court held that the class remained open until his death.

In the circumstances described, whilst a breach of trust, it is not unknown for trustees to agree to wind up the trust fund subject to indemnities from all of the adult beneficiaries and insuring (at the expense of the trust) against the possibility of a claim from any later born children for the share of the trust fund they would have received had the trust not been wound up prematurely.

Paul Saunders

3

Thanks Paul that is helpful.

If one was to go down the route of getting indemnities, how would you ‘document’ that the trustees were winding up the trust via Saunders v Vautier.

Normally if we are appointing out the trust funds we would do a deed of appointment although here clearly the trustees do not have such a power.

Amelia Bell
Kingston Smith

4

The usual scenario would be that the beneficiaries request the trustees to distribute on the basis the class of beneficiaries cannot increase (and that all interests are therefore known), so that the class is effectively closed.

In consideration of the beneficiaries providing appropriate indemnities to the trustees, the trustees might then decide to comply with the beneficiaries’ request.

The document could be called a deed of distribution and indemnity (although its title is probably of little consequence), and should include both the request and the trustees decision. The recitals would generally summarise the evidence upon which the trustees decided that it would be “safe” to distribute at this time. The possibility of insuring against the possibility of future beneficiaries entering the class of remaindermen should also be considered, especially if any of the current beneficiaries live outside of the UK, or might leave the UK within the next several years (as it may be expensive to try and enforce their indemnities if outside of the UK).

In considering the request, the trustees do need to satisfy themselves that there is no real likelihood that the class of beneficiaries may change. This does not just include that no further persons may be born (or adopted?) into the class of remaindermen, but the trustees being satisfied that the death of any of the current remaindermen before the trust period would normally end will not give rise to a new group of beneficiaries (e.g. that deceased remainderman’s children or issue).

Paul Saunders