I believe the underlying analysis of the potential care home fees protection by means of a DT is that the beneficiaries cannot be taken to have deprived themselves of anything CRAG-wise because the creation of a will trust is a unilateral action by the deceased. A DOV may therefore be at risk if it varies the Will e.g. to create such a trust.
The Court’s wide-ranging powers to grant financial remedies in divorce are not unlimited and inevitably there is much case law. It can vary a settlement with a “nuptial element”. This can include one made by a parent but this element is by no means present just because the eligible beneficiaries include persons married to each other.
The other main area is where the Court can make an order e.g. lump sum against one party to the marriage which is greater than otherwise because trust funds can be regarded as in effect a financial resource of that party. It has no jurisdiction to make an order directly against the trustees or the trust funds. Most obviously it will act where the trust, though not a sham, is just a money-box reserve earmarked for that person, as in Charman, and the trustees are stooges.In Whaley the husband argued that the order would put improper pressure on the trustees but the Court found that “the trustees of both the Farah Trust and the Yearling Trust were likely to do whatever the husband asked including making capital available to him”. It would be unusual to make an order that could only realistically be satisfied by the beneficiary party requesting the trustees to make a payment to them from the trust. It did so exceptionally in M v W (Ancillary Relief) [2010] EWHC 1155 (Fam). It only ever does so by reference to numerous factors applied carefully according to settled principle and approaches the integrity of the trust structure with respect tinged with pragmatism but occasionally scepticism; and it must at least consider the possible enforcement difficulties. The Court is also fully aware that excessive distribution to one beneficiary may well prejudice the entitlement of others.
In Daga v Bangur Holman J held:
“59. In my view the trustees in this case are not likely but, indeed, are highly unlikely to make funds available to the wife whatever I may do or say. They are not themselves within the jurisdiction of this court. They are a professional trust corporation. There are very strong letters of wishes, as I have already noted, and the position of the father could not be more clear. There never have been any distributions even to the wife herself, as settlor, nor to or for her very needy son. Further, the husband himself said in his oral evidence that he accepts that most likely her father’s attitude will determine the trustees’ attitude. In these circumstances, in my view, it is highly unlikely that the trustees would make any payments intended to benefit the wife’s former husband whatever I may do or say. Accordingly, I cannot make an order in reliance upon the funds in trust; and to treat the wife as having about £20 million plus “available” to her as Mr Webster did in paragraph 4 of his opening note is, frankly, fanciful.”
If the trustees refuse, the only remedy would be an action for due administration by the beneficiary. The Court takes into account as a relevant factor the trustees’ likely response and their stated intentions if available, though not slavishly. By contrast an IPDI is a clear financial resource beneficially owned by a party, though a little precarious if subject to wide overriding powers of appointment which may or may not be exercised in favour of that party. It may well operate as a superior alternative to a statutory protective trust as being more flexible. The approach of the Court to it will likely be similar to its approach to a DT.
I have no doubt that such IPDI or discretionary trusts still have useful ring fencing characteristics where the lifetime settlor or will maker wishes to protect beneficiaries from themselves or others and prevent supposedly undeserving third parties from benefiting e.g drug dealers, brewers and distillers, bookmakers, creditors, HMRC, and unsuitable partners, present or future. It is prudent in these circumstances to appoint independent-minded trustees and here perhaps not family members (so that they can all take their frustrations out on the trustees and not each other). In general I shy away from professional trustees on the grounds of cost and a tendency to seek the Court’s directions at the drop of a hat and so the family trustees can obtain advice wherever they freely choose.
A lifetime disposition can be set aside under s37 MCA 1973 but not one in a Will or codicil. There is however the alarming prospect of a double dip where an unforeseen and unforeseeable event justifies the setting aside of a previous financial remedies order (the Barder principle). A consent order barring a former spouse from family provision under the 1975 Act will hold sway (provided they do not later cohabit). While death can be a Barder event my understanding as a tax not a family law expert is that such a consent order is not a financial order that can be set aside.
Whether in a Will a DT or an IPDI singing and dancing is better for ring-fencing purposes must take tax into account their very different tax profiles.
I regret once again being an incorrigible exponent of prolixity but I do not think Richard’s brevity should deter anyone from astutely trying to ring fence.
Jack Harper