Can Saunders v Vautier apply to one asset only within a trust?

Can Saunders v Vautier apply to one asset only within a trust?

Mr S died leaving his residue estate on life interest trusts to his wife W. On her death the residue passes as to 50% to A and 50% to B and C. There is the provision that if any person has died in S’s lifetime, they would inherit. As A, B and C were all alive this does not apply.

The trust is made up of a property and some investments. It has been agreed by all the parties that the trust shall be varied so that A ultimately receives the property and all other provisions remain the same. A wants the property to be held in trust for his daughters.

Can Saunders v Vautier be applied to just the house? Any suggestions?

Lesley Eveleigh
MacLachlan Solicitors

I believe Stephenson v. Barclays Bank Limited [1975] provides authority for the beneficiaries to direct the trustee(s) to transfer the property to A, subject only to the life interest of W.

As the dealings will only be with the remainder, and should not affect W’s interest, I do not believe there would be any need for W to be party to such an arrangement.

I wonder if, rather than have a number of steps, it might be preferable for A, B and C to jointly gift the ultimate entitlement to the property to A’s children, mindful that any such transfer may be exempt for IHT purposes (s.48 IHTA 1984).

The property could only pass to the children of A if it is still held within the trust at the time of W’s dearth. If W should move into a nursing home, the beneficiaries cannot direct the trustee to retain the property if a sale would be in the interests of the trust, as even under Saunders v. Vautier, the beneficiaries cannot control the trustees’ exercise of their discretion (see Stephenson v. Barclays Bank). Consideration will need to be given as to how this might be addressed, if it is intended that A’s daughters receive the property in any event.

Paul Saunders

It would appear that B & C both want to transfer/give both of their 25% reversionary interests in the house to A. I assume that W’s Life Interest in the house is to remain in place. If so, you don’t want to wind-up any of the trust, you simply want to change the terms on which the trust assets are held.

I am a little concerned about the future here. What if W wants to move and or needs to move? If that happens the new property will worth less than or more than the value of the existing property. How will the difference be dealt with? What if capital needs to be spent at some future date on improving the property? In short does B & Cs rights against the remaining assets need extra protection in some way?

You could wind-up the whole trust and set up two new trusts maybe, but any tax issues would need to be considered.

When did S die? Is a deed of variation a possibility?

W could die next year but equally she could live for 20 or 30 years and in that timescale circumstances and family relationships may change.

Ian McKeever

Ian McKeever & Co Consulting Actuaries