I have been instructed to prepare a Deed of Assignment in respect of two investment bonds put into effect in 2015. It is now clear they were incorrectly set up by the financial adviser, so that the Trustee has the benefit personally, rather than holding as Trustee. My question is, do I need to make any reference to this in the Deed?
Hi Gail,
Changes to investment bonds is typically undertaken with the provider. They usually have they’re own paperwork.
I’d contact the provider first, I’m assuming you wish to make changes to the beneficiaries.
Richard Bishop
PFEP
Hi Richard.
Thanks for responding. In this case its the insurance company that referred the matter to us, I can only think its perhaps because it was their mistake initially and they are paying our costs that they have asked us to do it.
Thank you
Gail Weston
1 Like
Is this a bigger issue than just drafting a deed of assignment?
If the 2015 assignment effectively gave the bonds to the intended trustee personally, might not the assignment into trust be considered a settlement by them for IHT purposes, etc.?
If the 2015 assignment had the wrong effect I wonder if it should be remedied by an application to court for rectification. If the original transaction is not rectified, the mere completion of a new deed of assignment may fully utilise the “trustee’s” IHT nil rate band, significantly inhibiting their ability to conduct any IHT planning themselves. Should they die within 7 years of the new deed, their estate will be penalised if their nil rate band is no longer available as a result of what happens now.
I suggest it would be appropriate to contact HMRC before any documents are executed, to see if it will agree to look through the proposed deed to the original intention. This may seem over cautious, but I understand HMRC consistently asserts that it will not accept “rectification” of a mistake without a court order.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you. It was for that reason I thought we must have to do something to show the trustee is not making a settlement personally, but I wondered if the error could somehow be referred to in a Deed of Assignment so that it was clear.
Another member pointed out that a trust doesn’t have to be in writing (other than land) and suggested the legal owner might execute a Declaration of Trust to confirm how she holds the bonds, but making it clear that the trust was established when the bonds were first assigned to her. Could that work?
Thank you for responding. I do very little trust work, but I know enough to know when to be wary and I think I might now refer this on to someone else!
Gail Weston
WMB Law Ltd
What trusts would she arguably hold the bonds upon? The relevant trusts would have to have been at least ascertainable at the time of acquisition of the bonds. The only one of the vital Three Certainties here seems to have been the subject-matter. It is a stretch to conclude that she originally acquired as trustee unless she did so knowingly as such and beyond a vague understanding (e.g. as a constructive trustee, when it would be a key part of the analysis to be able to identify the beneficiary also). If it appears so definitively that she took originally as beneficiary, however mistakenly, retrospection is not an option. In law the Trustee is just not a trustee at all it would seem.
The remedy the law provides is rectification which is discretionary, but awarded or denied according to established principle, and subject to evidence about the nature of the mistake alleged. As Paul says, HMRC’s practice is to insist on a court order— but rarely to intervene in the process and to abide by the outcome. This is reasonable because an order will bind all persons interested, including the bond provider, whereas if HMRC just took a unilateral view (second-guessing the court’s discretion) that in theory might be successfully challenged and it might not even bind the taxpayer.
A bond provider will be reluctant to pay out anyone other than the apparent legal owner or their assignee, to obtain a good discharge. Asserting that the bonds are really held on some trust is likely to spook them. Here the matter is referred by them and, without prejudice as to culpability, indicates some kind of notice of a possible trust with at least a resultant strong doubt on their part about whom to pay. An assignment apparently fixes that but is not retrospective. It still involves their taking a view that the “Trustee” has the right to act as assignor but the assignee may be the only person or persons who might otherwise contest her personal entitlement.
It is not clear whether there is recourse against the financial adviser or bond provider (or admission of liability or creditworthiness) or precisely whose mistake is alleged to be operative and why, or the value at stake. Indeed it is not clear who is your client and what are your instructions. The bond provider may be paying and be the client for the mechanical drafting but it seems the “Trustee” is the likely client for the advice as the intending assignor. Is there a conflict?
Jack Harper
Thank you for your response. Sorry, I probably should have given more detail. The Trustee is my client. She was referred to me by a Wealth Management Company, who are paying her costs. She holds on the trusts of her late sisters Will for minor beneficiaries and took advice from them the company on where to invest. The trust funds were subsequently invested in two Bonds with that Company, but the clients new adviser has now spotted that apparently the Bonds were set up as though she herself was the owner and beneficiary, instead of holding as Trustee.
Gail Weston
In those circumstances there must be a strong inference that she is a constructive trustee of the bonds. She has used trust funds to subscribe for the bonds. Equity would not permit her to hold them otherwise than on the existing Will trusts. If she is the sole trustee an assignment is somewhat over the top. Although you can assign to yourself in a different capacity here she would be a trustee on both sides, constructive as assignor and appointed as assignee. I suggest all she needs is to receive positive legal advice that she needs to do nothing and why. Even appointing a co-trustee just for a meaningful assignment seems excessive if the Will trust is not one of land and if is not considered desirable otherwise e.g. to secure trusteeship succession.
Jack Harper
In agreement with Jack, as the individual knows the terms on which they are supposed to be holding the bonds (here, the trusts which are set out in the Will), the individual can execute a Declaration of Trust stating that. Similarly, I would recommend a second trustee - indeed, the terms of some Will trusts require there to be two trustees for the exercise of certain powers.
If a second trustee is going to be added, the Deed of Assignment (from “Trustee A” to “Trustee A and Trustee B” could set out initially that Trustee A holds the bonds on the trusts of the Will, before the assignment to A&B “… to hold on the terms of those trusts…” (or similar).
It is worth being absolutely sure that, at the time of the original investment, there was no intention that the bonds (or the funds used to invest in them) should belong beneficially to A. Gail says that this was not the intention, but any evidence of that (eg correspondence, attendance notes, etc) would be useful to keep should the position be queried in the future.
Paul Davidoff
New Quadrant
I would only add to Paul’s sound comments and action plan that if she used trust funds to subscribe she would hold the bonds as a constructive trustee even if she had had the actual intention of benefiting personally
Jack Harper
1 Like
Thank you both. That way makes sense to me. There was never any intention of benefitting personally. Until learning otherwise, she believed the trust funds were rightly invested for her nieces. As you suggest I will see what paperwork exists from the end of the administration period and proceed as you suggest.
Many thanks.
Gail Weston