I would like to make a gift of shares into a discretionary trust with life interest. I have defined the “Trust Fund” by using the standard wording of such a gift "all my capital holdings and interests in X etc etc ". Do I need to make provision for the scenario that the shares are sold during the lifetime of the trust? I would want the proceeds of sale to remain in the trust but the proceeds would no longer match the definition of the Trust Fund? I would be very grateful for either confirmation that I am barking up the wrong tree or alternatively a hint as to how I need to tweak my wording. Many thanks
The Trustee Act 2000 would give the power to change investments even if the Trust itself didn’t. The proceeds of sale of some of the shares will still be within the definition of capital within the Trust (or, if it doesn’t it should).
Are you using a template/precedent or preparing a life interest settlement from scratch? All of the precedent settlements contain wording which extends the trust fund to include all replacements, accruals and additions to the settlement. I agree with Julian that any proceeds should be considered part of the trusts whether or not you included this wording.
Off-topic - I assume you mean a life interest trust with overriding powers as a discretionary trust and life interest trust are polar opposites - (trying hard to phrase this so I don’t come across as pedantic - honest!)
Osborne Clarke LLP
Annabn I do not know whether this is an area in which you specialise but if not, I would strongly advise that you seek specialist advice. I do hope that you do not take this the wrong way but really setting up a trust correctly can be problematic and needs to be handled very carefully which I’m sure you would want.
Pedantic is very good!! Thank you all for your comments and please don’t panic. I should have clarified I am asking about a will trust and am using a decent precedent. Yes a life interest with overriding powers. Just letting my mind wander about the wording for the shares and whether I’m being too precise referring to a specific named company really but thank you for all your comments. Very helpful.
I would add that when very valuable family company shares are settled I employ a very specific clause about what is to happen if the shares are sold or the capital or company is reconstructed in any of the ways that company law permits.
The "all my capital holdings and interests in X etc etc ". I’d suggest is not required; the shares will be transferred to the trust fund. “I would want the proceeds of sale to remain in the trust” – this would be up to the company and it’s rules (articles of association). On death – the funds would be paid into the trust – Company Law overseas this process – not the trust wording.
On sale: Again, the sale process is controlled by the articles of association and company law.
I’d agree with Jack’s comments above – shares, their sale and transfer are NOT controlled by trust wording, or the trustees. The company (Private) has full control over whom may sell or buy its shares through Company Law and the articles of association.
The directors may include compulsory transfer (drag along), pre-emption rights or simply refuse to transfer the shareholdings. For in depth discussion see my book.
“Do I need to make provision for the scenario that the shares are sold during the lifetime of the trust?” Yes with the directors of the company after reviewing the articles of association.
Understood. Many thanks all