I have a matter where deceased left his 75% share of property into an IPDI for his wife for life. Wife owns remaining 25% of the property.
Wife and deceased have different children from previous relationships and remaindermen of the IPDI are deceased’s children.
Wife wishes to make improvements to the property and add on an extension. However, she wishes to protect the money she is spending on the renovations and also wants to protect the increase in value to the property, which will result from the improvements, for herself (so ultimately her children will benefit and not the trust).
As you have probably guessed, wife and step-children (remaindermen) do not get on, so a mutual agreement between them is unlikely to work.
Is it possible for her to protect her additional expenditure on the property and ring fence any growth in value to the property without the consent of the remaindermen?
Do the Trustees have authority to make appropriate adjustments. If the wife owning 25% of the value now wishes to invest £’x’ amount in the overall property which increases the value by ?%, then there should be a formula to show the increase. The Trustees can then document that increase, possibly obtaining the consent of beneficiaries, who would all gain long term.
Thank you for your reply. The Will incorporates the standard and all special provisions of the STEP 2nd edition provisions. What I think the client would ideally like to do is have the property valued now (value around £550,000) then have the property valued after her renovations. She would then look to protect that increase in value for herself. So if say she carried out the renovations and the property increased by £150,000 as a result, she would want to protect the £150,000 for herself. Do you think that is possible?
The monies spent by the wife on renovations will increase the market value of the whole property. Going forward this means that both the value of the wife’s 25% interest and the IPDI will each increase. In other words, by the wife carrying out improvements it will not only be her 25% interest that increases in value.
In other words going forward the impact of the improvements on the value of the property will continue into the future.
Could some form of adjustment in the 25% interest be agreed eg in exchange for agreement to incurring expenditure on improvements wife’s 25% be increased appropriately.
I have certainly seen agreements between commercial joint owners which vary the respective proportions of the beneficial ownership of jointly owned assets in the event of further provision of capital in prescribed events, with a formula and valuation methodology. This agreement needs to be concluded before the contribution is made or the contributor will later be faced with some nightmarish proprietary estoppel/equitable accounting/restitution cause of action unless the claim of the greater entitlement is unchallenged.
I see no reason why this could not apply among non-commercial parties, though trustees would want to ensure they have the requisite power.
STEP 2nd Ed says:
"4.2 Management
The Trustees may effect any transaction relating to the management or disposition of Trust Property as if they were absolutely entitled to it.
In particular:
4.2.1 The Trustees may repair and maintain Trust Property.
4.2.2 The Trustees may develop or improve Trust Property"
If anything, the intra vires ambit here is alarmingly wide-ranging and many clients like to make it and other such powers subject to a consent. Otherwise, especially coupled with a legally watertight (Armitage v Nurse) trustee exemption clause, trustees could be very very naughty with impunity ( See STEP 12 and 19, noting that 9 only applies to administrative not dispositive powers so the rule against self-dealing may still remain a hurdle on particular facts).
Would it not be simpler if the wife loaned the £150,000 to the trustees for the purposes of carrying out the works and to index link the loan, assuming of course the trustees are agreeable.
My recollection of property law is that if you improve another person’s property without their consent, they gain the benefit and you have no right to be compensated.
I suggest that in addition to the points raised by others, the wife should discuss her proposals with the trustees. If they consent, then the property would likely need to be revalued once the works are completed and any uplift applied to increase her percentage of the ownership. This could have interesting, perhaps unexpected, implications, mindful of s.11(1)(b) Trusts of Land and Appointment of Trustees Act 1996.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
STEP Standard Provision 19 excludes s11, although again such a sweeping exclusion might not be appropriate in every case and a person drafting needs to be alert to that because it is contained in “boilerplate”. Of course,uch a health warning could justifiably extend to any clause of that kind.
If the deceased children / remainderman who will inherit the 75% share refuse to sign or consent / agree to works on the proprty the trust owns… what happens next ?
Any improvement should be agreed in writing prior to commencement of improvements.
I do like the suggestion of Patrick Moroney’s lending the money to the Trust to be repaid plus indexing. It seems the fairest method and one which the beneficiaries could agree upon, as their interests are also improved.
With reference to ‘prior to commencement of improvements.’…who in writing does that have to be agreed with , is it all trustees only ? Or does the remainderman also need to consent to it prior to taking place ?
If STEP 19 applies they are not bound to consult beneficiaries but are not prevented from doing so and would have to make their decision bearing in mind the objections made to them. If s11 applies they are only required to consult a beneficiary with an interest in possession not a remainderman and they are not obliged to accept any objection. As an overall matter they need to be satisfied that what is proposed will not expose them to a breach of trust action by any beneficiary from which they would not be exempted by the trust deed or exonerated by the Court.
So if wife goes ahead with out any written agreement and spends 150k on development.
When the trust ends the remainderman will expect 75% of the sale value , and would get that right ? As wife has gone ahead and spent 150k developing but has no written agreement in place ? Wifes 25% would have increased in value…but the children she doesnt like anymore get their 75% of final value ( which also increaed due to value boost from the 150k development)…?
As Paul has warned, in principle spending money voluntarily on property owned by another confers no right to compensation. The same follows even if the property is only partly owned. It applies to joint owners but is often encountered in tenancies where many tenant’s improvements are likely to benefit the landlord when the tenancy ends.
The cases where this has happened without an agreement but some compensation has been awarded in litigation involve expenditure found to have been not truly voluntary. Typically where the party benefiting has induced the other to spend the money.
I would have thought this could (in theory) be accomplished by an agreement between the trustees of the will trust and the widow, increasing her share of the property proportionality in accordance with the sum spent.
In practice, if the trustees include a remainderman, they can likely block it, and, if not, the trustees may be unwilling to agree it in the face of litigation risk should the remainderman disagree with the calculation. It would depend how brave the trustees are and whether the remaindermen have any substantial objections or just refuse to engage.