I have been approached by the life tenant of a Trust which was established by a very badly drafted Will. I say badly drafted because there are absolutely no administrative provisions in the Will, no per stirpes provisions in the sub-clause (a) mentioned below (despite later evidence in the form of an unsigned Will suggesting that the Testatrix wanted the property to pass just to her children with a gift-over to grandchildren should any child predecease her) and no provision for alternative accommodation should the named son wish to move. The Will was made in 1996 and the Testatrix died in 2009.
The Will gives the property to the Trustees "upon trust for such of my children and my grandchildren who survive me upon the following terms:-
a. That my son (I’ve removed his name for confidentiality reasons) shall be entitled to reside at the said property for as long as he shall desire so to do
b. That subject to sub-clause (a) the dwellinghouse may be occupied by such of my said beneficiaries as my trustees shall in their absolute discretion decide
c. In respect of any occupation my trustees shall take account of the need to repair, renovate and improve the said dwellinghouse"
The property, which has been occupied by the named son since his mother’s death (and he actually occupied it with her in the 20 years leading up to her death) has burned down and is being rebuilt. In fact it is not only being rebuilt to a higher standard but also extended and consequently will be worth considerably more that before it burned down. My understanding is that all of this is being funded from the insurance payout.
The problem which has arisen is that one of the other beneficiaries (there are 22 in total including my client) is claiming that her brother’s life interest has terminated because the property no longer exists. However, my view is that the life interest still exists as the house is being rebuilt, albeit to a higher standard, and that to terminate the life interest would be inequitable. In fact, if the other beneficiary is correct, it would seem to open the way for unscrupulous remaindermen to accelerate their interests by destroying assets held in life interest trusts so they can obtain their share of any insurance money!
I should be grateful for the views of Forum members.
David Price & Co
It is only a right to occupy rather than a full life interest but I still don’t think the sister has a leg to stand on. This is one situation where the best argument is from common sense - of course the mother would not have intended the right of occupation to end if the building burnt down and had to be rebuilt.
It is also arguable that the “property” is the freehold land, not the bricks and mortar and his right to occupy applies to any dwellinghouse on the land.
The only lacuna is whether the trust should be covering the cost of rebuilding the extended house, rather than a simple replacement. If they have the option of rebuilding the same or similar property and this would allow them to keep some of the insurance monies (which involves several assumptions), it may be arguable that they should do this and either distribute the cash balance to the beneficiaries of this clause or of residue.
Osborne Clarke LLP
I do agree with Andrew Goodman that the brother must have a continuing right to occupy.
I don’t agree, however, that if the assumptions are made the Trustees should not, or might not rebuild. The Trustee Act 2000 (s3) gives trustees a wide power of investment. What you have here is essentially a trust investment - a house – which has inadvertently been converted into money (proceeds of insurance claim). The trustees have a duty to ringfence those proceeds, and the best means of applying them is by rebuilding, and if the proceeds can cover improvement then all well and good.
It is also a trust of land, as, despite the discretion, the proceeds being the insurance policy, are not longer converted.
I think that might put paid to the assertion that the “right to occupy” no longer exists in relation to land and the right to occupy, or rather reoccupy. …
Thank you for the helpful replies.
I think the Trustees (who do not include my client) followed the course of action suggested by Julian and decided that the best way to invest the money, namely the insurance proceeds, was to rebuild the house to a higher specification. It seems to be just one of the other 21 beneficiaries who is causing problems - everyone else, including the Trustees, is happy for my client to stay there for as long as he wishes.
As with many problems which occur, this could all have been avoided if the Will had been drafted rather better than it was! And I am still not sure what sub-clause © is trying to convey when it says “In respect of any occupation my trustees shall take account of the need to repair, renovate and improve the said dwellinghouse”. Does it mean the Trustees should fund any repairs and if so, how? The property is the only asset in the Estate which is to be held in trust and everything else passed absolutely to (and was distributed years ago to) named beneficiaries, so the Trustees have no funds to undertake any repairs or improvements unless they borrow money.
David Price & Co
Your comments regarding payment of expenses and the property being the
only asset begs the question as to who paid the insurance premium and was
entitled to the proceeds. There appear to be a couple of methods by which
the insurance cover was obtained.
Either funds were introduced into the trust by someone [ possibly the
occupant beneficiary ] to allow the trustees to pay the premium or the
occupant personally took out cover and paid the premium.
It seems to me that this may be material not only from a taxation
perspective but also from an ownership of the rebuilt property and
eventual entitlement of the remaindermen perspective.
Whether there was fault for the fire might also enter into any legal
Whilst others might best be in a position to comment on ownership legality
matters post the fire and subsequent insurance claim proceeds rebuilding;
if there was no fault for the fire on the part of the occupant and the
occupant funded the insurance cover then if there was no requirement for
the occupant to do so might it be argued that the trust remaindermen [
especially the one contending they should be being paid out now ] are only
entitled to a share in the land.
Apologies for raising these questions but they are something I would
suggest might also need considering by the trustees and their solicitors
sooner rather than later.
As you say had the Will drafting been better then problems/arguments might
have been avoided…
If the Will was professionally drafted then it seems to me that whoever was
responsible might possibly need to ‘dust off’ their Professional Indemnity
In the apparent current absence of a source of funding to take specialist
advice it looks like the trustees may well be faced with an invidious
situation when the trust comes to an end.
All in all possible Manna from Heaven for solicitors!
Andrew M Mortimer
Thank you Andrew.
Yes, there are a number of unanswered questions but I am meeting my client next week and hope to get much more information then.
I had the same thought about the professional who drew up the Will, but I understand he was a sole practitioner who retired many years ago and I am not sure whether he is even still alive. There is also the matter of why the (different) Solicitors who acted in the Estate administration six years ago didn’t try to resolve matters then, so perhaps a claim against their PI Insurance?!
David Price & Co
While not a litigator by any stretch of the imagination, I would be cautious about making claims against either the original draftsman or the solicitors handling the administration.
There must be a strong argument that the default powers granted to trustees by law are, almost by definition, ‘sufficient’, as they have been drafted and reviewed by Parliament. While relying on them may not be ideal, it would be quite a stretch to go from ‘not ideal’ to ‘negligent’, unless the nature of the trust was so unusual that specialist powers were clearly required. That does not seem to be the case here, where we are looking at what is almost surely one of the most common trusts in the country – the right to continue to occupy a property you do not own.
Elliot, Bond & Banbury
I tend to agree with Taurean. I see no clear evidence of negligence here despite the lack of clarity in regard to the particular circumstances that have transpired. A right to occupy does not normally clarify specific issues such as these up front and the lack of clarity seems to largely stem from the specific decisions taken by the Trustees. I do, however, agree with Andrew Mortimer that there are issues, in regard to which no details have been shared, that may influence matters. The fact that no mention was made in the Will about the right to live in an alternative property is not an omission if there was no intention on the part of the testatrix to convey that right. In fact, in the the case of a simple right to occupy - which this clearly is - it is very unusual, in my own experience, for that right to be given. It is clearly not a life interest and the right of occupancy is restricted to the property but I agree that this cannot simply be restricted further to the building itself as it is a trust of land. If we look at the probable intention of the testatrix and the purpose for which the trust was set up (which would surely influence the decision of a court) then I believe it is clear that rebuilding the property and allowing occupancy to continue is what might reasonably be expected of the Trustees. Always provided that funds are available to do so and the interests of the remaindermen are also thereby protected which would seem to be the case. It is the other circumstances that are clouding what would otherwise be a relatively straightforward matter rather than the way the Will was drafted (although obviously it could have been more thorough).
Richmonde House Associates