Life Time (not life interest) Trusts- Gah!

Trusts Discussion
1

Client (Mrs) has come to me for a Will and in hope I might explain what she and her husband (since lost capacity) signed 6 years ago.

There is a Family Trust 1- with wife as the Settlor and Family Trust 2 - with Husband as Settlor.

Both Trusts refer to the property as being in the schedule which states the name of the property …(not a “share” of).

The Life Tenant of each trust is the Settlor only.

There is a perpetuity period of 125 then discretionary beneficiaries being the spouse and the couples children.

Despite being " discretionary" the trust states the children’s shares (but does not state “wishes”) as being in various %s.

Basically the wife is expected to survive husband. She has fallen out with her daughter.
Trust 1- Trustees are wife, husband and son (wife having removed daughter).
Trust 2- Trustees are husband, wife and daughter. Husband has lost capacity so no question of daughter being removed (or a separate topic, which we won’t delve into, or at least yet).

Wife doesn’t know if when husband dies the whole property transfers to her trust or whether there is a 50/50% share.

There is no Tenants in Common restriction although we are trying to track down a Deed of Assignment referred to on the title.

And there is the following Restriction…
RESTRICTION: No disposition by the proprietors of the registered estate is to be registered unless one or more of them makes a statutory declaration or statement of truth, or their conveyancer gives a certificate, that the disposition is in accordance with a Deed of Assignment in relation to the XXXX Family Trust 1 & 2 dated XXXXX and made by Mr XXX and Mrs XXXX (Settlor) and XX, XXX and XXX (daughter) (Trustees) or some variation thereof referred to in the declaration, statement or certificate.

If 50/50 she is concerned, having fallen out with her daughter pretty seriously, her daughter may throw her out. There is no Life Interest for the spouse referred to within the trusts, as there would be in a Will trust.

Does anyone have any experience (good or bad) of these double trusts?

I am going to refer them to a firm with an experienced Trust department for an opinion (Wills and LPAs being my day job now), but I am very interested now. They have tried to ask the firm who prepared the trust for clarification but they say they are conflicted!

2

There are quite a few oddities here. I think the key to it will be to find out what H and W were intending to do: succession planning, tax planning or care home fees planning? It doesn’t sound as though this arrangement will work for any of those things.

The reference to an “assignment” rather than a conveyance or transfer suggests that they are dealing with the beneficial interest rather than the legal title. The restriction is a standard Form B restriction, appropriate to any kind of trust and sheds no light on the arrangement.

If each of H and W has purported to settle “the Property” on trust, then to me that suggests that however the property was held beforehand, there would have been a severance. Each trust thus holds a 50% share of the beneficial interest.

I would not be too concerned - on present information - about W being asked to leave on H’s death. She will still have her own life interest in her own half share and the purpose of the trust (for TLATA) is presumably to provide her with a home. So W probably has a right to occupy that the court is unlikely to disturb on D’s application for an order for sale.

What is probably more pressing is the tax position. On the face of it, the Property is now in a settlement and since it is post-2006, it is a relevant property settlement. Settling the beneficial interest into trust would have been a chargeable lifetime transfer, and there will be a periodic charge in 4 years’ time. The spouses have also reserved a benefit.

The whole arrangement sounds like a plan gone wrong - it achieves nothing that could not have been achieved with mirror wills and carries some adverse consequences. It may be possible to unwind the scheme with an appropriate appointment, or it may be possible to apply to the court to set it aside, albeit H’s loss of capacity is a complicating factor.

Josh Lewison
Radcliffe Chambers

3

Just to supplement Josh’s point on severance, there is a line of cases to the effect that making mutual or mirror wills over a property held as joint tenants in a manner that was inconsistent with the joint tenancy can amount to severance: most recently in Dunbabin v Dunbabin (2022) in relation to mirror wills.

That case was won on three grounds that (a) there was a notice of severance (which had been lost) but also on grounds of (b) mutual agreement and (c) by course of dealing.

4

Thank you for your reply Josh.
The property as a whole will unlikely never reach £325K…so that’s something.