Hi. This may seem like a simple question. I have instructions from a couple who already have in place a Family trust and also their straight forward Will. They wish to no longer have the family trust in place ( due to a change in circumstances) and amend their Will. Both the couples are Trustees of the Trust as well as their son.
There is a clause in the trust which says it is “irrevocable”. The couple wish to make a Will including a life interest trust. If this was to be prepared, would the family trust still be alive or would it be revoked on the making of the life interest will?
By being “irrevocable”, it cannot be “revoked” or cancelled. There are likely to be other provisions permitting the trust to be wound up, but it depends on how it is drafted and there may be tax consequences.
There are arguments around “mistake” which could enable them to “cancel” the trust, but that is not straightforward and typically requires an application to the court. It is worth having a trusts specialist review not just the document but the surrounding circumstances, in case they reveal other opportunities.
The trust is as it says irrevocable in the absence of vitating factors. It can be ended only by fully distributing the trust property according to its terms. Making a new will cannot revoke it.
Yes. A trust that conforms to the “3 certainties” required for creating a trust is a trust, whether or not it is registered with any third parties.
You might like to look at whether or not the assets that were thought to be part of the trust fund were in fact ever transferred to it beneficially. Many trusts are established with a nominal trust fund (often £10 or £100) with the intention that other assets would be added later. If that is the case for this trust, you should check whether the necessary requirements were satisfied for transferring an interest in land (eg section 53 Law of Property Act 1925).
Claire - you refer to the Land Registry above? If the parents were the property owners and made a declaration that they would hold that property on the terms of the trust, it would be constituted with the execution of the trust deed.
If not, and they never put any assets in the trust, then it is possibly a nullity.
Hi Claire, I have had to deal with this situation a number of times - feel free to message me and I’d be happy to talk it through with you. My email address is jane.whitfield@edwardconnor.com. Jane
Hope you don’t mind me tagging onto this 2 years later but I wondered if you had any success with revoking the trust as I have come across a very similar situation!
Settlors of an irrevocable family trust have changed their mind, want to take their principal residence back out of the trust and add another property instead.
Can it be done, presumably with beneficiary approval? And would hold over relief for CGT still apply?
HI Shaun.
The family decided the keep the trust in place. From what I gathered and doing some research, the trust was none revocable. I may not be 100% correct on this though. Good luck
Claire
It was disappointing that Jane Whitfield did not seem able to make a generalised contribution here based on her direct client experience, while preserving confidentiality. So to answer Shaun.
Some trust deeds state that the trust is irrevocable. Even if not, this will be strongly implied. There may be vitiating factors The most fashionable are equitable mistake and undue influence. These will generally be a lost cause and will require litigation, if only to convince HMRC, who suffer from terminal scepticism. Challenging Wills at ludicrous expense is currently open season and to hell with family relationships but at least the maker is dead so will not care and cannot give evidence. A living settlor’s incapacity to make a trust at the relevant time will require evidence, perhaps of the embarrassing kind. Mistake as to the expected tax effects can nullify the trust but general buyers’ remorse will not do. Nor will misunderstanding clear contemporaneous advice on tax issues.
An inter partes agreement terminating or varying can only be made out of court (so ignoring the VTA jurisdiction) and thus (relatively) more cheaply if Saunders v Vautier applies. The trustees may have powers in the trust instrument to achieve the result but would be wise to ensure that beneficiaries agree and so will not challenge the exercise. Objections by those who cannot consent e.g. discretionary objects may be obviated by retaining a fund to benefit them and similarly for minors; often a feature of a VTA application. A termination will involve in principle CGT exposure. Unless the trust property comprises qualifying business assets relief will need to be under s260 TCGA. So the disposal by the trustees must be a chargeable transfer for IHT. A transfer out of a RPT will be but a QIIP termination will not as it is a PET. There may in either case be a substantive IHT charge. The transferee must be UK resident and there is a quarantine period for 6 years during which non-residence will trigger clawback. There are potential issues with settlor-interested settlements and claims for PPRR.
s260(5) reduces hold-over relief pro rata if and to the extent actual consideration is received. So care is needed as there may be such even though not in cash but by way of exchange. A pro rata rule does not seem to be applied as regards the amount of the chargeable transfer on which s260 relief is founded. So if the TOV is reduced by actual consideration that does not matter though how drastically it can be so reduced is for speculation; taking it down to £1 might be GAAR territory.
By contrast a trust which is void ab initio has no direct tax conseqences but will put the trust assets back into the settlor’s ownership retrospectively, which will probably entail some not to mention practical issues on their devolution if he is long dead. Some vitiating factors,like undue influence, will only make the trust voidable and that means it is valid until declared, so it will have CGT and IHT consequences as above. Clients need to understand that a trust is not like a contract which can be varied merely by agreement between the parties, settlor and trustees.