The OP stated that the trust deed specified the trust property in the First Schedule as an identified residence. The trust would therefore be completely constituted on execution provided the Settlor then owned the equitable interest in that property or had the unequivocal right to obtain it or direct its transfer to the trustees. The effect of a valid deed is to oblige the Settlor to complete his gift notwithstanding the absence of consideration.
Where the settled asset admits of comprising an equitable and legal title, so is not a chattel or an interest in a trust, but is land or company shares the Settlor is obliged to procure the transfer of the legal title to the trustees, if he owns it or can command its transfer by a third party in whom it is vested, but if he cannot or will not that does not matter provided the equitable interest has passed.
To impugn the validity of the trust you must be able to cogently advance the subsistence of a vitiating factor. The most promising candidates are sham and mistake. Sham is unlikely to appeal to Equity’s conscience when argued by a culpable party rather than a third party with clean hands, such as a creditor or divorcing spouse or HMRC.
Mistake may have a chance, especially if the evidence supports the argument that the Settlor was misled by a nasty snake oil salesman who neither knew nor cared whether the trust was suitable to achieving the objectives claimed for it. One thing in favour is its vestigial implementation apart from execution. Another would be an entirely blameless claimant who would be entitled to the property if the trust was held void for mistake.
The bad news is that while all relevant parties, essentially trustees and beneficiaries (assuming all are ascertained and adults with capacity), could enter into a compromise agreement under seal to regard the trust as void ab initio, the Establishment is unlikely to accept that outcome without a Court order or declaration. HMRC is the most obvious immovable object, although HMLR may also be depending on who is currently registered as proprietor. HMRC might accept Counsel’s opinion.
For a professional adviser there is a risk of behaving unethically by being instrumental in assisting clients to do something underhand. Lay clients might decide to regard the trust as a dead letter and accept the risk that this might come back to bite them. That might not be intrinsically unlawful, at least not criminal, but that line might be crossed thereafter by their later denying the trust’s existence or that independent advice was taken about its validity.
On the basis that it was incipiently void there would be no undisclosed tax liabilities or omitted reporting obligations; if however it was valid there will have been a failure to report a CLT by the settlor and of the trustees to register on TRS (though any gain on disposal by the Settlor may have been exempt).
Trying to balance duty to the clients with self-preservation I would suggest to them that, if I was to be able to advise any further, I be instructed to persuade HMRC to accept the technical analysis most favourable to the clients. I cannot judge of course what the downside might be of an HMRC refusal. But the disclosure will be unprompted and could conceivably be settled cheaply on the basis that it was initially void or, if not, on payment of any tax, interest and penalties so it can be unwound if desired or retained with certainty as to the tax cost of doing either.
Jack Harper