Hi, I would be grateful for your thoughts on the following:
X entered into a declaration of trust over her property, she is the LT and has a right to occupy the property for her life. The declaration then goes on to state that ‘subject to this the property shall be held by the trustees for Y (X’s child) and if Y has died before X then for Y’s issue on attaining the age of 21 years’.
X now wishes to release equity from the property and wants to terminate the trust. Y is alive and agrees to the termination. Y does have children but as Y is alive they are not beneficiaries so I assume they would not need to be in agreement? Would you agree?
The declaration of trust is very basic, no powers or terms regarding termination are included.
X has received advice that the trust cannot be terminated, they have been advised that Y has a contingent interest in the trust and because it is uncertain as to whether Y will survive X to acquire the property, Y cannot assign it to X to bring the trust to an end.
I am slightly confused by the advice X has received, do others agree with that advice or have any differing opinions?
If the trust can be terminated by agreement of X and Y only, what practical steps should be taken to give effect to this?
I agree with the anonymous adviser. Y’s children have a reversionary absolute interest, contingent upon Y predeceasing X. Therefore X and Y do not own the whole of the beneficial interest. They are very much beneficiaries, albeit with a limited interest that may never fall into possession.
The only “proper” way to resolve this would involve a VTA application and some form of small fund set aside for current and future children of Y.
The rough and ready solution would be to just agree with Y to ignore the trust and transfer it to X if there is currently another trustee. However, be in no doubt that this is a breach of trust, creates uncertainty, and Y’s children would have a potential claim (arising if Y predeceases X) that they cannot release until they are 18.
You could always ask whoever prepared the trust deed if they anticipated this situation but that may not get you very far.
I also agree with the anonymous adviser. Y’s interest only vests absolutely once X has died and until then they have a contingent interest. Depending on when the LIT was established, it may be possible to advance the property to Y, with X’s consent (section 32 Trustee Act) to bring the trust to an end. Y would then own the property and could either gift it back to X ( with all the resulting tax consequences) or release equity herself and loan/gift funds to X. Obviously no guarantees for X as Y could receive the property and decide to keep it!