I have instructions where it is proposed trustees of a family discretionary trust with wide investment powers will acquire a property as joint tenant with a family member where it is virtually certain that the trustees will survive and acquire the entirety by survivorship.
Under the statutory “prudent person” rule the investment appears to be justified but I am concerned to ensure that there is no prohibition arising from case law but cannot find any relevant cases.
Can anyone assist, even if the case is now only of historical interest?
Francis Burt Chambers
I find it hard to get my head around the concept when the trustees are not the true beneficial owners of the interest and so you do not have true unity of beneficial ownership but, assuming it is possible:
It does occur to me that if you are considering this from an investment perspective you would need to bear in mind that the family member who is not a trustee of the discretionary trust could presumably sever the joint tenancy at any time (at least under English law). An arm’s length commercial view would therefore limit the value to a maximum of one half of the total (assuming the trustees would receive one half on severance - perhaps two trustees would receive 2/3 if the 3rd individual severed the joint tenancy).
Osborne Clarke LLP
Like Andrew Goodman I wonder what is behind a joint tenancy acquisition is
being proposed, rather than a tenancy in common acquisition.
Have the trust settlor provisions been considered?
Would the death of the joint tenant family member make that family member a
settlor at that time?
Alternatively could it possibly be contended that the family member
effectively becomes a settlor when they and the trustees become joint
tenants because of the certainty of eventual death of the family member -
unless, as already mentioned, the joint tenancy is severed before death of
the family member.
Andrew M Mortimer
I note the question has been raised by a contributor in Perth, Western Australia and, although I anticipate the question may relate to the purchase of property in WA, I appreciate it could be situate anywhere on the globe.
Whilst I have no specific knowledge of WA property or tax law, the following thoughts occur to me, and I believe would be relevant regardless of where the property might be (or the proper law and tax residence of the trust):
If the beneficial interest in the property may pass by survivorship, the creation of the arrangement means that the family member joining in the purchase provides a benefit to the trust at the time of the purchase, which can only increase if, as anticipated, their share will pass into the trust on their death.
In view of the current expectation that the property will accrue to the trust, is the family member only making a nominal gift into the trust now, or is the gift of substantial value, reflecting the “expectation”?
If the family member may also occupy the property, will the arrangement be caught by a tax regime similar to the UK Gift with Reservation rules?
Is the family member a beneficiary of the trust? If not then, despite the remote expectation that they will survive the trustees, does the joint purchase have the potential to benefit a non-beneficiary and, therefore, be open to challenge as a breach of trust?
Whilst I am not aware of any prohibition against the proposal under English Law, subject to all the right boxes being ticked, it could create a complex tax situation Accordingly, I would recommend that detailed tax advice be taken in the appropriate jurisdiction(s) to ensure that they properly understand the potential consequences of the arrangement, thus reducing the chances of challenge at a later date should some beneficiaries decide the arrangement is not in their interests.
I have not researched this, but do not see how the trustees can be said to hold as beneficial joint tenants. They do not hold beneficially. Surely be implication, as they hold the interest separate from their personal interests on a separate trust, they must be implication hold as beneficial tenant in common.