will/trust dispute

This matter is being dealt with by our litigation department but I keep getting dragged in. Client’s parents set up a lifetime trust for their house – the Family Settlement (discretionary); 2 income trusts were also set up during lifetime (1 policy each) and there was a will trust.
Each trust has different configuration of trustees/beneficiaries. Our Client is not a trustee of the family settlement but was named a trustee for the other 3 (but grant for estate taken out without her). Now there is a breakdown in family relations and the proposal is to pay our client a lump sum as her entitlement from all.
They are using the Family Settlement as a holding account, so have paid the funds from the will trust and the sale proceeds of the property into this and are proposing to pay the 2 income trusts in there too and then pay our client a fixed sum. I have said they should not mix the money from the trusts up as there are tax implications for each (and our client could be liable - they are in full control of everything). They can’t cash the policies though without our client signing what look like standard forms they have filled in naming receiving account as family settlement. I said policy monies should be paid into their solicitors account and kept separate, they refuse to do this as they say it will increase costs and are insisting they are paid into the family settlement. I have said she will retire as a trustee of each providing they provide a full indemnity. They have agreed to this but seem to think that saying this is all that is required. They have said our Client must provide written confirmation that she renounces her trusteeship of the 3 trusts but signs the forms sending policy proceeds into family settlement and they will indemnify her against any future liablilty and pay her off. It is going round in circles with them now making this ‘final offer’. I have been trying to say that there are formalities that have to be followed – deeds of retirement with indemnities and keeping the trust funds separate, with tax liabilities dealt with and with solicitor overseeing funds, but they have accused me of being unreasonable and unnecessarily demanding. I am losing the will to live – any thoughts?

Marie Granby
Maxwell Hodge

Even though your client did not take part in the probate application there is some danger that she could be held accountable as a trustee of the will trust- unless she disclaims the appointment both as executor and trustee, without any possible allegation of having intermeddled.

And she is already a trustee of two settlements. There is authority to the effect that a trustee who knowingly resigns to facilitate a breach of trust is liable as if he or she had concurred in it, and the proposal to pay trust moneys from all four trusts indifferently into the same account may very well be a breach. And there is a high likelihood of unplanned tax charges- the costs of which may be considerably more than the sensible measures you have suggested.

What is being suggested by the other side sounds simple, like a slide on the ice - but it’s deadly! Stand firm.

Tim Gibbons