LC4 – Variation of the Trusts

Video 1: an introduction to variation of trusts

For tax reasons – you may have to change the terms of the trusts

When it is in everyones interest to vary the trust, they may so do possibly by the rule in Saunders v
Vautier to terminate the trust

Conditions to invoke the rule:

 Age
 Capacity
 Beneficiaries have to consent.

Inherent powers to vary the trust

 Emergency
 Salvage
 Maintenance
 Compromise
o Allen v Distillers Co Ltd [1974]

Re Downshire Settled Estates [1953]

 Lord Denning: extension of compromise jurisdiction to enable variation

How of lords rejected the extension of compromised jurisdiction in Chapman v Chapman [1954].

Enacted the Variation of Trust Act 1958 instead.

Variation of Trusts Act

 looked to remedy the deficiencies in the law and gave courts jurisdiction to approve variation of
trusts by consenting on behalf of those who could not give their own consent
 they can vary or revoke trusts
 ability to vary all kinds of trusts both realty and personalty
 both inter vivos and testamentary trusts
 Consent needed from all beneficiaries
o But not all beneficiaries can give own consent
o Act enables court to consent on behalf of some categories of beneficiaries ‘if it sees fit’
 Cannot be excluded by the settlor (Goulding v James)

Court can only consent for those who cannot give consent, not those who can but chose not to

S. 1 (1)(a) anyone with an interest under a trust (vested or contingent) but who cant give consent due to
being under age or lacking capacity

 Children under 18
  Physical or mental disabilities

S.1(1)(b) a person who may become entitled at later date

 Re Moncrieff’s Settlement Trust [1962]

o She had a trust which would go to her next of kin when she died
o At the time of the application she has an adopted son – her next of kin
o Only when there is a double contingency the courts can make a decision
 Re Suffert’s Settlement [1961]
o Do the cousins fall within the first part of the definition?
o Yes they do because they may be entitled later
o If Ms S died (single contingency) then ??

S.1(1)(c) Unborn beneficiaries

 Father has a clause which leaves shares to descendants of his son

 Son doesn’t have kids yet – but if he does in the future

S.1(1)(d) Persons under protective trust

 Protective trust is set up when there is a concern of the financial position of the beneficiary
 If the beneficiary tries to declare bankruptcy – the trust turns into a protective trust
 We don’t really need to know this
 Court will take the wishes of the settlor into account for the variation of protective trusts

For s. 1 (1)(), (b), (c), ‘ the court shall not approve any arrangement on behalf of any person unless the
carrying out thereof would be for the benefit of that person’

What do they mean by benefit? Financial, social or moral

Tax savings?

- Re Bernstein [2008]

Non-financial considerations

- Re Remnant’s Settlement Trusts [1970]

- Said it was varied for family harmony even though it would have been more beneficial
financially for the non-breaching sisters child
-
- Re Holt’s Settlement
- Mother wanted to delay the trust to the age of 25
- ‘children should be reasonably advanced in a career and settled in life before they are in receipt
of an income sufficient to make them independent of the need to work’

Trustee must observe the intention of the trust.

To what extent should the court consider the intentions of the settlor?
 - Re Steed’s Will Trusts [1960]
- Protective trust – for the settlors housekeeper but didn’t trust the housekeepers brother
- Court did not need to consider benefit because it falls under s.1.1.d
- Gouding v James [1997]
- Settlor didn’t trust husband of daughter
- Daughter and grandson wanted to vary the trust now
- There were unborn grandchildren on the trust that the court needed to consent for
- The issue of benefit was key in this case
- Court focuses on benefit and ignores the intention of the settlor

For cases that are not protective trusts the intentions are irrelevant.

What does the 1958 Act allow?

- Variation – yes
- Revocation – yes
- Resettlement?
o Only if the new trust is similar in substance to the old trust
o