In Michael Hamilton Bowack and Ann Jennifer Bowack v Claire Vera Saxton  EWHC(Ch) 1049, the High Court found that discretionary trusts were validly set up despite serious defects in the documentation.
It is a basic principle of English trust law that, in order for a trust of property to be validly constituted, either the owner of the property must declare a trust, whereby that owner becomes trustee, or they must transfer the property to another person to hold on trust for the beneficiaries.
Michael and Ann Bowack were advised to each set up an offshore bond to be held on discretionary trust for the benefit of a class of potential beneficiaries, including their daughter Claire.
- They could not benefit from the trust but were trustees alongside their daughter.
- The bonds were issued, but the provider refused to treat the policies as being held in trust as they questioned whether the trusts were ever properly constituted:
- The trust deeds did not specify the property to be held therein i.e the bond numbers.
- The daughter’s signature on the deeds was not properly witnessed.
- The deeds were not dated.
- The result was that the bonds were owned individually by Mr and Mrs Bowack, and not jointly with their daughter as trustees, which was the original intention.
- Mr and Mrs Bowack appealed to the High Court to seek a declaration that the trusts were properly and completely constituted, or alternatively for rectification of the relevant documents so as to make them conform with their true intentions as settlors.
The High Court found that the trusts were validly constituted and the bonds had been simultaneously assigned to the trusts:
- A failure to express the date on which a trust is constituted is not fatal to its validity, nor is a failure to specifically reference the trust property if it can be identified from the circumstances, and in this case, it could.
- There is nothing to stop someone holding this type of bond from declaring that they hold it on trust for specified beneficiaries. This can be done verbally because it does not involve land, or in writing, without the requirement for a deed.
- Mr and Mrs Bowack had validly signed the trust deed as their signatures were correctly witnessed. The error in respect of their daughter’s signature did not make the trust invalid.
Trusts have been used in various forms for tax planning purposes for many years and the tax legislation has had to evolve with them.
Non-resident trusts have long been used for tax planning purposes and as a result, the legislation has been changed many times in order to deal with perceived tax avoidance.
Trusts & Tax planning
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