In Cotterell & Anor v Allendale & Anor [2020] EWHC 2234, the High Court agreed to grant additional powers to the trustees of a family settlement for the purposes of Inheritance Tax planning.
S.57 of the Trustee Act 1925 allows the court to intervene where it deems that it would be expedient for trustees to deal with trust assets in a particular way but the trust deed does not grant them the necessary powers to do so.
- The court can grant the trustees such powers though there has in the past been some debate in the courts about whether they can do this on a general basis or only in respect of specific transactions.
The claimants in the case were the trustees of the Allendale 1949 settlement and the defendants, Lord Allendale and his son, were the trust beneficiaries.
- The settlement was made up of four sub-funds. Lord Allendale had a life interest in one, the ‘W fund’ and his son a life interest in two of the others, one of which was the ‘I fund’.
- The trustees wished to move assets from the W fund to the I fund, in exchange for assets of equivalent value, for Inheritance Tax planning purposes. They considered that the trust deed did not grant them the powers to do this.
- On asking the court to grant them the necessary powers to undertake these specific transactions the trustees asked for eight additional powers unrelated to the transactions.
The court agreed that the transfer of assets between the W fund and the I fund was in the interests of the beneficiaries and granted the trustees the power to implement the necessary transactions. Regarding the additional powers requested:
- The power for the trustees to 'self-deal' such as by purchasing assets owned by the trust was approved but only on the condition of the appointment of an additional independent trustee to protect the beneficiaries.
- The general power to delegate the request was not approved. The trustees failed to show that it was expedient for them to have such a general power so did not persuade the court that it should exercise its discretion to grant one.
- All other additional powers were granted by the court. This included powers to:
- Remunerate corporate trustees despite there not being any such trustees.
- Establish entities.
- Pay assets to a minor.
- Appoint investment advisors.
The trustees here appear to have been diligent in following the rules laid out for them by the trust deed and in seeking to act in the best interest of the beneficiaries, going so far as to go to court to allow them to do so.
With a trust deed that was seventy years old, it is unsurprising that there was a need to make changes to their powers. The trustees of other very old family settlements might do well to check their trust deeds and do the same or find themselves in breach of trust.
Links
UK Trusts
Trusts have been used in various forms for tax planning purposes for many years and the tax legislation has had to evolve with them.
Rectification of Trustee mistakes
Rectification is a remedy that allows trustees’ actions to be overturned by the courts.
IHT: Estate planning checklist
This checklist covers some of the essential planning points that taxpayers should know when planning for their estate and inheritance tax.
External link
Cotterell & Anor v Allendale & Anor [2020] EWHC 2234