Most English trusts these days specify a ‘Trust Period’ of
no more than 125 years. In practice,
this means that someone must have a vested interest in the trust assets
(whether that’s vested in possession (i.e. an immediate right to ‘current
enjoyment’) or vested in interest (an immediate right to ‘future enjoyment’)) within
125 years.
Sometimes trusts outstay their welcome, though. If you have a client desperate to find a way
to end a trust, don’t assume there is nothing that can be done. It is sometimes possible to end a trust
without needing the agreement of the trustees (which may not be
forthcoming). Here’s how.
The questions to ask yourself are whether all the
potential beneficiaries of the trust are adults, of full capacity and are their
interests in the trust indefeasible? If
the trust is discretionary, is the class of potential beneficiaries closed and does
it include any minors? If it’s a life
interest trust, are the life tenant and all those interested in the trust after
the life tenant’s death (the remaindermen) adults with vested interests in the
trust assets? Do the remaindermen only
take if they satisfy some contingency (e.g. being alive at the life tenant’s
death)? (No good.) Or it could be the case that a remainderman’s
estate is going to take their share of the trust capital on the life tenant’s
death come what may (that’s good). Some
trusts can be tricky to construe, so if in doubt ask a trust lawyer.
If the only people who can ever benefit from the trust
are adult, of full capacity and have vested interests, there is the potential
to bust the trust. All that is required
is the agreement of all the beneficiaries as to how the trust assets should be
divided up (partitioned). If they can
agree, the case of Saunders v Vautier confirms that the trust can be
busted – hence these trustbusting exercises are sometimes called a Saunders v Vautier variation. The
trust assets can be divided up as required.
For example, in the case of a life interest trust where Mum is the life
tenant and her two stepchildren are the remaindermen, is the agreement that all
the trust assets pass to Mum, or none to Mum and all to the two stepchildren
equally, or to Mum and the two stepchildren equally? Or, rather than bust the trust apart, all the
beneficiaries could agree that the trust should be held on different terms
instead. It’s down to those
beneficiaries to negotiate an agreement but the trustees have no say in the
matter. Once an agreement has been
reached, they must abide by and act on it, unless to do so would put them in
breach of an obligation to a third party.
The agreement is best recorded in a deed as the agreement
will be for no consideration but everyone will want the certainty of knowing
that it binds all concerned.
Remember that these exercises are likely to have tax
consequences, not just personally for those involved but also for the trust
itself. Don’t sign on the dotted line
without taking tax advice first.
I have seen Saunders
v Vautier variations used to great
effect in situations where a parent has died leaving an old will setting up
will trusts. The reasons for including
the will trusts had long since fallen away but the will had not been updated
before death and the family thought they were stuck with them. All the beneficiaries (often the surviving
parent and all adult children only) were happy for the surviving parent to
receive the assets which were due to the will trust. Because the issue was explored by the family
before the second anniversary of the death (though not raised by the solicitor
dealing with the estate administration, sadly), the agreement could also
contain the tax statements more usually found in deeds of variation, so that
the unwinding of the will trusts had no adverse tax effects for anyone. Including the tax statements meant that, for
Inheritance Tax and Capital Gains Tax purposes, it was as though the will had left
the will trust assets to the surviving parent all
along. A happy outcome all round.
