Introduction
Facts
Decision
Comment
Excluding someone irrevocably from benefiting from trust assets usually means just that. The magic bullets of mistake and Hastings Bass have had their wings clipped somewhat, though the Jersey courts have pursued their own course in respect of the former and it is all to play for in the Supreme Court regarding the latter. However, what if there were no error involved in the exclusion in any event or the exclusion had been effected just as intended? This was the position faced by the Jersey court in DDD Settlements ([2011] JRC243).
There were three DDD settlements and the settlor was excluded from each of them. The settlor (who was and remained resident and domiciled in Singapore) had been excluded as, at the time the trusts were created, Singapore had an estate tax that would have given rise to a substantial liability on the death of the settlor. Although it was necessary to ensure that the settlor was an excluded person when the trusts were created, it was not necessary that she remain so once the tax was abolished in early 2008.
The adult beneficiaries, some of whom were resident in the United Kingdom, and the trustee applied for the trusts to be varied pursuant to Article 47 of the Trusts (Jersey) Law 1984, so that the settlor would no longer be excluded and could be added as a beneficiary if the trustee exercised its discretion to do so. The application was also supported by the advocate appointed to represent the interests of the unborn and unascertained beneficiaries.
Among other things, Article 47 permits the court to approve (on behalf of unborn beneficiaries) the variation or revocation of all or any of the terms of the trust or the enlarging of the powers of the trustee to manage or administer the trust property. However, approval shall not be given unless the arrangement appears to be for the benefit of such persons. The court recognised that Article 47 was cast in wide terms. Although it rejected the notion that this was a case of enlargement of the power to add beneficiaries, as it could not see that this was necessary for the management of trust property (the power to add being closer to a dispositive power), it accepted that the wording of the article extended to judicial revocation of all or any of the terms of the trust, including those that had arisen from the irrevocable exercise of a power by the trustee. Thus, although any application to revoke a trust provision that resulted from an irrevocable exercise of power by the trustee would be subjected to the closest scrutiny, the court accepted that it did have jurisdiction under Article 47 to do as it was being asked.
The analysis then turned to whether what was being requested could be said to be for the benefit of the unborn beneficiaries. Three purported benefit arguments were advanced. The first was that on the basis of fairness there was no good reason why the settlor should be treated differently from other family members. As benefit to the settlor was not benefit to the unborns, the court understandably rejected the argument.
The second purported benefit was that of the moral obligation to remove the impediment that prevented the settlor from benefiting from the trust. This argument also fell on stony ground. The court distinguished between a settlor in need - such as in In the T Settlement ([2002] JLR 204), where a capital gains tax liability in relation to assets over which she had no claim would have left the settlor bankrupt - and the present case, where the settlor was financially independent and lived comfortably. The court rejected the notion that the views of the adult beneficiaries should be imputed to the unborn children, or that the court should be bound by the views of the adult beneficiaries with regards to their moral obligation. The test was an objective one, with the views of the adult beneficiaries acting only as an aid to the objective assessment by the court of any moral obligation.
Fortunately for the settlor, the third benefit argument - which was the only one also advanced by the advocate for the unborns - did find favour with court. It was asserted that if the court were to give approval as requested, the trustee might be able to consider mechanisms by which savings to capital gains tax otherwise payable by the UK beneficiaries could be made. Citing In the Settlement of Douglas ([2000] JLR 73), the court reaffirmed the position that a variation that resulted in the avoidance, minimisation or deferral of tax was a legitimate benefit for the court to take into account. As there was a good chance that some of the as-yet-unborn beneficiaries would be UK resident, the court was in no doubt that the proposed revocation, which would free up the trustee to consider tax mitigation mechanisms, was for their benefit. Orders were therefore made that had the effect of revoking the exclusion of the settlor under each trust.
This case again demonstrates the willingness of the Jersey court (while still testing applicants and requiring them to meet the relevant legal criteria) to exercise its jurisdiction in a commercial and pragmatic manner. It did not appear to require a blueprint for the tax-saving mechanisms to be actually presented. This may be explained by the trustee having to tread the line between giving indications of possible decisions and mechanisms, while not binding itself regarding the making of future decisions, including even a decision to add the settlor as a beneficiary.
For further information on this topic please contact Oliver Passmore at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).