DG, AN and TTL and TT Limited -v- WM and Others [2009]JRC140

Introduction

This decision of the Royal Court in Jersey provides further illustration of the established principle to the effect that a reduction of a debt is not necessarily a benefit to a beneficiary.

Background

Following the surrender of the trustee's powers to the court, the court gave directions for the appointment of the remaining assets of a discretionary settlement in circumstances where the value of those remaining assets was insufficient to justify the continued existence of the settlement.

The beneficiaries of the settlement included the Settlor, his spouse and his three children and remoter issue Divorce proceedings were ongoing between the Settlor and his second wife.

It was accepted that the settlement should be terminated and the question for the court was as to which of the beneficiaries the remaining assets should be appointed.

The Settlor was in poor health, alcohol dependent and in serious financial difficulty, having various outstanding debt obligations.

The Settlor was the Protector of the settlement and, as such, his consent was required for the appointment out of any of its assets. However, in view of the Settlor's circumstances, the court exercised its inherent power and suspended his powers until further order, thereby bringing into operation the provisions of the settlement to the effect that it would be read as though references to the Protector or his consent would be omitted.

The beneficiaries

The court considered the position of each of the beneficiaries to whom the trust fund could be appointed in exercise of the trustee's dispositive powers.

With regard to the Settlor, it was noted that his letters of wishes indicated that it was his wish that he should be regarded as the principal beneficiary. He had also asked for the assets to be appointed to him so that he could meet his debts. However, the court noted that the trust assets would not be sufficient to discharge all of the Settlor's debts.

With regard to the Settlor's wife, her lawyers supported his claim for the trust fund to be used either to pay his debts or to secure accommodation for him.

Turning to the Settlor's children, they were concerned that an appointment to the Settlor of the trust assets would not really help him to overcome his financial difficulties and also doubted whether the funds would actually be used to discharge his debts, as opposed to being diverted elsewhere.

The children also referred to their understanding that the trust assets would ultimately be utilised for the benefit of themselves or of their children and considered, in the circumstances, that the remaining trust assets should be preserved for the benefit of the Settlor's grandchildren. They therefore sought an order that the trust assets should be distributed to them, for the future benefit of their children, the Settlor's grandchildren.

Reduction of debt: a benefit?

The court referred to In re the Esteem Settlement [2001] JLR 7 where the Royal Court considered whether a reduction of a debt is of itself a benefit. The judgment in that case confirmed that a mere reduction of a debt is not of itself a benefit simply because it results in the debtor owing less money than before. The question is broader than one of mere bookkeeping and "One must stand back and consider whether his [the debtor's] position after the payment would be better from a realistic and commonsense point of view."

Decision

As it was not possible to maintain the settlement in existence and to utilise the assets to provide ongoing accommodation or nursing care to the Settlor, and since an appointment to the Settlor would only achieve a reduction rather than a discharge of his debts (benefiting the recipient creditors rather than the Settlor, who would continue to be significantly indebted), the court concluded that, from a realistic and commonsense point of view, the Settlor's position would not be better after an appointment of the trust assets to him.

Accordingly, the court concluded that it was appropriate, in the circumstances, for the remaining assets to be distributed to the children.