How to change terms of trust
Many farming families use trusts as part of their long-term planning.
However, over time some of the original purposes of a trust may expire and others may develop. It is important
therefore to review a trust regularly to check that it is still fit for purpose and, if appropriate, to wind it up if it is no longer useful or to vary it to reflect a change in circumstances.
There are different ways of varying a trust. One option is to apply for the Court’s permission. A recent case (Greenstreet) has shed some light on how a Court approaches such applications.
Edward Greenstreet died leaving his estate to his son Kieran. Unfortunately Kieran died 7 months later without a Will. Kieran’s estate, including that which he inherited from his father, totalled £520,000 and his three year old son, Rory, would inherit all of this at 18.
Kieran and Rory’s mother, Ellen, were not married. Ellen was adamant that Rory should not inherit at 18, but wanted to postpone this until he was 30. She said: “I am strongly of the view that it is extremely undesirable that Rory should be entitled to income, let alone capital, as soon as he is 18. I do not think it is to the benefit of any child to be in absolute control of that kind of income or capital in their early twenties.”
Ellen needed the Court’s permission to this variation and the Court approved this in part. Rory would continue to be entitled to income from 18, but would inherit 10% of the capital at 21
and the remaining 90% at 25.
Interestingly, the Court ruled that deferring the bulk of a 3 year old’s inheritance from 18 to 25 was a benefit for that child, even though it was impossible to gauge how mature,
vulnerable or immature that child would be at 18.
So if you are a trustee or beneficiary and feel that your particular trust is out-of-date, will a Court application be successful? This will depend on the following.
- What are the benefits of the variation – asset protection, family morals, risk of exploitation, tax saving?
- What are the disadvantages and can these be eliminated or moderated whilst preserving the principal advantages?
- Have you considered the alternative routes to varying the trust?
- Do any or all of the beneficiaries agree with the application?
- If under 18s are involved, are they represented by someone neutral?
- What are the tax implications?
A Court will be accommodating but above all else, the ruling in Greenstreet emphasised the importance of a comprehensive and open presentation of the pros, cons and alternatives.
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