Deed of Variation R Removal of Unborn Beneficiaries In A Discretionary Trust

SisterMichael

Hi Savings & investment Forum,

We are of course going to seek formal legal advice about the following two questions but would be grateful for the thoughts of the MSE Savings & Investment Forum mind?

My father's Will contains within it a Discretionary Trust (of Residue) into which his assets have been transferred by design upon his death.

MY father had 4 children including me. We are named joint executors of the Will.

The wording in the Will states:

"Trustees of the Discretionary Trust of Residue:

My child W, my child X, my child Y and my child Z. 

Beneficiaries of the Discretionary Trust of Residue:

My child W, my child X, my child Y, my child Z and the issue and remoter issue of child W, child X, child Y and child Z."

Later on in the Will, under the heading 'General Trust Powers', there is a subheading titled 'Power to Remove Beneficiaries' that states "the trustees shall have the power to remove any of the beneficiaries of the said trust."

For various reasons, we (the 4 children) are trying to make a deed of variation and thought we could remove the 'issue and remoter issue' beneficiaries due to our trustees status and the 'Power to Remove Beneficiaries' clause above.   

It has been suggested to us that a deed of variation requires the consent of the possible beneficiaries of the discretionary trust, applying the rule in Saunders v Vautier. Of course we consent, but we are not clear how Saunders v Vautier relates to our case as we are not trying to bring the Trust to a close?

It has also been suggested that the existence of minors (there are none) or unborn beneficiaries within the class would be fatal to any variation, unless authorised by the courts under the Variation of Trusts Act 1958.

My second question is: Given that the Will has met all of the criteria to be considered a legal document, does the Variation of Trusts Act 1958 supersede the 'Power to Remove Beneficiaries' clause in the Will i.e. is it likely that we will need to get a court order?


Thanks!  

Keep_pedalling

Not the best board to post this question in, it really belongs in deaths, funerals and probate so I have reported it and hopefully a mod will move it.

You certainly can’t use a DoV to amend the terms of a will that disadvantages minors, but I can’t see why you would need to if the terms of the trust the will sets up allows the trustees to remove the beneficiaries of the trust. 

Trusts are legal minefields so you do need professional advice. Descresionary trusts are a pain to manage and are subject to some eye watering taxation, what was your father’s reasoning to creat one with his will?

SisterMichael

Thanks, Keep_pedalling.

Sounds silly, but I did not realise that there was a deaths, funerals and probate board - thanks for getting the mods on to it, happy for the thread to be moved.

We are not seeking to amend the terms of the Will to disadvantage minors per se (there are no minors in existence at present), we are doing it to make provision for dad's spouse (still his spouse at date of death although they were separated) - our mother. Mum wants her and dad's grandchildren and greatgrandchildren etc (whenever they exist) to inherit and we would seek to write things in such a way that they do eventually benefit - this significant fact does not help us at the moment. 


Regarding "You certainly can't use a DoV to amend the terms of a will that disadvantages minors, but I can't see why you would need to if the terms of the trust the will sets up allows the trustees to remove the beneficiaries of the trust" - it has been suggested to us that we would still need a court order to follow what is actually written in the will (that we, as trustees, can remove any beneficiaries we see fit) precisely because the Will sets up this Discretionary Trust of Residue. This implies that this Variation of Trusts Act 1958 actually trumps what is plainly written in the will - this is what we are struggling with??


To this day, nobody knows what our dad's reasoning was for setting up this Trust with his will and nobody knew he had set one up at all. Frustrating. 

poseidon1

SisterMichael said:

Thanks, Keep_pedalling.

Sounds silly, but I did not realise that there was a deaths, funerals and probate board - thanks for getting the mods on to it, happy for the thread to be moved.

We are not seeking to amend the terms of the Will to disadvantage minors per se (there are no minors in existence at present), we are doing it to make provision for dad's spouse (still his spouse at date of death although they were separated) - our mother. Mum wants her and dad's grandchildren and greatgrandchildren etc (whenever they exist) to inherit and we would seek to write things in such a way that they do eventually benefit - this significant fact does not help us at the moment. 


Regarding "You certainly can't use a DoV to amend the terms of a will that disadvantages minors, but I can't see why you would need to if the terms of the trust the will sets up allows the trustees to remove the beneficiaries of the trust" - it has been suggested to us that we would still need a court order to follow what is actually written in the will (that we, as trustees, can remove any beneficiaries we see fit) precisely because the Will sets up this Discretionary Trust of Residue. This implies that this Variation of Trusts Act 1958 actually trumps what is plainly written in the will - this is what we are struggling with??


To this day, nobody knows what our dad's reasoning was for setting up this Trust with his will and nobody knew he had set one up at all. Frustrating. 

Seems to me if you are all confused as to why your father foisted a discretionary trust upon you, why bother keep it?

That said, even if you utilise Sauders v Vautier to wind it up in favour of you and your siblings,  you remain subject to the jurisdiction of the Equity courts to consent to this on behalf of the unborn and this remains the case even if you seek instead to use a DOV under the terms of the 1958 Act.

 Protection of unborn/unascertained beneficiaries is a paramount and overriding duty of the courts, since such beneficiaries ( by definition ) cannot speak for themselves, and although you may not see it in these terms, exclusion of the unborn ( or termination of the trust ) is an attempt to circumvent the express intentions of the settlor  as set out in the Will.

Bearing in mind they can by law last up to 125 years, inclusion of the unborn within a discretionary trust structure is entirely standard practice within the trust planning industry, where the settlor's desire is to provide an enduring legacy  for multiple generations. Sadly ( in your case) , this intent is clearly at odds with the wishes of you and your siblings.

Interestingly, from what you have stated, the will does  not appear to include spouses of any beneficiary within the beneficial class, which suggests an intent to retain family money down the bloodline.

Incidentally was IHT levied on the trust fund by reason of your father's demise, and is there any danger of an  exit charge on termination? That might be a reason to delay winding up, although I have to say annual administration and tax compliance for these types of trust can be expensive and complicated, depending on the nature of the assets held.

Hopefully  you will be seeking the advice of a STEP qualified lawyer.

SisterMichael

Thanks for that detailed reply poseidon1, much food for thought.

We had not actually considered winding up that discretionary trust but would the same unborn beneficiaries (which has been suggested may preclude us from doing a deed of variation to the Will) not also be a reason why we are not allowed to wind up the discretionary trust?

Our motivation for a deed of variation and to alter things with the discretionary trust is not at all motivated by any wish to remove unborn beneficiaries, but to somehow include our mother (still our father's spouse at the time of his passing). Our mother (and we) wants any grandchildren and great grandchildren to inherit. This discretionary trust has a value in the 100s of thousands, not millions. Our overarching aim is to place dad's house (where he resided at the time of death) in to a flexible lifetime interest trust naming mum has the primary beneficiary (and we, the four children, as trustees) so that mum can benefit from whatever is generated from the house but the house's worth remains for the future generations. A little complicated, I know. 

Our dad was a complex man and only cared about his bloodline - so you are correct about that. 

We are still trying to understand what taxes relating to the trust would be due but we have indeed paid some IHT already on the entirety of dad's assets (again, hundreds of thousands, not millions).

We are very keen for recommendations for a firm or personal solicitors at a firm who are well versed in this.

Keep_pedalling

Unfortunately trying to control your assets beyond the grave is nearly always a terrible idea and is likely to cause the administrators of the estate a lot of trouble. In this case the first problem this has caused is the payment of IHT which should not happen on the death of a first spouse because it could have been avoided through spousal exemption and this is where a DoV could be very useful if it is at all possible.

We can’t make recommendations for solicitors but look for a local STEP solicitor who specialises in estate planning and trusts. 

poseidon1

SisterMichael said:

Thanks for that detailed reply poseidon1, much food for thought.

We had not actually considered winding up that discretionary trust but would the same unborn beneficiaries (which has been suggested may preclude us from doing a deed of variation to the Will) not also be a reason why we are not allowed to wind up the discretionary trust?

Our motivation for a deed of variation and to alter things with the discretionary trust is not at all motivated by any wish to remove unborn beneficiaries, but to somehow include our mother (still our father's spouse at the time of his passing). Our mother (and we) wants any grandchildren and great grandchildren to inherit. This discretionary trust has a value in the 100s of thousands, not millions. Our overarching aim is to place dad's house (where he resided at the time of death) in to a flexible lifetime interest trust naming mum has the primary beneficiary (and we, the four children, as trustees) so that mum can benefit from whatever is generated from the house but the house's worth remains for the future generations. A little complicated, I know. 

Our dad was a complex man and only cared about his bloodline - so you are correct about that. 

We are still trying to understand what taxes relating to the trust would be due but we have indeed paid some IHT already on the entirety of dad's assets (again, hundreds of thousands, not millions).

We are very keen for recommendations for a firm or personal solicitors at a firm who are well versed in this.

Seems the remaining family situation and wishes are completely at odds with the arrangement your father has seen fit to impose upon you all.

However, if I now  understand you correctly the problem is not a wish to specifically exclude unborns, but a desire to  add your mother to the beneficial class ( your original post was therefore unhelpfully misleading).  I assume for this purpose the will trust does not have a specific clause permitting the trustees to add beneficiaries at their discretion, which would solve the problem without intervention of the courts.

If your mother was still married to your father, I assume for the purpose of this discourse they were separated at his death and he was not supporting her in anyway? If she was in some way still financially dependant on him ( despite the separation ) then she would have an independent right to apply to the courts for support under the Provision for Family and Dependants Act 1975. However there is a time limit for such a claim being within 6 months of the grant of probate.

In any event,  your family dynamics and the complexities of the  arrangements you wish to put in place, are way beyond the competency of this forum to offer any really helpful suggestions and you are best advised to consult a STEP qualified Trust lawyer as soon as possible.

A link to the STEP website is below where you can try and use their search engine to find a suitable firm ( although its a bit clunky).  Alternatively, you could Google ' 'STEP qualified solicitors near me'   and focus on firms with Contentious Trusts expertise who will have more experience with matters requiring  application to the courts for resolution. This is likely to be an expensive process, so the family need to be very clear about their aims and objectives when consulting a practitioner.

https://www.step.org/about-step/public

SisterMichael

Keep_pedalling said:

Unfortunately trying to control your assets beyond the grave is nearly always a terrible idea and is likely to cause the administrators of the estate a lot of trouble. In this case the first problem this has caused is the payment of IHT which should not happen on the death of a first spouse because it could have been avoided through spousal exemption and this is where a DoV could be very useful if it is at all possible.

We can’t make recommendations for solicitors but look for a local STEP solicitor who specialises in estate planning and trusts. 

The way our father set things up has caused us untold grief. Many have asked us why he did things that way and who was advising him - we can answer neither question as he did not tell us and we did not know (whilst he was alive) that he had done this. 

You have got it entirely correct (an IHT bill that will force us to sell the house) when it comes to one of the main reasons we are seeking a DoV at all. As poseidon has referenced below, the Will and trust have been written in such a way that we cannot add mum as a beneficiary. 

We are already mired in researching potential firms on the STEP register and came here to ask the 2 questions in my OP because those 2 issues were put to us and we thought the MSE Forum might give us a bit of an idea as to whether the Power to Remove Beneficiaries written in the Will/Trust might mean we can alter the status of 'issue and remoter issue' as my father termed in in the Will/Trust papers. 

Thanks for your responses, they have certainly helped make a few things clearer whilst we have been seeking a STEP-accredited solicitor/firm. 

SisterMichael

Thanks for your response, poseidon1.

It has been suggested to us by quite a few people that our father was poorly advised whilst he was making these arrangements. It unfortunately would not be the first time this has happened (a few notable examples whilst he was still with us, the consequences of which we are still living with now).

My apologies if my original post was misleading, I thought I had not really given a reason as to why we were asking the question other than that it had been suggested to us that it may be necessary to seek a court order to remove unborn beneficiaries (something that would never have occurred to us) in order to make a deed of variation for any reason. I did not explain that clearly enough!

You are indeed correct - the Will/Trust is written in such a way that we are unable to add mum as a beneficiary. 

The were separated at his death but he was not supporting her (we, the 4 children, were), so unfortunately we are unable to action the Provision for Family and Dependants Act 1975.

We are aware that it will be expensive (from reading related threads on these fora) but it is something we really do not want to get wrong so we are prepared for a heavy bill!

Your responses have also helped to further clarify things, thank you.  

Keep_pedalling

Good luck and please keep us updated as this may be useful for others in similar positions. 

SisterMichael

Thanks, I will indeed update here as and when we know more.