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Minor information

Returning to trustee investments following our diversion into Individual Pension Accounts, in the July 20 edition I related the story of the Jersey trust that was to be varied to permit transfers of trust property to take place. There were minor trust beneficiaries, which was the reason for needing to go to court for variation.

The provisions for trust variation in Jersey are similar to England in that a court can approve an arrangement to vary the trust on behalf of a minor or incapacitated beneficiary, that is, a beneficiary who cannot give consent himself.

Agreement of all adult and ascertained beneficiaries, who must be of sound mind, is, of course, required in any event before variation can take place.

The court had to consider whether the variation was for the benefit of the beneficiaries and, in this particular case, the decision was to approve the proposed variation.

One of the beneficiaries on whose behalf the court was giving consent was a 19-year-old temporarily resident in Israel. At that age, he was no longer a minor either in Israel or the UK but was still a minor in Jersey. This is an interesting point to bear in mind when a choice of law is available when a trust is being drafted.

Under the Recognition of Trusts Act, a person domiciled in the UK can choose a trust to be governed by any valid trust law. In most cases, it would be sensible to choose the law of the country of domicile of the settlor or the trustees. Where it is intended that the trust should be non-resident, often the law of the trustees&#39 jurisdiction would be chosen.

The settlor should be made aware of any special points or peculiarities of the local law before a commitment is made. It may also make sense to include a provision for the law and forum for the trust administration to be changed by the trustees in certain circumstances.

It will be seen that the basic principle for variation of trusts in Jersey is similar to that in England, namely, that the agreement of all ascertained beneficiaries, who must be of sound mind, is required. This stems from the rule in Saunders v Vautier (1841) although that particular case only established that a beneficiary who has an absolute indefeasible interest in a legacy is not bound to wait until the expiration of the period set out in the will to take it but may require payment at the moment he is competent to give a valid discharge, that is, on reaching majority.

It was only in Wharton v Masterman (1895) that this principle was confirmed as the rule in Saunders v Vautier. Moreover, it was only then that the rule was extended to apply to collective situations, that is, where two or more beneficiaries are between them absolutely entitled or between them absolutely entitled in succession.

This principle was confirmed in re: Nelson (1928) where four beneficiaries were between them absolutely entitled and the court held they could come to court and tell the trustees to hand over the funds.

However, the principle is not followed in all jurisdictions. While the US courts initially followed it, the Massachusetts case of Clafin v Clafin (1889) changed the practice and emphatically rejected the rule. It was held that the testator&#39s (or settlor&#39s) right to dispose of his property as he thought fit should prevail over the beneficiaries&#39 freedom of alienation.

There are some provisions in US trust legislation for a trust to be broken by adult beneficiaries in some circumstances but this is far more limited than the English law equivalent.

It has been said the greatest legacy of Saunders v Vautier has been the ability it gives beneficiaries to terminate or rewrite trusts to lessen the impact of taxes. Of course, any variation has to be done with the consent of the trustees. Otherwise, all the beneficiaries can ask for is for the trust to be terminated. However, the principle can prove extremely useful.

The case under discussion illustrates the importance of all parties connected with a trust understanding its provisions and purpose. Even though considerable expertise was used in setting up a trust, the settlors were under a misunderstanding as to the nature of the trust they had created. The court approved the variation of the trust but this should not be relied on. Furthermore, the choice of law may have some unexpected consequences.

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