View more on these topics

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.


IFA Ethical Investment Co-Operative targets eco-friendly mortgage borrowers

Mortgage borrowers who are eco-friendly are being targeted for the new ethical mortgage service from IFA Ethical Investment Co-operative (EIC).The ethical mortgage is a joint venture with EIC, building consultancy Thirdwave and a panel of three building societies, Skipton, Yorkshire and Scottish.EIC will identify mortgages for the client that are offered by the three building […]

Abbey to outsource mortage processing

Abbey National is working on plans to outsource the running of its mortgage processing, credit card and general insurance operations in a bid to slash costs by up to £150m a year. It is understand the high street bank is in talks with EDS, the American computer specialist, about taking over its mortgage processing system. […]

IFAs get credit as Skandia surges

Skandia Group claims its faith in the IFA market is responsible for a 102 per cent surge in new business in the six months to June 30.The results move Skandia into the ranks of top-performing life offices for IFA business although direct com-parisons are difficult because offices calculate the figures in different ways.Equivalent premium income […]


At the start of August, the FSA published a consultation paper number 61 on The Regulation of Stakeholder Pensions. At the same time, it issued a press release which included this key point – when there is an advised recommendation to buy a traditional pension (including one linked to a group personal pension), the suitability […]

Bonds in 2017: Stick or twist?

Royal London Asset Management Bond Fund Managers Paola Binns and Craig Inches look at why short duration could be a key tactic for fixed income investors during 2017. Read the full article here The value of investments and the income from them is not guaranteed and may go down as well as up and investors […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm