Trusts - Court Agrees To Correct Trust Error

We all make mistakes…….

When a contract is set up in terms that do not reflect what was intended, the Court can be asked to rectify it.

In a recent case, the approach that the Court took also applies to incorrectly drafted Trust documents.

It concerned a couple who wrote their Wills.  At the time, they provided that on death a family trust was to be set up.  This was primarily to reduce/negate Inheritance Tax. 

When the wife died, the family home was transferred to the Trust with the husband as the beneficial owner of a half share of the property.  The couple’s daughter were entitled to a quarter share each of it.

The potential beneficiaries of the Trust included the settlors, which included the two daughters.  The Trust Deed allowed the Trustees to apply the Trust fund for the benefit of any of the beneficiaries.  However, a latter clause added to the Deed specifically prevented the settlors from benefiting from it. This was a clear drafting error. 

The position was made worse by the addition of the Clause that meant if the Trust failed for any reason, the trust assets would be given to charity.

The matter was brought before the Court and although the family were happy that the Trust Deed should be amended, the Judge did have to consider the potential implications for a future spouse or any children of the settlor, as the Trust Deed made them a contingent gift.

In a lengthy Judgement, the High Court ruled that the Clause which prevented “any part of the Trust income or capital” to be applied for the benefit of a settlor was to be ruled void.

 

Comments from Ruth Mills – Head of Wills & Probate.

The court is an expensive place to get legal documents put right. 

Careful drafting and attention to detail by a professional would have identified the mistake and avoided significant court costs.

Mustoe Shorter is able to offer this professional service and advice to ensure peace of mind.

James Tawse