Trust law bites back against the Australian Tax Office

The recent decision of the Full Federal Court of Australia in Thomas v Commissioner of Taxation1 is a timely reminder of two points: tax results are often dictated by the rules of the non-tax world, and even unattractive cases sometimes win. We consider the decision further below.

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Filed under Australia, Tax

Australian Tax Office takes action on assurance for Private Groups

The Australian Tax Office’s ("ATO") focus on large privately owned and wealthy groups ("Private Groups") is in full swing with no sign of slowing down in the 2017 year.

With the top 320 large Private Groups holding A$112 billion of net assets and A$122 billion in total business income (2014/2015 year), there is no doubt that the ATO views Private Groups as an integral part of the tax system.

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Filed under Australia, Tax, Uncategorized

Upcoming webinar – Testamentary freedom – alive & well? Lessons from the UK Supreme Court and across the common law world

On Tuesday 25 April 2017 (9.30am – 10.30am BST/4.30pm – 5.30pm HKT), Richard Norridge, Joanne Caen and Gareth Keillor will deliver a webinar for Herbert Smith Freehills clients and contacts looking at developments in relation to testamentary freedom. The recent decision of the UK Supreme Court in Ilott v The Blue Cross (also known as Ilott v Mitson) has breathed new life into the debate in common law countries as to whether family members should be able to make claims for financial provision from the estates of their relatives and, if so how much they should receive.  In this webinar we will consider some of the regimes in place in common law countries, including England & Wales, Hong Kong, Singapore, Australia and New Zealand and the relevance of these issues for private banks, trust companies and other advisers.  The webinar will focus on provision for adult children (both those in need and those without need) and spouses.

The webinar is part of our series of “Soundbite” webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or can be downloaded as podcasts after the event. If you would like to register for a webinar, or to obtain a link to the archived version, please contact Jane Webber.

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Filed under Estates disputes, Private wealth and trusts

Court resolves dispute between parties as to who should hold the power to appoint trustees following settlor’s death

The English High Court has recently approved an application to change the provision of a trust deed relating to the appointment of new trustees.[1] The change was necessary because the original power was reserved exclusively for the settlor, who had died. All adult beneficiaries of the trust supported the change, as did three of the four trustees.

This case illustrates the importance of having succession plans for the power of appointment of new trustees. It also addresses disputes between parties about changes to trust terms.

Background

The case concerned an application to change the provision relating to the appointment of new trustees of a trust. The original settlement gave the power to the settlor during his life. The settlor had died. The application proposed to change the provision for appointment so that the principal beneficiary (as defined in the trust instrument) was granted the power to appoint new trustees, with the written consent of the trustees.

One trustee opposed the application. His view was that the trustees should have the power to nominate and appoint new trustees, with the principal beneficiary holding a veto power. The opposing trustee considered this a better proposal on the basis that:

  1. The collective view of existing trustees may be better informed as to the attributes needed and through their wider collective contacts they may be better able to identify suitable candidates than the principal beneficiary.

  2. Exercise of the veto power by the principal beneficiary would less likely result in any lasting discord than exercise of the veto power of the trustees.

  3. Beneficiaries can be ill fitted to make such important enduring appointments in the wider best interests of all beneficiaries. There are examples of unsuitably partisan and over compliant trustees being appointed by principal beneficiaries for their own ends.

Judgment

The Court granted the application, noting that the change would not be departing radically from the structure the settlor first created. The case was not one where the settlor had originally entrusted the appointment of new trustees to the existing trustees, but rather had reserved to power to himself.

In rejecting the opposing trustee's arguments, the Court noted:

  1. There is no reason why trustees may be better able to identify suitable candidates than the principal beneficiary, and there was no evidence put before the Court to that effect. Further, even if it were true, likely there would be prior informal discussion, so the benefit of the trustees' experience, knowledge and contacts would be available to the principal beneficiary.

  2. The possibility at someone taking offence in relation to the exercise of the veto power existed whether the trustees had the veto power or the principal beneficiary had it. The power to nominate trustees was a fiduciary power and there was no reason to suppose the principal beneficiary would not take his responsibility seriously.

  3. A senior beneficiary, knowing the situation of all the beneficiaries (being members of his extended family), and having enjoyed a long relationship with the trust assets was in a better position than most to decide what qualities were needed in a new trustee.

Comment

The case, whilst fact specific, provides an interesting insight into what a Court will consider when considering changes to the power to appoint trustees and how the Court deals with the situation where one party opposed an application. As noted above, it could have been avoided had the trust deed provided for successor appointors following the settlor's death.

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
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+44 20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
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+852 2101 4167

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Filed under London, Private wealth and trusts

Wills interpreted according to their ordinary and natural meaning despite this not reflecting testators’ intention

The English High Court has recently held that, in a case concerning construction of Wills, the ordinary and natural meaning of survivorship clauses should be given effect to.[1] This operated to mean that certain beneficiaries under the Wills of a husband and wife benefitted twice, which the parties agreed was not the couple's intention. The claimants were the executrices of the couple's estates (and also beneficiaries of the estates). They wished to know how to distribute the estates. The claimants wanted the Court to interpret the Wills in accordance with the couple's intention. This would have meant that they received less under the Wills than they would have done if the Wills were interpreted in their ordinary and natural terms. The defendants were the solicitor who drafted the Wills and his firm.

The case is a reminder to executors of the importance of administering estates in accordance with the terms of the Wills. The case is also a reminder to draftsmen of the importance to accurately convey a testator's intention when drafting a Will.

Background

A husband and wife were both found dead in their home leaving mirror Wills. Under the terms of their Wills, they each left their estate to the other if each survived the other by 28 days. However, in the event that that gift failed they each provided for the disposal of their personal chattels, left pecuniary legacies to the same named individuals and charities and left the residue of their estate to the claimants, also being the executrices of the Wills.

It was not possible to determine which of the couple died first. Therefore, it was not in dispute that the husband, being the younger of the pair, was deemed to have survived his wife. This was so because of the "commorientes rules" under statute. Therefore, under the husband's Will the gift of residue in favour of his wife failed because she was deemed to have pre-deceased him. The husband's Will fell to be distributed in accordance with the provisions in the remainder of his Will.

The key issue for the Court was to determine whether the survivorship clause meant that the wife's gift of residue to her husband also failed. If so, then her Will would also fall to be distributed to the same named individuals and charities as the husband's Will with the residue going to the claimants. The result of this would be that the named individuals and charities would benefit twice (once from the husband's estate and once from the wife's). This was not the couple's intention. Instead, they had intended that in such circumstances other beneficiaries would take the estate of one of them so no beneficiary would benefit twice.

The claimants brought the claim in their role as executrices in order to ascertain how to administer the estates. It was the claimants' position that the correct interpretation of the wife's Will was that the survivorship clause meant the wife's gift to her husband failed. This was so because the wife's Will required the husband to survive her by 28 days in order to inherit her estate. It was the defendants' position that the survivorship clause did not apply to the gift of residue to the husband because inter alia the overall purpose of the Will and the facts known or assumed by the parties at the time the Will was executed did not suggest it should. It was common ground between the parties that the husband and wife did not intend beneficiaries to benefit twice.

Judgment

The Court held that on true construction of the wording of the Will, the survivorship clause meant that the residue gift in favour of the husband failed. In so holding, the Court examined the principles of construction, noting that the starting point was to give the words of the Will their ordinary and natural meaning. The ordinary and natural meaning of the survivorship clause was that anyone who was named in the Will must survive the testator by 28 days in order to take under the Will. The fact that the husband died within 28 days of the wife meant that the gift to the husband failed. This failure could have easily been avoided by different drafting, for example by excluding the effect of the survivorship clause in respect of the relevant spouse and/or the primary gift.

The Court commented that the apparent mistake on the part of the draftsman in failing to give effect to his clients' apparent actual intention may have been capable of being cured through a claim for rectification. However, such a claim was not brought before the Court so the Court declined to rule on it.

Comment

The case serves as a reminder that in considering claims of Will construction, the Court will start by considering the natural and ordinary meaning of the words. If the words are clear and unambiguous then that unambiguous meaning will be given effect to as the testator's intention. This was despite in this case the unambiguous meaning being at odds with the apparent actual intention of the testator.

For draftsmen, it is important to remember to draft in a way which gives effect the client's intention. Failure to do so may give rise not only to dispute as to the meaning of the drafting, but also a potential negligence claim. For executors, it is important to remember your duties in administering the estate and the necessity to administer the estate according to the terms of the Will. This is true even if you know this to be contrary to the testator's actual intention.


[1] Jump and another v Lister and another [2016] EWHC 2160 (Ch)

 

For more information, please contact Richard Norridge, Joanna Caen or your usual Herbert Smith Freehills contact.

Richard Norridge
Richard Norridge
Partner
Email | Profile
+44 20 7466 2686
Joanna Caen
Joanna Caen
Senior Consultant
Email | Profile
+852 2101 4167

 

 

 

 

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Filed under Estates disputes, London

Widow removed as administratrix after persistent breaches in administering the estate

The Hong Kong Court has recently ordered the removal of an administratrix, who was the widow of the deceased, after finding she had misappropriated and converted the estate to her own use, repeatedly breached Court orders and had failed to render a proper and accurate account.[1] This case is a reminder to all administrators to fulfil their duties or face removal.

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Filed under Estates disputes, Hong Kong and Singapore, Private wealth and trusts

Akers v Samba: Trusts over foreign assets

The UK Supreme Court has held that the extinction of a company's beneficial interest under a trust on the transfer of an asset by the trustee to a bona fide purchaser without notice does not constitute a "disposition" under section 127 of the English Insolvency Act 1986 (the "Act"). Accordingly, the transfer of such assets was not void, the assets could not form part of the insolvency estate of the liquidated company, and the beneficiary's interest in the assets was extinguished: Akers v Samba Financial Group [2017] UKSC 6.

The Supreme Court also considered (albeit by way of obiter dicta) the effect of the lex situs in relation to trust assets.

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Filed under Private wealth and trusts, Trust disputes

English High Court confirms that a claim for financial provision from an estate does not survive death of the applicant

Under English law (and the law of many countries with similar legal systems), a dependent of a deceased person can – subject to various conditions – apply to Court for a payment out of the deceased's estate. The basis of this claim is that the dependent received inadequate provision under the will or under the intestacy provisions.

The English High Court has held that a claim for financial provision under section 1 (1) (a) of the Inheritance (Provision for Family and Dependents) Act 1975 (the "Act") will not survive the death of the applicant: Laurel Marilyn Roberts & Ors v Luanne Fresco [2017] EWHC 283. This is so because a right to bring a claim under the Act is not a cause of action unless an order for financial provision is handed down by the Court prior to the applicant's death.

This case is a reminder that the Court will take a strict approach when considering the timing of claims for financial provision under the Act. As such, a person entitled to bring a claim for financial provision must act quickly. Conversely, those acting for an estate should be aware of this limitation when defending claims for financial provision under the Act.   

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Filed under Estates disputes

Is a register of beneficial ownership of companies coming?

As part of the global transparency push, the G20 has committed to implement rules requiring the disclosure of beneficial ownership of legal entities (in addition to automatic exchange of financial account information and the BEPS related transparency measures). On 13 February 2017, Treasury released a consultation paper dealing with part of this agenda – to consult on means to establish a register of beneficial ownership of companies. 

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Filed under Australia, Offshore, Private wealth and trusts

Deceased’s “husband” and daughter both unable to obtain letters of administration

The English High Court has recently refused to grant letters of administration to a deceased's daughter (the "Claimant") despite her having the highest entitlement to the deceased's estate.[1] The dispute involved a challenge by the alleged widower of the deceased (the "Defendant"), who was found not to have been validly married to the deceased. Therefore the Court declined to grant the Defendant letters of administration. Nonetheless, the Court found that the Claimant had deliberately lied to Court and thus also declined to grant her letters of administration. Instead, the Court exercised its jurisdiction to appoint "some other person" as administrator. This case is a reminder that all parties need to act lawfully and properly when presenting evidence or face the consequences.

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Filed under Estates disputes, Hong Kong and Singapore, Private wealth and trusts