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  • What are the main reasons for beneficiaries and trustees to seek to alter trusts? Should such consideration be allowed to outweigh the settlor express intentions and if so, why?
  • A trust deed may expressly provide for its variation by the Trustee, which may be conducted without the knowledge or consent of the beneficiary or the need to approach the Courts. Whilst this may be an efficient method of adapting a trust to accommodate changes in circumstances, it exposes the trust to potential abuses by trustees, typically through the amending of the trust deed so as to excuse either past or future breaches.

    Ideally variations are tempered by several simultaneous duties as towards the trust property, the beneficiary and the intention of the settlor. These duties may be summed up as an “irreducible core of obligations”[1] owed by the trustees and enforceable by the beneficiaries, much of which is grounded in the fiduciary nature of this duty that their actions be for the benefit of the beneficiaries. However, this duty is to be balanced against their duty to ‘the wishes of the settlor as expressed [in the trust instrument]’[2]. Complimentary to this, the Trustee is bound to exercise their given powers ‘for the purpose for which…[they were]…granted.’[3]

    Heydon & Leeming say that a corollary of this is that the trustee is to have regard only to matters of relevance[4] and to act impartially as between the beneficiaries when electing to exercise their powers.[5]

    It was held in Armitage v Nurse that where negligence on the part of a Trustee in the performance of their duties has been alleged, they may only be excluded from liability in the presence of “clear and unambiguous words” to that effect.[6] That being said, it was stated in Harrison v Randall that liability of a trustee for deviation from the terms of a trust was a matter of necessity and whether it was for the benefit to the beneficiaries.[7]

    In varying the trust, the trustee is to exercise the standard of care of the ‘ordinary prudent man of business’[8] when deciding to vary the terms. No doubt, where a mistake is made in the furtherance of this goal, the Courts or Inland Revenue will see to its correction.

    (4) Variation by Beneficiary Consent

    The beneficiaries of a trust are free to agree as to the variation of a trust’s terms, similar to the above, an application need not be made to court. The rule in Saunders v Vautier allows a trust to be varied to the extent that it is extinguished in the following circumstances of: (i) an absolute gift; (ii) payable in the future; and (iii) exclusively for the benefit of the beneficiary in question[9]. Two aspects of the rule in Saunders v Vautier[10] should be explored:

    (i) All beneficiaries must consent;

    This rule can only apply to situations in which the transfer of the trust property to a beneficiary under the trust would not prejudice any other beneficiary under the trust. To do otherwise would simultaneously offend the intention of the settlor and breach the duty of the trustee to act impartially and fairly amongst trustees. For example, in the case of Re Horsenaill[11] the Courts would not acquiesce in the sale of an undivided parcel of land held upon trust to one of a group of beneficiaries in equal shares because to do so may compromise the sale of the remainder of the land thus damaging the interests of the other beneficiaries. One might argue that the situation would have been different had all of the beneficiaries agreed to the transaction.

    (ii) Attained the age of majority and legally/mentally capable of consenting to the transfer;

    The significance of this limb is that it champions individual autonomy, which is the entire idea behind the law’s recognition of arrangements reached by mutual agreement. If a person is 18 years of age and they have an indefeasible title to an article of trust property, but may not take receipt until the age of 30; why is their unchallenged gift subject to the ordinary prudent man’s “care and diligence”[12] rather than their own?

    b. Scope of beneficiary consent

    The absolute entitlement to the trust property may allow a beneficiary to extinguish its operation, but it does not follow that they may puppeteer the administration of the trust itself (Re Brockobank)[13]. Variation of a trust by its beneficiaries in a Saunders v Vautier scenario is restricted to the conveyance of legal title. However, exceptions to this follow the subject matter of the trust property. A beneficiary entitled to receive shares in a company may govern the trustee’s exercise of the voting rights attached to those shares[14]. This is distinguished from Brockbank by the coincident common law rights accompany those shares and the acts periphery to the administration of the trust.

    Reference List:

    (1)   Cases (UK)

    Amp (UK) Plc & Anor v Barker & Ors [2000] EWHC Ch 42

    Armitage v Nurse [1997] All ER 705

    Brown v Kennedy (1853) 55 ER 317

    Butt v Kelson [1952] Ch 97       

    Chapman v Chapman [1954] 1 All ER 798

     Edge v Pensions Ombudsman [1999] 4 All ER 546

    Emery (1982) 98 LQR 551

     Harrison v Randall (1852) 68 ER 562

    Knox v Mackinnon (1888) 13 App Cas 753

     Lister v Hodgson (1867) LR 4 Eq 30

    Re Brockobank [1948] 1 All ER 1558

    Re Coxen [1948] 2 All ER 492

    Re Downshire Settled Estates [1953] 1 Ch 218

    Re Horsenail [1909] 1 Ch 631

     Re Speight (1883) 22 Ch D 727

    Saunders v Vautier (1841) 49 ER 282

     Society of Lloyd’s v Robinson [1999] 1 WLR 756

     Wharton v Masterman [1895-9] All ER 687

    (2)   Statute (UK)

     Variation of Trusts Act 1958 (UK)

     Administration of Justice Act 1982 (UK)

     Inheritance (Provision for Family and Dependents) Act 1975 (UK)

     Trustee Act 1925 (UK)

    (3)   Statute (International)

    Succession Act 2006 (NSW)

    Succession Act 1981 (QLD)

    Inheritence (Family Provision) Act 1972 (SA)

    (4)   Books & Articles

     I J Harringham, “The Jurisdiction of Courts of Probate to Rectify Errors in Wills” (1972) 46 ALJ 221

    Heydon & Leeming, “Jacobs’ Law of Trusts in Australia” (2010)

    Meagher, Heydon & Leeming, “Equity: Doctrines & Remedies” (2010)

     



    [1]Jacobs’ Law of Trusts in Australia” (“Jacobs”) at 365

    [2] Jacobs at 369

    [3] Society of Lloyd’s v Robinson [1999] 1 WLR 756 per Steyn LJ

    [4] Jacobs at 378-9

    [5] Edge v Pensions Ombudsman [1999] 4 All ER 546 at 567

    [6] [1997] All ER 705 at 715

    [7] (1852) 68 ER 562 at 567

    [8] Re Speight (1883) 22 Ch D 727 at 762.

    [9] Wharton v Masterman [1895-9] All ER 687 at 691

    [10] (1841) 49 ER 282

    [11] [1909] 1 Ch 631

    [12] Knox v Mackinnon (1888) 13 App Cas 753 at 768

    [13] [1948] 1 All ER 1558

    [14] Butt v Kelson [1952] Ch 97


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