Tuesday, October 24, 2017

(A sea of) permutations on reading the deed - regulating family trust assets via wills **

View blog - (A sea of) permutations on reading the deed - regulating family trust assets via wills  ** by Matthew Burgess

Recent posts have considered aspects of the prohibition on a trustee fettering its discretion, see -
Fettering of a trustee's discretion – when will it be ignored? ** and Leading case about fettering of a trustee’s discretion

One related issue that we see arise from time to time is an attempt to regulate the distribution of the assets of a trust via a will direction. Generally this approach is adopted on the basis that some argue that a will can have legal force over a trust.

The idea that a willmaker can mandate that a company take certain steps in relation to its assets is clearly untenable (even if the will maker is the sole director and shareholder of the company). The analogous argument that a will maker can somehow force a trust to take certain steps seems (at least conservatively) similarly without basis.

In any event, if the outcome of mandating certain trust distributions is required, a simple deed of variation, with an effective date of the willmaker’s death arguably achieves the same outcome, without any of the esoteric debate about whether a willmaker can regulate trust distributions.

While we do from time to time adopt the ‘delayed commencement’ deed of variation approach we generally recommend against it as it goes against virtually all the benefits of having a discretionary trust in the first place (quite aside from the significant tax and duty risks of such a variation).

Instead, our strong preference is to use one or more of strategies such as memorandums of directions, crafting control roles (such as appointor or principal powers), family councils, bespoke constitutions, trust splitting, trust cloning, independent trustees or gift & loan back arrangements to achieve the required objectives.

** for the trainspotters, ‘a sea of permutation’ is a line from the John Cale/Brian Eno song ‘Lay my Love’, listen hear (sic) - https://www.youtube.com/watch?v=pYvXp7_9GPE

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