This is the one** important case on language you need to know this week (the 'income and profits' decision)

Following on from last week’s post, another case that applied some aspects of the reasoning in the decision profiled last week is Wilson & Anor v Chapman & Anor [2012] QSC 395.

Broadly the background was as follows:

1. Under the terms of a will, a beneficiary who was essentially a life tenant of a trust under the will was entitled to the ‘income and profits’ of the assets of the trust;
2. On the basis that the use of the word ‘profits’ must have meant the willmaker wanted the beneficiary to receive more than simply income, the court considered whether both realised and unrealised capital gains fell within the concept;
3. Acknowledging that for tax purposes a realised capital gain is effectively treated as income, the court also held that at least under the terms of the trust in this will, ‘profits’ included the net income and the net realised capital gains, but not unrealised capital gains.

Practically, a key reason why ‘profits’ did not include unrealised capital gains was the fact that it would be impossible to determine at what points to make the calculation and the trustee had no ability to distribute the unrealised gains under the trust instrument. Similarly there was nothing that would allow the trustee to factor in unrealised losses.

Weight was also put on the fact that the will was drafted by a lawyer so the inclusion of the word ‘profits’ must have been due to the willmaker’s intention to provide something more than only income to the life tenant.

More generally the case is a reminder of the need to ensure care is taken in drafting any will, particularly in relation to the interplay between tax and trust law principles.

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** For the trainspotters, the title of today's post is riffed from the Stone Roses song ‘This is the one’.

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