When a child may, by virtue of a Will trust or intestacy, become entitled to capital at 18 it may be necessary to consider a deferral of the date on which he might become entitled to that capital and in the case of Wright v Gater [2011] EWHC 2881 Mr Justice Norris summarised the approach to applications made under the VTA 1958.

The Supreme Court handed down its judgment on 9 November 2011 in the case of Jones v Kernott [2011] UKSC 53, which concerns the property rights of cohabitants, some years after one party left, in respect of the division of a property purchased jointly by them. The Court of Appeal had previously determined the equitable interests were still owned 50:50 despite the fact that Mr Kernott left the property in 1993.

Lay trustees often rely on tax and trust professionals to deal with the tax side of the trust’s affairs. However, the duty and responsibility to pay the tax by the due dates for payment rests with the trustees and it will not be a reasonable excuse to say that the trustees relied on professional advisers. However, the failure of the professional advisers to pay the tax on time will doubtless colour the trustees’ view as to whether they wish the said professional to handle the trust in future.

Preparing trusts in Wills providing for the testator’s disabled child is a balancing act between generating a flexible vehicle for both the disabled person’s lifetime and beyond their death and deciding whether the trust needs to be a Disabled Person’s Interest for IHT or whether it would be better to be a Discretionary trust subject to the relevant property regime. The recent case of Barclays Bank Trust Company Ltd as Trustees of the Poppleston Will Trust v HMRC [2011] EWCA 810 examines the construction of such a Will to determine its correct tax treatment on the death of the disabled beneficiary.

The recent case of In the matter of the Duchy of Manchester English & Irish Settled Estates [2011] EWHC 1856 tackles the problem of whether or not certain children of 13th Duke of Manchester were eligible to benefit under the family settlements as ‘issue’ of the 13th Duke’s father or as ‘descendants’ of the 1st Duke given their parents bigamous marriage. Despite the aristocratic handles this is a matter of general interest in the interpretation of trusts particularly where relationships might not be all they appear and yet produce children.

Should trustees and those who advise on the use of trusts to protect assets from broken marriages be concerned about the recent case of Whaley v Whaley [2011] EWCA Civ 617? The Court of Appeal certainly criticised the obfuscation of the husband (whose parents created the relevant trusts) as to the nature of the trusts and the behaviour of the trustees. It is a lesson in how the matrimonial court deals with trust property on divorce.

The Law Commission has issued a supplemental consultation to its Intestacy and Family Provisions Claims on Death consultation paper 191. It invites comment on its review of sections 31 & 32 Trustee Act 1925 by 21 July 2011. http://bit.ly/lTk441

The review focuses on those two well-known and important sections of the Trustee Act 1925 which deal with the administration of income and the advancement of capital.

Trustees who took a decision to carry out work to trust property over a period of six years rather than sell it without taking professional advice were in breach of their duty of care owed to the beneficiaries.  However, fortunately for them, the result was not a loss to the beneficiaries and so no personal liability which would otherwise have fallen on the trustees. As the judge said “it is a case of a thoughtless breach of trust that happens to have turned out well.”

In many cases where one spouse decides to set up or buy a company through which to earn a living, tax advice has meant that it is usual to involve the other spouse as an owner of some shares. The dividend income can then be split favourably between them to avoid one spouse paying unnecessary higher rates of income tax by being the sole recipient of any dividend income.

HMRC tried to apply the settlement code to such situations and despite their failure in the Arctic Systems case have recently tried again in the case of Patmore v HMRC [2010] UKFTT 334 [2010] WTLR 125.

Happy 2011 to you all! After the festive fizz now the new year slumber but hopefully not slump. 2010 was something of a transitional year with a change in government and the beginning of a slight improvement in the economy but 2011 is the beginning of the Coalition’s economic deep freeze which will start in earnest to-day with the increase in VAT to 20%.

As the historians say you cannot understand the present without understanding the past I thought it was timely to review some of the ‘highlights’ of 2010.

Trustees must always distinguish between what is capital and what is income in the management of their trusts since different classes of beneficiaries may benefit from capital compared with income and different taxes apply.

Defining what is capital and what is income sometimes produces a lack of fairness between those beneficiaries who are entitled to the capital and those who are entitled to income. As a consequence the law intervenes and suggests apportionments. The Law Commission was asked to consider some practical difficulties as a result of concerns expressed during the passage of the Trustee Act 2000 through Parliament.

The recent case of Trustees of Bessie Taube Discretionary Settlement Trust & others v HMRC [2010] UK FTT 473 has also had to grapple with this issue.

The ever difficult decision as to the division of property assets on the breakdown of a cohabitation relationship continues to cause inevitable pain. The Court of Appeal has reversed the first instance decision in Jones v Kernott. As Lord Justice Wall said:

“This is a cautionary tale, which all unmarried couples who are contemplating the purchase of residential property as their home, and all solicitors who advise them, should study. The facts are not in dispute and are unusual only in the sense that a great deal of time has elapsed since the parties separated.”

The interesting article by John Woolley in Money Marketing entitled Double by-pass confuses points on perpetuity dated 19 April 2010 and the ensuing debate on the Trust Discussion Forum on this issue gives rise to some rather technical issues to be explained to clients thinking of using a pilot discretionary trust to receive their pension death benefits should the trustees of their pension scheme choose to exercise their discretion according to the member’s letter of wishes. It also calls into question the true benefit of making a by-pass trust for this purpose.

The Emergency Budget produced a modest 45 Budget notes to kick-start the Chancellor’s five year plan to rebuild the British economy. Somewhere in the mix are the 6 issues of interest to private client practitioners which are the subject of this summary.

What should you advise a client to do? The Government has just announced in the Budget 2010 that the Nil Rate Band (NRB) is frozen at £325,000 until 2014/15. The Conservatives announced some time ago that they intend to raise the NRB threshold to £1 million whilst retaining the transferable NRB (TNRB). Even with the current budget deficit the Conservatives maintain they will adhere to this policy, it might just be delayed.

Meanwhile, we have the Government’s statistics for the amount of money in millions of pounds generated by the various taxes both direct and indirect which shows just how small a contribution to the fiscal pot IHT makes. For 2009/10 it represented 2,251 million which sounds a lot until you hear that Beer duties bring in 3,151 million and it is likely that there are more HMRC staff administering IHT than Beer duty!

If the government’s coffers are definitely half full and considerable public sector retrenchment is ahead whichever political party gains power after the election one does have to wonder why we continue with IHT when a mere 2% on income tax would bring in more at the current time or even 3.5% on VAT.

It is this political uncertainty which is surely keeping clients from undertaking tax planning at the current time coupled with their need to retain as much capital as possible to fund their future in a low interest world. How do we suggest clients should approach Will drafting and estate planning against this backdrop?

A trustee will usually retire voluntarily under the statutory powers contained in the Trustee Act 1925. However, it is possible that the retirement may come about because:

• all the beneficiaries (being of full age and capacity) require it,
• by the exercise of an express power contained in the trust deed; or
• by order of the Court

Trusts come in all shapes and sizes but the longer a trust lasts and the larger the potential value of the assets the more likely it is that the beneficiaries will look closely at how the trustees are managing it and this in part depends on their skills in observing the powers they have but also looking ahead to ensure they have sufficient powers.  Some recent cases illustrate the need for vigilance.

The STEP provisions 1st Edition were in need of updating to reflect both changes in the law and practical problems in administration.  It seems hard to think that since the 1st Edition was published we have had the Trusts of Land & Appointment of Trustees Act 1996, the Trustee Act 2000 and the FA 2006.

The Bill has now been heard by the House of Lords and has passed to the House of Commons which will not now be able to consider it further until after 12 October 2009.

The Finance Bill received Royal Assent on 21 July 2009 and as a result the new s.6 and Schedule 2 to the Finance Act 2009 brings in the provisions for an additional rate of income tax and an additional rate for dividends. The consequential amendments include increases to the trust rate and the dividend trust rate. By aligning the trust rate and the dividend trust rate with the highest rates of personal taxation this means that the trust rate increases to 50% from 40% with effect from 6 April 2010 and the dividend trust rate increases from 32.5% to 42.5%.

The so-called simplification of Will drafting by the introduction of the Transferable Nil Rate Band (TNRB) has complicated matters for some clients. Where the clients have been married (or been in a civil partnership) before particular care is required in assessing the use or transferability of the previous spouse/CP unused nil rate band. The Will drafter should focus on where any unused nil rate band may be wasted and whether the client appreciates the options open to him. For a simple checklist to consider in such circumstances please click below.

CHECKLIST - download pdf here

© Gill Steel, LawSkills Ltd. 2009

HM Revenue & Customs (HMRC) are introducing a series of toolkits for agents to provide guidance on risk management (compliance from HMRC’s perspective), and to set out how agents can reduce the likelihood of mistakes occurring in returns.

HMRC believe that using the toolkits will help agents to ensure the completeness and accuracy of returns and thus reduce the potential risk of an HMRC enquiry or inspection.

In a Budget which has been criticised on all sides the Chancellor Alistair Darling has for once not taken the opportunity to alter much which affects the Wills, Probate and Trust practitioner who does not deal with offshore matters. The three headline items are:

• the significant increase in income tax rates on trusts with no interest in possession
• the expansion of the geographic area to which Agricultural Property Relief applies and
• the bringing of IHT into line with the new compliance regime