Why it’s important to use precedents correctly

 In Trusts

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Case Summary from LawSkills | Private Client specialist trainersMillar v Millar [2018] EWHC 1926 is a useful reminder of the need to take care when drafting trusts use precedents correctly and always consider their applicability to the needs of the client.

The claimants in this case (Christine and Sarah) are the 2 daughters of Christopher and Janet Pearson who died on 30 March 2015 and 1 July 2005 respectively. The defendants are the husband and three sons of Christine, Sarah being unmarried and without children.

Christopher and Janet were co-owners of 15 Mill Lane, Iffley Village, Oxford – holding the equitable interest as tenants in common. Janet, by her Will, left her residuary estate to Christine and Sarah in equal shares – the effect of this was that Christopher then held 15 Mill Lane on trust for himself as to 50% and for his daughters as to 25% each.

Christine and Sarah consulted solicitors to act in the administration of their mother’s estate and were advised to create a trust during their respective lifetimes for IHT planning purposes to give a life interest to Christopher of their share in the property, and subject to that a life interest to their surviving spouses (if any) and subject to that to Christine and Sarah in equal shares.

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The wording of the settlement contained contradictory wording:

  • Clause 4 provided the life interest for Christopher but then stated that as respects each 25% share the settlor would be entitled to the income of that share and if they had died their spouse would be so entitled and ultimately the capital and income fell back to the settlor or if they had died their issue in equal shares
  • Whereas clause 13 said that nothing could be done to permit any part of the capital or income to be payable to or for the benefit of the settlor or their spouse

Whilst it is normal for the type of clause 13 wording to be included in inter vivos settlements to avoid the creation of a settlor interested trust it clearly was not appropriate if the wording of clause 4 expressed the intention of the parties.

An interesting point was made by the Judge – only the parties to the case are bound by the outcome and since there was no representation for possible future spouses or future children they would not be bound by the decision. A failure, too, to include HMRC in the claim or provide evidence that it did not wish to be joined in also meant HMRC were not bound by any order made.

On the construction point:

  • Principles of the interpretation of commercial documents can be applied to the interpretation of trusts and Wills – Marley v Rawlings [2014] UKSC 2
  • No reason that the construction of a family trust deed should be construed along different lines
  • Because of clause 13 the provisions of clause 4 can never come into operation so clause 13 should have no effect and be disregarded

On the rectification point:

  • A voluntary trust deed can be rectified – Giles v RNRB [2014] EWHC 1373 summarises the basis on which this can be done:
    • There must be clear evidence of the true intention of the parties which was not fulfilled by the document
    • There must be a flaw in the written document such that it does not give effect to the parties/donor’s agreement/intention
    • The specific intention of the parties/donor must be shown with some degree of precision
    • There must be an issue capable of being contested even though all the parties consent
  • There was clear evidence in this case that Christine, Sarah and their families intended to benefit under the trust
  • The flaw in the drafting of the trust deed is inconsistent with those intentions and if the construction point had not prevailed the Judge would have ordered rectification

Another case of the person offering the advice and drafting the document not taking care over the practical implication of what has been prepared.

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Case Summary from LawSkills | Private Client specialist trainers