Anthony Collins (settlor) had three children by his marriage to Valerie Collins, namely Rachel who was born in 1989, Michael who was born in 1991 and Charley who was born in 1998 (children). The settlor was entitled to a whole life policy with Allied Dunbar (policy) and, during the course of divorce proceedings, gave an undertaking to the court to execute a declaration of trust in favour of the children on terms to be agreed between the parties. The settlor did not comply with the undertaking because he did not seek the agreement of Valerie Collins to the terms of any trust. Instead, by unilateral declaration of trust dated 30 September 2005 (2005 declaration) he declared that the policy and all monies payable thereunder was held upon trust for the children in equal shares ‘for as long as they or one of them shall remain in full time education whereafter this declaration shall cease have no effect and the net proceeds of the policy shall revert to me and be held by me absolutely’. As a result of concerns that the 2005 declaration did not carry into effect the intentions of the parties, the settlor made a further declaration of trust on 18 August 2006 (2006 declaration) by which he assigned the policy to his second wife, Tracey Collins, and Gillian Burgess to hold as trustees and declared that they should hold the policy for the benefit of the children in ‘equal shares until the expiry of the term of the said policy’. Unfortunately, the 2006 declaration did not refer to or explain its relation to the 2005 declaration. The settlor died on 19 July 2013 and the proceeds of the policy amounting to £500,000 became payable. Disputes then arose as to who was currently entitled to the policy proceeds and whether there was a claim under the Inheritance (Provision for Family and Dependents) Act 1975. In the event, the parties mediated the dispute and reached heads of terms to the effect that the 2005 declaration should be treated as effective but altered to reflect the true intention of the settlor that one third of the policy proceeds should be paid immediately to each of Rachel and Michael and the remaining third be held on trust for Charley’s maintenance and education until she reached the age of 23 or graduated from university (whichever was the earlier). What was intended as a composite settlement could have been achieved by an application for the approval of a compromise of the contentious issues but, in the event, Tracey Collins undertook to commence proceedings under the Variation of Trusts Act 1958 to vary the 2005 declaration.
Held (not approving the arrangement as drafted):
It was not necessary to determine the exact effect of the 2005 declaration and the 2006 declaration. It was only necessary to be satisfied that the arrangement was more beneficial to Charley (who would attain the age of 18 on 21 September 2016) than the present position under the 2005 declaration and the 2006 declaration. As originally proposed, the arrangement was not approved because it purported to assign the policy to Valerie Collins and Gillian Burgess as trustees and declare that they should hold it and any money arising under it upon trust for the benefit of the children in equal shares, such shares to be subject to the trust until each child reached the age of 23 and thereafter upon trust for that child absolutely. The policy no longer existed; it was now represented by proceeds and what was needed, in order to fulfil the intention, was for Tracey Collins to retire and for Valerie Collins to be appointed in her place as trustee. She and Gillian Burgess could then give a valid receipt for the proceeds. Furthermore, as drawn, its effect did not vest Charley’s share in her upon attaining the age of 23 but rather gave an absolute right to call for the share as soon as she attained 18. Even if it was desired to make her entitlement to capital contingent upon attaining the age of 23, insufficient consideration had been given to the taxation consequences. As a result of these observations made at the hearing, it was now agreed that Charley’s share should vest in her at the age of 18 and there was no doubt that a variation in these terms was for her benefit because it secured an absolute interest as distinct from merely a terminable interest in income. The arrangement could still not be approved in its revised form until a recital was inserted in the order containing an undertaking by Tracey Collins to retire as a trustee and to concur with Gillian Burgess in the appointment of Valerie Collins as a replacement trustee and an alteration in the terms of the trust to the effect that, as from the date of the order, the 2005 declaration should have effect as if the words ‘for as long as… me absolutely’ were deleted and the 2006 declaration should have effect as if the words ‘equal shares until the expiration of the term of the said policy’ were replaced with the words ‘in accordance with the declaration of trust dated 30 September 2005 as varied by Order of the Court’.NORRIS J:  The late Anthony Collins (the settlor) was formerly married to Valerie Collins (Valerie Collins). There were three children of the marriage: a daughter born in 1989 (Rachel): a son born in 1991 (Michael) and a second daughter (Charley) born on 21 September 1998 (collectively the ‘children’).  In the course of their …