Pemberton v Pemberton & ors [2016] EWHC 2345 (Ch)

Analysis

This case involved a claim by one of the trustees of the Pemberton Settled Estates, originally created on 31 March 1965, for a variation of the settlement. The first to third defendants were the other trustees of the settlement who had in mind the unborn and unascertained beneficiaries. There were also four adult defendants and four defendants who were minor beneficiaries. All defendants supported the variation.

The claimant proposed the following variation:

1. a) to set the perpetuity period running afresh for a further 125 years;
2. b) to confer on the trustees additional administrative powers, particularly investment powers;
3. c) while preserving all existing interests in possession, to create certain reversionary life interests for the surviving ‘spouses’ of the claimant and the claimant’s children (where ‘spouse’ is defined as extending to any civil partner or spouse to a same-sex marriage);
4. d) subject to the foregoing, to create in substitution for the present trusts discretionary trusts during the remainder of the trust period for the benefit of grandchildren and remoter issue of the settlor, their ‘spouses’ (as explained) and their former spouses; and
5. e) to ensure that the Settled Land Act 1925 no longer applies to the settlement.

Held:

1. 1) It is for the benefit of the minor beneficiaries, the unascertained beneficiaries and the unborn potential beneficiaries for the court to approve the variation and, in the exercise of its discretion, the court should do so.
2. 2) The extension to the perpetuity period is a significant benefit for the minor beneficiaries because it provides them, and their issue, with the opportunity to benefit from the trust during their lifetimes without any unavoidable CGT exposure, it removes doubt over the validity of certain aspects of the existing trusts due to historic drafting errors and additional persons who might benefit in future under the arrangement will be the children or remoter issue of non-consenting beneficiaries.
3. 3) The additional administrative powers will allow the trustees to carry out their duties with the flexibility that more modern settlements provide and, as such, are for the benefit of the minor beneficiaries.
4. 4) The creation of reversionary interests is for the benefit of the minor beneficiaries because, despite the deferral of their discretionary interests, their interests are subject to a quasi-general power of appointment and therefore are of no or negligible value. The positive benefit to the minor beneficiaries is that the arrangement provides an opportunity for trust assets to pass them, potentially free of inheritance tax. This is proper mitigation rather than tax avoidance or abuse.
5. 5) The arranging of the substitution of discretionary trusts involves widening the beneficial class of those trusts to include illegitimate beneficiaries, civil partners and spouses under same-sex marriage. This represents the present understanding of what constitutes a family. It may be directly for the benefit of the minor beneficiaries for such classes to be included in future because they may themselves have illegitimate children or enter into civil partnerships or same-sex marriages.
6. 6) As to the Settled Land Act, the removal is in the minor beneficiaries’ interests because it is complex and difficult to apply.
7. 7) The Claimant to pay costs on an indemnity basis because he is the author of the variation, the principal beneficiary under the settlement, and the only person with liquid funds to pay the costs of the litigation.

JUDGMENT HODGE J: [1] This is my extemporary judgment on a Part 8 claim issued by Mr Richard Francis Anthony Pemberton in relation to the Pemberton Settled Estates. The settlement was originally created on 31 March 1965 by the claimant’s grandfather, Sir Francis Wingate William Pemberton. The claimant, together with the first to third defendants, …

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