Analysis
This was an application by two beneficiaries of the Onorati Settlement, a Jersey discretionary trust (the trust), to set aside a deed of appointment distributing the trust fund to them. The application was made under the so-called principle in Hastings-Bass on the basis that the trustee had failed to take into account considerations which they ought to have taken into account when exercising their discretion, namely the UK tax consequences of making the appointment. Their application was on the basis that the Respondent (the trustee) had failed to take adequate tax advice.
The trust had been divided into three equal parts in 1987. One share was held for the settlor’s daughter (N) and N’s issue. N was resident in England but domiciled in Italy. N’s issue were domiciled and resident in the UK.
N indicated to the trustee that she wished for the entirety of the share in the fund to be appointed to her two children in order to enable them to purchase a house in France. The trustee had advised N to seek her own tax advice in relation to this appointment. The trustee had initially considered appointing the fund to N in order to allow N to make a gift to her children on the basis that this would give rise to a lower tax liability.
N indicated to the trustee that she had taken UK tax advice, and still wished to donate the fund to her children. It was initially intended that the fund would be transferred to a French bank account in N’s name. However, ultimately the trustee appointed the funds directly to the children rather than to N. This was done by way of a deed of appointment in October 2010 in exercise of the trustee’s power of appointment under the trust. This gave rise to a UK income tax and capital gains tax liability of approximately £400,000, which was about 35% of the funds appointed. The trustee at no stage took any professional advice on the tax consequences of the appointments.
Held:
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- 1) The trustee was under a duty to take tax advice on the appointment. Responsibility for deciding on the appointment and considering the tax consequences of any such appointment rested firmly with the trustee;
- 2) The trustee’s failure to take tax advice and its reliance on an oral confirmation from a beneficiary that she had received tax advice was a very clear breach of fiduciary duty.
- 3) In the circumstances of the case, the court’s discretion should be exercised in favour of setting the appointment aside.
- 4) It was not necessary on the facts to consider whether the principle in Hastings-Bass as applied in Jersey should be modified to follow the decision of the UK Supreme Court in Pitt v Holt; Futter v Futter [2013] WTLR 977.
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Note: the Trusts (Jersey) Law was amended by the Trusts (Amendment No.6) Jersey law 2013 (L.15/2013); the amendments aim to place the rule in Hastings-Bass on a statutory footing and to codify the principles developed in relation to mistake.
Judgment SIR MICHAEL BIRT (Bailiff): [1] This is an application by the representors, as beneficiaries of a sub-fund of the Onorati Settlement, for a declaration that a deed of appointment dated 4 October 2010, made by the respondent (‘the trustee’) as trustee is voidable and should be set aside. The application is made under the …Continue reading "Re the Onorati Settlement [2013] JRC 182"