Analysis
The claimant’s father (the testator) died on 21 October 2003 leaving his half share in the matrimonial home and his residual estate to his wife, the defendant, absolutely. On 4 October 2005 the defendant varied those dispositions by a deed of variation which, for inheritance tax purposes, was read back to the date of the testator’s death. The deed of variation created two trusts: the property trust and the will trust.
The property trust held the testator’s half share in the matrimonial property on trust for the defendant for life, with the remainder to the claimant. It included an overriding power of appointment in favour of the property beneficiaries: the defendant, the claimant, the testator’s remoter issue, spouses of the defendant and such remoter issue.
Under the will trust the testator’s residuary estate was held for the defendant for life, with an overriding power of appointment in favour of a class of beneficiaries similar to those under the property trust. Appointments were made shortly thereafter. The claimant was given a life interest in 90% of the property trust and a life interest in the will trust.
In 2013 the claimant was advised by solicitors to add beneficiaries to the classes of the trusts so that if he died before his mother the property would not automatically pass back to her. The claimant agreed and deeds of appointment were executed for both trusts (the 2013 deeds). The effect of the deeds of appointment, in addition to adding additional beneficiaries, was to terminate the claimant’s interest in possession, with associated adverse tax consequences. The claimant was deemed to have made a chargeable transfer for IHT purposes and the funds were now held under the relevant property regime, with ten-yearly charges and exit charges. The claimant’s continuing interest in the trust also meant it was a gift with reservation of benefit.
Held:
Applying Racal Group Services Ltd v Ashmore [1995] and Giles v The Royal National Institute for the Blind [2014]:
- 1) The evidence clearly showed that the trustees’ intention was limited to adding additional beneficiaries to the classes in whose favour the powers of appointment might be exercised. To achieve that, it was not necessary to terminate or replace the claimant’s life interests. There was no evidence the trustees intended to do so.
- 2) Having identified that intention, it followed that the written document was flawed as it made changes to the arrangements which were not intended, wanted or needed. These were not mistakes solely about the fiscal consequences of what the 2013 deeds effected.
- 3) A claim for rectification required a specific intention on the part of the trustees which was present. The fact that the intention could be satisfied in a number of different ways did not prevent this requirement being met (RBC Trustees v Stubbs [2017] applied).
- 4) The requirement for an issue capable of being contested between the parties did not require that an actual dispute existed between the parties and it was irrelevant that rectification was sought or consented to by all the parties (Giles v The Royal National Institute for the Blind [2014]). A non-fiscal issue arose, namely whether the interests in the trusts arose under the 2005 deeds or the 2013 deeds.
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