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TRUST
QUARTERLY
REVIEW
VOLUME 11
ISSUE 1 2013
CONTENTS
03
FOREWORD
Editors’ welcome
04
FATCA
Ellen K Harrison reviews how
the final regulations treat trusts
12
16
20
23
27
31
PRODUCED BY
1
REMOVAL OF PERSONAL
REPRESENTATIVES
Michelle Rose and Julia Hardy
examine recent cases on when
the court will intervene
FRUSTRATION OF WILLS
Jeremy Goldsmith urges
reform of the Wills Act 1837
FORMAL DEFECTS
Roberta Harvey and Aimee
West interpret the Shinorvic
Trust judgment in Jersey
RISK MITIGATION
Chris Moorcroft studies
how different vehicles and
structures can protect trustees
HOME LOANS
Emma Chamberlain argues
that the HMRC approach
is misguided
BOOK REVIEW
Edward Buckland delves into
the latest edition of Drafting
Trusts and Will Trusts
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the
FOREWORD
THE EDITORS
A NEW KIND
OF VOLUME
WELCOME TO THE FIRST ALL-DIGITAL TRUST QUARTERLY REVIEW
T
he application of ancient principles of equity
to rapidly changing modern commercial
and family circumstances is an enduring
challenge. In recent years, that challenge
has taken on a new and interesting
dimension as regulators across the world
seek (not always with unqualified success)
to understand how trusts and similar vehicles work, and how
they can properly be integrated into the system of international
and transnational financial regulation.
There can be few practitioners who have not become acutely
aware of the likely impact of the newest extraterritorial export
from the US: the Foreign Account Tax Compliance Act (FATCA).
Among myriad other difficult provisions, FATCA requires
withholding on payments from certain trusts and other ‘foreign
financial institutions’. Ellen K Harrison discusses the treatment
of trusts and estates under the FATCA withholding regulations.
Michelle Rose and Julia Hardy then look at three recent
cases where the High Court has considered when an executor
may be removed by the court in the exercise of its inherent
jurisdiction. Letterstedt v Broers remains the leading authority,
and these three cases are interesting illustrations of the factual
background that will influence the court’s decision.
In the UK, the Wills Act 1837 is an unusually inflexible
instrument, requiring rigid administrative formalities to be
followed for a will to be valid. This can lead to clear injustice
to intended beneficiaries where there is strong evidence as to
the testator’s real intentions. Jeremy Goldsmith considers the
existing law in the light of the difficult recent case of Marley v
Rawlings, and sets out possible changes to the law in the light
of analogous reforms in foreign jurisdictions.
On a similar note, Roberta Harvey and Aimee West discuss
the recent decision of the Royal Court of Jersey in the Shinorvic
Trust, which involved the old maxim that equity will (or may)
aid the defective execution of a power: an interesting example
where a centuries-old principles may apply in the 21st century.
Chris Moorcroft turns to commercial and reputational
considerations associated with taking on higher-risk business,
such as the trusteeship of a trust with an inherently risky class
of assets, or a trust where settlor expectations may be at variance
with prudent trusteeship. He examines several risk-mitigation
techniques that may be worth considering, including the use
of a range of vehicles to address differing balances of power
in particular family circumstances.
The UK’s HMRC is continuing to investigate a range
of ‘home loan’ schemes – a common UK inheritance taxmitigation technique – and, in a departure from its initial
published guidance, has now stated that any home loan
scheme is ineffective. Emma Chamberlain considers the
technical merits of HMRC’s position and the options that
are open to the settlors of existing arrangements.
Finally, it is 20 years since James Kessler first published
Drafting Trusts and Will Trusts – A Modern Approach.
Edward Buckland reviews the most recent edition.
THE EDITORS
EDITORS
Arabella Murphy, Maurice Turnor Gardner LLP, 201 Bishopsgate, London EC2M 3AB (maternity leave). Ed Powles, Maurice Turnor Gardner LLP, 201 Bishopsgate, London EC2M 3AB,
tel: +44 (0)20 7456 8623, [email protected]. Richard Wilson, 3 Stone Buildings, Lincoln’s Inn, London WC2A 3XL, tel: +44 (0)20 7242 4937, [email protected].
Managing Editor: Louise Polcaro, [email protected]. Chief Executive: David Harvey.
PUBLISHERS
Think, The Pall Mall Deposit, 124-128 Barlby Road, London W10 6BL, tel: +44 (0)20 8962 3020, fax: +44 (0)20 8962 8689, www.thinkpublishing.co.uk.
Publisher: Sam Gallagher. Senior Sub-editor: Alec Johnson. Group Advertising Manager: Tom Fountain, tel: +44 (0)20 8962 1258, [email protected].
The articles published in this review are for general guidance and education only. They do not necessarily represent the views of STEP or TACT. Reliance should not be placed on these articles, nor should
decisions be taken, or not be taken, on the basis of the articles, without specific advice being obtained. ISSN 1466 7932.
© 2013 Society of Trust and Estate Practitioners. All rights in and relating to this publication are expressly reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in
any form or by any means without written permission from the Society of Trust and Estate Practitioners (STEP). The views expressed in Trust Quarterly Review are not necessarily those of STEP and readers
should seek the guidance of a suitably qualified professional before taking any action or entering into any agreement in reliance upon the information contained in this publication. While the publishers have
taken every care in compiling this publication to ensure accuracy at the time of going to press, neither they nor STEP accept liability or responsibility for errors or omissions therein, however caused. STEP does
not endorse or approve any advertisement and has no liability for any loss caused by any reliance on the content of any such advertisement.
WWW. ST E PJ O URN A L.ORG
AP R IL 20 1 3
3
THE FOREIGN
ACCOUNT TAX
COMPLIANCE ACT
WITHHOLDING RULES FOR TRUSTS AND ESTATES
BY ELLEN K HARRISON
C
hapter 4, sections 1471 and 1472 of the US
Internal Revenue Code 1986 (the Code),
enacted as part of the Foreign Account Tax
Compliance Act (FATCA) provisions of the
HIRE Act,1 require withholding of 30 per cent
of the amount of ‘withholdable payments’
made to certain foreign entities unless the
payee qualifies for an exemption from withholding.2 A trust
is considered to be an ‘entity’ for the purposes of FATCA.3
‘Withholdable payments’ means payment of US-source fixed
or determinable annual or periodic income (FDAP) and gross
proceeds from the sale or other disposition of property proceeds
of a type that can produce US-source FDAP.4
Withholding on US-source FDAP has long been required
under Chapter 3 of the Code. However, the definition of FDAP
subject to withholding in Chapter 4 is broader than under
Chapter 3.5 Withholding on gross proceeds is new (except for
backup withholding).6 FATCA continues the general rule that
withholding is not required on US-source income effectively
connected with a US trade or business, but will require
withholding on US-source effectively connected income that
is not taxable in the US due to a treaty that exempts from tax
income not associated with a permanent establishment in the
US.7 Certain payments for goods and services in the ordinary
course of business are not subject to withholding, but this
exemption does not apply to fees normally incurred by trusts
such as investment advisory fees, custodial fees and bank or
brokerage fees.8
Final regulations clarifying the withholding and reporting
obligations were released on 17 January 2013 and published in
the Federal Register on 28 January 2013.9 These obligations are
modified by intergovernmental agreements (IGAs) between
the US and other countries (referred to as ‘FATCA partners’).
The US has entered into IGAs with seven countries10 and is
negotiating with 50 more. Under the IGAs, an alternative
4
A PR I L 2 01 3
means of reporting is allowed and withholding obligations
are modified. Payments to a trust resident in a FATCA
partner jurisdiction are not subject to withholding as long
as the trust complies with its obligations under the IGA, and
these obligations are primarily reporting obligations.11 The
withholding obligations of trusts resident in a FATCA partner
jurisdiction are more limited than under the regulations.12
Under both the regulations and the IGAs, the implementation
of withholding and reporting obligations was deferred to allow
time to develop the mechanisms required to put the rules into
effect. For example, withholding does not commence until
after 31 December 2013, withholding on certain grandfathered
obligations13 is further deferred, and withholding on gross
proceeds applies to sales and dispositions made after
31 December 2016.14
Subject to a deferred effective date, withholding is also
required for certain ‘foreign passthru payments’ made
by foreign financial institutions (FFIs) that enter into an
agreement with the IRS to become ‘participating FFIs’. Foreign
passthru payments are not yet defined by applicable regulations
– the subject is ‘reserved’15 – but the statute defines them as
foreign-source payments to the extent that they represent
US-source FDAP.16 A foreign passthru payment is one designed
to avoid US withholding by making indirect US investments.
For example, payments on debt instruments issued by a foreign
blocker corporation would be passthru payments to the extent
that the blocker corporation has US assets. Withholding for
passthru payments will not begin earlier than six months after
regulations are issued defining passthru payments and in no
case earlier than 1 January 2017.17
Treatment of trusts under FATCA withholding rules
A foreign trust18 is considered to be a foreign entity, its
beneficiaries and/or persons treated as owners under the
grantor trust rules are considered to own equity interests in
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FATCA
ELLEN K HARRISON
the trust, and, if the trust is an ‘investment entity’, the equity
interests are deemed to be ‘financial accounts’. 19
The trust will be considered a US-owned entity if ‘specified
US persons’ own or are treated as owning the requisite amount
of equity interests in the trust. A specified US person is defined
as a person other than a publicly traded corporation, a taxexempt charity, a governmental entity, a charitable remainder
trust exempt from tax under s664 of the Code, a nonexempt
wholly charitable trust, a retirement plan trust, a bank, a
regulated investment company, a real estate investment trust
or a common trust fund.20 An account owned by a US-owned
entity is a ‘US account’.21
A person is considered to have an equity interest in a trust
if (i) that person is treated as the owner of all or a portion of
the trust under the grantor trust rules; (ii) that person is
entitled to a mandatory distribution from the trust; or (iii) that
person may receive a discretionary distribution from the trust
(including by way of the exercise of a power of appointment),
but, in the case of a discretionary beneficiary, only if that person
actually receives a distribution in the relevant calendar year.22
If a US person is treated as the owner of the entire trust, no
beneficiary is also treated as owning a beneficial interest in that
trust.23 This rule does not apply if a foreign person is treated
as owning the trust. For example, if a foreign person creates a
revocable trust that makes distributions to US beneficiaries,
the US beneficiaries are treated as having equity interests
in the trust.24
The treatment of trusts under the FATCA withholding
rules differs depending on whether the foreign trust is a foreign
financial institution (FFI) or a foreign nonfinancial entity
(NFFE). A trust that has primarily investment income and is
professionally managed will be classified as an FFI.25 A trust is
‘professionally managed’ if the trustee is a trust company that
provides fiduciary services to customers or the trustee hires
a professional investment management company to manage
investments. The trust is an FFI if the trust itself or the entity
managing the trust as a trustee or investment manager performs
services, such as investing, administering and managing funds
‘as a business… for or on behalf of a customer’.26 It remains
unclear whether a trust whose trustee is a private trust company
that serves one or only a few trusts is treated as professionally
managed because a private trust company arguably is not
engaged in business and doesn’t have customers. It is also
unclear whether a trust is an FFI if the trustee is an individual
(not an entity) who is a professional trustee.27
The differences in the treatment of a trust depending
on whether it is classified as an FFI or an NFFE concern
the following:
i)determination of whether a trust has
a ‘substantial US owner’
ii) requirements to avoid withholding
iii) ability to obtain refunds of overwithheld tax; and
iv)identification of ‘payee’ to determine
whether withholding is required.
Each of these differences is discussed below.
A) Determination of whether a
trust has a substantial US owner
If the trust is an FFI, it is considered to have a substantial US
owner (and thus to be a US-owned entity) if (i) any specified US
person is treated as the owner of the trust under the grantor
trust rules; or (ii) any specified US person owns more than a
0 per cent interest in the trust.28 However, if the trust is an
NFFE, only a specified US person who is treated as the owner
of a portion of the trust under the grantor trust rules or who
owns more than 10 per cent of the trust is considered to be a
‘substantial US owner’.29 Interests owned by related persons
are aggregated.30
For purposes of determining the 10 per cent threshold for
NFFEs, a person is treated as having a more than a 10 per cent
interest if (i) they receive distributions in a particular year that
exceed either 10 per cent of the value of all distributions during
the year or 10 per cent of the value of the trust; (ii) the value of
their mandatory distribution rights exceeds 10 per cent of the
value of the trust; or (iii) the sum of the distributions received
and the value of the mandatory distribution rights exceeds
either 10 per cent of the value of distributions or 10 per cent
of the value of the trust.31 A de minimis rule provides that a
US person will not be considered a ‘substantial US owner’
if they received USD5,000 or less during the relevant year
and the value of their mandatory distribution rights, if any,
is USD50,000 or less.32
For example, if a person had a right to receive USD20,000
for life, the present value of that right is the value of their
mandatory interest. If they also received a discretionary
distribution in the relevant year, the amount received is
added to the value of the mandatory right to determine the
total value of their interest in the trust. If a person is only
a discretionary beneficiary and receives no distribution in
the relevant year, they are not an owner.33 The regulations
do not address how to value future or contingent mandatory
interests or how the value of the trust is to be determined –
are appraisals required?
A US beneficiary is treated as indirectly owning interests
the trust owns or has options to acquire in other entities,
including a corporation, a partnership or another trust.34
In the case of indirect ownership of another trust, the same
bright-line test described above is used to determine both
direct and indirect ownership. Example 3 in Treas Reg
s1.1473-1(b)(7) illustrates the application of the indirect
ownership rules for the purpose of determining whether a
beneficiary of a foreign trust classified as an NFFE meets the
10 per cent ownership threshold. In example 3, a US person
(U) holds only a discretionary interest in two foreign trusts –
FT1 and FT2. FT2 is also a discretionary beneficiary of FT1.
In year 1, FT1 distributes USD25,000 to U and USD120,000
to FT2 and a total of USD750,000 to all of its beneficiaries,
including U and FT2. FT2 distributes all of its income – the
USD120,000 received from FT1 – to its beneficiaries, of which
U receives USD40,000. U’s discretionary interest in FT1 does
not meet the 10 per cent threshold. Presumably the relevant
AP R IL 2 0 1 3
5
fraction is the sum of the distributions received by U
(USD65,000) over the sum of all distributions made by
FT1 in the same year (USD750,000). U’s discretionary
interest in FT2 does meet the 10 per cent threshold
(USD40,000/USD120,000).
If the trust is classified as an FFI, then the ownership
threshold is ‘more than 0 per cent’ rather than more than
10 per cent, so U would have been a substantial US owner
of both FT1 and FT2, subject to the de minimis rule discussed
above, if applicable to an FFI, which is not entirely clear.
However, in the case of a corporation or partnership
owned by a trust, the trust beneficiaries are indirect owners
in proportion to their beneficial interests in the trust, and
this determination of indirect ownership by trust beneficiaries
is made based on all relevant facts and circumstances.35
Because the facts and circumstances test for determining
indirect ownership is different from the bright-line test for
determining ownership shares in a trust, it is theoretically
possible for a US beneficiary to be treated as indirectly
owning a larger share of an underlying holding company
owned by the trust (which itself may be an FFI) than they
are treated as directly owning in the trust. For example, if
the beneficiary had regularly received distributions in prior
years but did not receive distributions in the current year, they
may be treated as indirectly owning a share of the corporation
owned by the trust based on a facts and circumstances test
that took into account prior patterns of distribution, but
as not owning any equity in the trust itself.
Similarly, if the trust is an NFFE and the holding company is
an FFI, a US beneficiary whose interest in the trust did not meet
the ten per cent threshold could be a substantial US owner of the
holding company because a zero per cent ownership threshold
would be applicable for the FFI.
The indirect ownership rules do not apply at all if the trust
is a participating or deemed-compliant FFI, other than an
owner-documented FFI. However, withholding would apply to
payments made to an underlying holding company that itself was
an FFI unless it were a participating FFI or deemed-compliant
FFI, or another exemption from withholding applied. Thus, the
identification of individual beneficial owners of stock directly held
by a discretionary trust will remain a problem if the corporation
is required to identify individual owners other than on the basis
of actual distributions. The regulations do not adequately address
this issue. The regulations simply say that if indirect ownership
cannot be determined, one can presume that the entity has a
substantial US owner and thus is a US-owned entity.36
B) Requirements to avoid withholding
A trust that is an NFFE can avoid withholding by self-certifying
that it has no substantial US owners or by identifying the
substantial US owners.37 NFFEs that are engaged in active
businesses or whose equity interests are publicly traded are
exempt from withholding.38
6
A PR I L 2 01 3
Unless the trust is an exempt person, a trust that
is classified as an FFI can avoid withholding only by
becoming a participating FFI or a deemed-compliant
FFI, discussed below.
C) Ability to obtain a refund of overwithheld tax
A trust that is a non-participating FFI may not obtain a refund
of tax that was withheld even if the amount exceeds the tax
liability of the trust unless (i) a treaty requires it (and even
then the refund is paid without interest); or (ii) the trust is not
the beneficial owner of the income that was taxed.39 An NFFE
can obtain a refund by providing necessary documentation
concerning US beneficial owners.40
A foreign trust would not normally owe US tax on gross
proceeds, for example, but could not obtain a refund of the
overpaid tax. However, if the trustee makes a distribution
to a beneficiary who is not a nonparticipating FFI, and
the distribution carries out income to the beneficiary, the
beneficiary can seek a refund of overwithheld tax because
the beneficiary is then the ‘beneficial owner’ of the income
on which tax was withheld.41
Example: ABC Trust Company is a Bermuda trust company
that serves as trustee of a Bermuda trust, XYZ Trust. The trust
is entitled to USD100x of gross proceeds from the sale of US
securities in which it has a basis of USD90x. The withholding
agent withholds USD30x of tax – 30 per cent of the gross
proceeds. Because trust is a foreign trust, it is not taxable on
gross proceeds from the sale of US securities and does not
owe any US tax.42 XYZ Trust Company can recover the tax if
it is classified as an NFFE, but not if it is classified as an FFI.
If XYZ Trust is a grantor trust, however, the grantor may
recover the tax. It also may be possible for a beneficiary to
recover the tax if the trustee distributes the gross proceeds to
the beneficiary. The grantor or beneficiary would not be taxable
if they were a nonresident alien.43 If the grantor or beneficiary is
a US person, they would include USD100x of gross proceeds in
calculating their gain. They would report gain of USD10x, would
be allowed to credit the USD30x of withheld tax and, assuming
a capital gains tax rate of 15 per cent, would be entitled to a
refund of USD28.50x.
This rule puts an added burden on trustees to make
distributions where they are necessary to protect the right to
a refund. Moreover, if tax has been withheld, the beneficiary
will become the beneficial owner only of the amount actually
distributed. Unless the trustee can assign the withheld tax to the
beneficiary and count that as a distribution, other assets would
have to be distributed to the beneficiary to make the beneficiary
the beneficial owner of the income.
Income is deemed distributed from trusts under US tax
principles based on aggregate distributions rather than using
a tracing principle. Thus, unless all trust income was deemed
distributed to beneficiaries who are not nonparticpating FFIs,
some of the income will remain beneficially owned by the trust
FATCA
ELLEN K HARRISON
and tax withheld on that share of income will not be refundable
if the trust is a nonparticpating FFI.
It also appears that a beneficiary who is a nonresident alien
would have to file a US tax return to obtain the refund even if
the beneficiary had no US-source income other than FDAP.
D) Identification of ‘payee’ to determine
whether withholding is required
Payments of US-source FDAP to a trust that is a not a
participating FFI, a deemed-compliant FFI or an exempt
person are subject to withholding even if the trust is not the
beneficial owner of the income.44 This rule overrides the general
rule that the payee is the account holder, who may be the
beneficial owner of the account rather than the entity that
has title to the account. This is another example of the
complexity of applying the FATCA withholding rules to trusts.
For example, if the trust is a grantor trust, the grantor is the
beneficial owner of the income. The trust is classified as a ‘flowthrough entity’ under the regulations and the account holder
is deemed to be the grantor.45 The regulations provide that the
‘payee’ is the flow-through entity (the trust) and not the beneficial
owner if the trust is a nonparticipating FFI and the payment is
US-source FDAP. This rule is inapplicable to trusts classified
as NFFEs, to trusts owned entirely by exempt persons46 and to
payments that are not US-source FDAP (such as gross proceeds).
Thus, in the above example, if the XYZ Trust were a revocable
trust owned by a foreign grantor, there should be no withholding
(assuming that documentation of the foreign beneficial owner
was provided) because the payment is not FDAP. However, if the
payment were interest, dividends or other FDAP, withholding
would be required unless the XYZ Trust were a participating
or deemed-compliant FFI or an NFFE, even if the payments
were subject to a lower rate of withholding under a treaty or
the interest were nontaxable portfolio interest.
Treatment of estates under
FATCA withholding regulations
Payments to accounts owned by estates are not subject to the
FATCA withholding rules if the estate provides appropriate
documentation.47 However, it is not clear whether a US estate
that has a beneficial interest in a trust will be considered to be
a substantial US owner of the trust.
How a trust classified as an FFI
can avoid withholding under FATCA
If the trust is an FFI, the trust can avoid withholding if (i) it
enters into an agreement with the IRS to become a participating
FFI; (ii) it is either an exempt person or beneficially owned by
exempt persons;48 or (iii) it is a registered deemed-compliant
FFI or a certified deemed-compliant FFI.49
An FFI that is resident in a country with which the US has a
Model 1 IGA, such as the UK, is a registered deemed-compliant
FFI and exempt from withholding if it meets the obligations
under the IGA, discussed below. An FFI that is resident
in a country with which the US has a Model 2 IGA, such as
Switzerland, is deemed compliant if it enters an agreement
with the IRS to become a participating FFI, but the Model 2
IGA modifies the obligations under the agreement with the
IRS, discussed below.
A trust may become a registered deemed-compliant FFI if
the trustee is an FFI that agrees to ‘sponsor’ the trust of which
it serves as trustee.50 The sponsoring FFI handles reporting for
the sponsored FFI. The same information is required as if the
sponsored trust itself were a participating FFI.
A trust that is an FFI not resident in a FATCA partner
jurisdiction also can avoid withholding without becoming a
participating FFI or a registered deemed-compliant FFI by
becoming a certified deemed-compliant FFI. Categories of
certified deemed-compliant FFIs that are relevant to trusts
include an ‘owner-documented FFI’51 and a sponsored closely
held investment vehicle.52
An owner-documented trust must identify both US and
foreign beneficiaries to the ‘designated withholding agent’, who
then reports information about US beneficiaries to the IRS.53
Reports are required once every three years. Instead of filing an
owners’ report for all owners, both US and foreign, the ownerdocumented FFI can obtain an auditor’s letter from an auditor
or attorney licensed in the US, signed no more than four years
before the date of payment and certifying that the trust is eligible
to be an owner-documented FFI, and provide the withholding
agent with an owner reporting statement and Form W-9 for
each specified US person who owns an interest in the trust.54
A discretionary beneficiary who does not receive a payment
is not an owner.55 Therefore, an owner-documented FFI/trust
that was wholly discretionary, not a grantor trust and made
no distributions in particular year would, theoretically,
have no owners to report. An owner-documented FFI is
exempt from withholding only on payments made through
the designated withholding agent, who must be either a
participating FFI, a US institution or a reporting FFI under
an IGA Model 1 agreement.
A sponsored closely held investment vehicle is an FFI that is
sponsored by another FFI that controls the sponsored FFI. The
sponsored ‘investment vehicle’ must enter into a contractual
arrangement with a sponsoring person, who must be a
participating FFI, a reporting Model 1 IGA FFI or a US financial
institution, under which the sponsor agrees to assume FATCA
responsibilities. The sponsor cannot sponsor the investment
vehicle unless it manages the sponsored entity and is authorised
to enter into contracts on its behalf. The sponsored investment
vehicle may not hold itself out as an investment vehicle for
unrelated parties, and 20 or fewer individuals must own all of the
debt and equity interests, excluding debt held by participating
FFIs, registered deemed-compliant FFIs and certified deemedcompliant FFIs, and equity interests owned by an entity if that
entity owns 100 per cent of the equity in the FFI and is itself
AP R IL 2 0 1 3
7
a sponsored FFI.56 This description appears to include the
underlying holding company of a trust, and the sponsor may be
the trustee of the trust if it is a participating FFI, a Model 1 IGA
FFI or a US financial institution. The sponsor must register with
the IRS. The sponsoring entity provides all of the information
on behalf of the sponsored FFI that the sponsored entity would
have provided if it had been a participating FFI.
GIINs and new Forms W-8
To ease compliance, eligible foreign entities will be issued
identifying numbers called Global Intermediary Identification
Numbers (GIINs).57 Withholding will not be required for
payments to entities that have a GIIN. Eligible entities
include participating FFIs, registered deemed-compliant
FFIs (discussed below), sponsored FFIs and FFIs resident in
a country with which the US has an IGA. Owner-documented
FFIs are not eligible for a GIIN. These numbers will be
published to make it easier for payors to determine whether
payments to a particular entity are subject to withholding.
An FFI that doesn’t have a GIIN will be subject to withholding
unless another exemption applies.58
New Forms W-8 BENE–E will require foreign entities to
identify their classification under FATCA.59 A withholding agent
may rely on documentation of foreign status unless the agent
has reason to know that it is incorrect.60
Obligations of a participating FFI
A trust may become a participating FFI by registering with
the IRS on a secure online web portal, the FATCA Registration
Portal, which will be available on or before 15 July 2013.
A trust that is a participating FFI will be obliged to identify
its beneficiaries and owners who are specified US persons,
specify their interests in the trust and withhold on withholdable
payments and foreign passthru payments to payees who
are nonparticipating FFIs or recalcitrant account owners.61
Recalcitrant account holders are account holders who are not
FFIs and fail to produce required documentation concerning
their status under FATCA.62 Withholding by participating
FFIs begins on payments made after 31 December 2013.63
Withholding on foreign passthru payments is deferred until six
months after regulations are issued defining foreign passthru
payments or beginning 1 January 2017, whichever is later.64
Subject to a transition rule in effect until 2015, an FFI cannot
qualify as a participating FFI or registered deemed-compliant
FFI unless all of its affiliates also qualify.65 In the case of trusts,
the term ‘affiliates’ means trusts that are more than 50 per cent
beneficially owned, directly or indirectly, by the same persons.66
Affiliation does not appear to be based on who the trustees are,
so trusts that have the same trustees would not be affiliates. It
is not the case that a trustee of one trust would necessarily have
knowledge of the existence of other trusts benefiting the same
beneficiaries. Thus, compliance with the affiliation rule may be
difficult for trusts.
8
A PR I L 2 01 3
If a participating FFI is prohibited by law from reporting
the information required with respect to a US account, the
participating FFI must obtain a waiver from the account holder
or close the account.67 If the participating FFI is prohibited by
law from withholding tax as required by FATCA, it must obtain
consent to withhold from the account owner; close, transfer
or block the account; or sell assets that produce withholdable
payments.68 If a trustee could not obtain consent or transfer
the trust to another jurisdiction that allowed reporting and
withholding, the trust could not be a participating FFI.
A participating FFI must adopt verification procedures
to certify that it is carrying out its FATCA responsibilities.69
A new Form 8966, ‘FATCA Report’, will be issued
for participating FFIs to report to the IRS.70 In general, a
participating FFI is required to report, annually, the following
information on accounts held by ‘specified US persons’:
i)The name, address and taxpayer identification number
(TIN) of each account holder that is a specified US person.
ii) The account number.
iii) The account balance or value.
iv)
The payments made with respect to the account during
the calendar year.
v) Such other information as may be required by Form 8966
and its accompanying instructions.
A beneficial interest in a trust owned by a specified US
person may be treated as an ‘account’ owned by a specified
US person.71 In the case of a trust, the payments made to
an account holder means the gross amount paid or credited
to the account holder, including redemptions.72
In the case of accounts held by NFFEs and ownerdocumented FFIs, the information required is:
i) The name of the US-owned entity that is the account holder.
ii) The name, address and TIN of each substantial US owner.
iii) The account number.
iv) The account balance or value.
v)The payments made with respect to the account during
the calendar year.73
Thus, NFFEs and owner-documented FFIs report the
account balance of the entity itself and payments made
with respect to the account of the entity, not individual
‘accounts’ of beneficiaries.
The regulations do not provide adequate guidance for
reporting by a trust classified as a participating FFI. Beneficiaries
of trusts do not have separate accounts, and the reporting format
for NFFEs and owner-documented FFIs should be extended
to trusts that are classified as FFIs but are not also ownerdocumented FFIs.
Instead of reporting as provided above, a participating FFI
may elect to file information returns (Forms 1099) that it would
have been required to file if it were a US financial institution and
all account holders were US individuals.74 However, even if this
election is made, the participating FFI must also file the reports
described in the regulations identifying the US account owners
FATCA
ELLEN K HARRISON
A participating FFI has no reporting or withholding
obligation with respect to accounts held by another
participating or registered deemed-compliant FFI
(i.e. beneficiaries) and supplying account numbers.75 This election
should be modified for trusts to allow foreign trusts to elect to file
the same information returns a US trust would file. These returns
are Forms K-176 and not Forms 1099, and the trustee should not
be required to report the ‘accounts’ owned by beneficiaries, since
they have no ‘accounts’. In the case of accounts held by a USowned entity that is an NFFE or by an owner-documented FFI,
only the accounts of the entity need be reported.
Instead of itself performing the withholding obligations
described above, a participating FFI may elect to provide
its withholding agent with information necessary for the
withholding agent to withhold on payments the participating
FFI receives that are allocable to accounts of recalcitrant
account holders and nonparticipating FFIs.77 This option will
rarely be useful for trusts, particularly discretionary trusts,
because amounts allocable to particular beneficiaries may be
unknown at the time payment is received by the trust. The
amount allocable to a particular beneficiary will typically
depend on the trustee’s exercise of discretion concerning
distributions to beneficiaries during the relevant calendar year.
A participating FFI has no reporting or withholding obligation
with respect to accounts held by another participating or
registered deemed-compliant FFI.78
IGAs
The IGAs modify the obligations of an FFI in several ways. An
FFI in a FATCA partner jurisdiction, like a participating FFI,
must identify US accounts and report specified information
to the relevant tax authorities.
There are two types of IGAs: Model 1 and Model 2. Under a
Model 1 IGA, a financial institution, including a trust, resident in
the FATCA partner jurisdiction is a registered deemed-compliant
FFI and eligible to obtain a GIIN if it complies with the IGA.
Under the Model 1 IGA, a financial institution resident in
the FATCA partner jurisdiction reports to tax authorities
in the FATCA partner jurisdiction, which then share that
information with the IRS.79 In the case of an account owned by
a US-owned entity, only information about the account owned
by the entity and the identity of each specified US person who
is a ‘controlling person’ (discussed below) must be reported,
not the individual interest of each beneficiary in the account.80
A financial institution resident in the Model 1 FATCA partner
jurisdiction, unlike a participating FFI, is not obliged to assume
withholding responsibilities on withholdable payments or
foreign passthru payments made to nonparticipating FFIs or
recalcitrant account holders.81 A financial institution resident
in a Model 1 FATCA partner jurisdiction is not required to
close accounts of recalcitrant account holders if it reports the
information as required under the IGA. Financial institutions in
Model 1 FATCA partner jurisdictions are also not subject to the
rule that prohibits a participating FFI from having affiliates that
are nonparticipating FFIs provided that the affiliate is located
in a jurisdiction that prohibits full compliance with FATCA, the
affiliate is treated as a nonparticipating FFI, the affiliate reports
information about US accounts to the extent permitted by local
law, and the affiliate does not solicit US accounts from persons
not resident in the local jurisdiction and is not otherwise used to
circumvent FATCA obligations.82 A similar rule applies to FFIs
in nonpartner jurisdictions, but only until 31 December 2015.
Financial institutions resident in a Model 2 IGA must
enter agreements with the IRS to become participating FFIs.
Their obligations are the same as those for trusts resident
in jurisdictions that don’t have an IGA, except to the extent
modified in the IGA. The modifications are similar to those
described above for Model I IGAs – withholding on payments to
recalcitrant account owners is waived and such accounts need
not be closed – and a Model 2 jurisdiction financial institution
can have an affiliate that is not a participating or deemedcompliant FFI.83 However, the Model 2 IGA does not waive
the obligation to withhold on payments to nonparticipating
FFIs, as is the case for Model 1 agreements.84 The Model 2 IGA
provides for aggregate reporting to the IRS of payments made
to existing accounts owned by recalcitrant account holders
and nonparticipating FFIs that refuse to allow information
to be provided to the IRS and then provide for the IRS to seek
more information by application to the FATCA partner country
under exchange of information procedures.85 For new accounts
opened after 1 January 2014, the account holder must consent to
disclosure of information as a condition to opening the account.
Model 1 IGAs may be reciprocal, meaning that US financial
institutions are required to report information about accounts
held by residents of the FATCA partner jurisdiction, or
AP R IL 20 1 3
9
nonreciprocal. However, the reporting obligation for a US
financial institution under a reciprocal agreement is much
less onerous than the reporting obligation of a FATCA partner
financial institution. For example, there is apparently no ‘look
through’ rule for accounts held by entities beneficially owned
by residents in the FATCA partner jurisdiction.86
The reporting rules under both Model 1 and Model 2 IGAs
are different from those under Treasury regulations in several
ways. Under the Model 1 IGA, a trust must identify and report
all ‘controlling persons’ who are specified US persons.87 In the
case of a trust, ‘controlling persons’ means the settlor, trustee,
beneficiary, protector, holder of a power of appointment or
any other person who has any control over the trust, without
regard to ownership or shares of beneficial interests. Despite the
adjective ‘controlling’, it appears that the settlor and beneficiary
must be identified even if they have no control. Under both
Model IGAs, an account is a US account if it has any controlling
person who is a US person, regardless of the ownership share
of that person.88 Even if the trust is classified as an NFFE,
there is no 10 per cent threshold; if any specified US person
is a beneficiary, the account is a US account and that person’s
identify must be reported. If the partner country allows it, an
FFI can elect to report using the rules in the regulations rather
than the rules in the IGA.
For trusts resident in a Model 1 partner jurisdiction, the
treatment of a trust classified as an FFI and a trust classified
as an NFFE is essentially the same. This is because there are
no ownership thresholds for reporting (instead, ‘controlling
persons’ are identified). Under the Model 1 IGA, there is
no withholding (and therefore no refunds to be sought) for
payments to trusts resident in the jurisdiction and compliant
with the IGA, or for payments made by such trusts to other
persons, although this could change because the IGA commits
the parties to cooperate in developing withholding rules for
foreign passthru payments and gross proceeds.89 Under the
Model 2 IGA, although withholding does not apply for payments
made to a trust in a Model 2 jurisdiction that complies with the
Model 2 IGA, withholding is waived only for payments made by
such a trust to recalcitrant account owners, and is not waived
for payments made by such trusts to nonparticipating FFIs, so
the classification of a trust as an FFI or an NFFE continues to
be important. The Model 2 IGA similarly commits the parties
to develop withholding rules for foreign passthru payments and
gross proceeds, so the withholding obligations may be increased
in the future.90
The IGAs also expand the definition of exempt persons to
include specific retirement or tax-favoured savings programmes
of the FATCA partner.
Conclusion
FATCA will make significant advances in transparency when it
is fully implemented. It will be difficult for a trust classified as
an FFI to avoid withholding without becoming a participating
or deemed-compliant FFI. And it is critical to avoid withholding
10
A PR I L 2 01 3
due to the ‘no refund’ rule. Becoming an owner-documented
FFI may help. Avoiding classification as an FFI will be difficult
because most trusts have professional management either by
trustees or investment managers.
Theoretically, a trust could avoid withholding by not investing
in the US, so no withholdable payments or foreign passthru
payments would be made to it. As a practical matter, however,
it may be difficult for nonparticipating FFIs to open accounts
with participating FFIs who may not want the added compliance
burden imposed on them by having nonparticipating FFIs as
account holders or recalcitrant account holders. Participating
FFIs and US financial institutions may prefer to deal only
with foreign trusts that furnish GIINs and Forms W-8 BENE
E identifying their classification under the FATCA rules. With
this information, the participating FFI lessens its compliance
burdens because neither reporting nor withholding is required
for payments to a trust that has a GIIN.
The FATCA withholding regulations are a challenge to
understand. There is no separate section of the regulations
addressing withholding rules for trusts. It would be helpful if
the IRS would issue a notice or ruling giving FATCA guidance
specifically for trusts.
Some issues for which trusts need guidance are:
• Whether a trust that is a participating FFI must report
‘accounts’ deemed held by beneficiaries or may report account
information in the aggregate in the same way that an ownerdocumented FFI or NFFE may report or instead elect to file
those forms that a US trust would file, such as Form K-1, in
lieu of Forms 1099 or FATCA reports.
• How to report indirect ownership for entities owned by
discretionary non-grantor trusts.
• Rules for valuing distributions and trust assets for purposes
of the 10 per cent rule and account balances for purposes of
annual FATCA reports.
• The treatment of future and contingent interests.
• Whether the de minimis rule for trusts classified as NFFEs
also applies to trusts classified as FFIs.
• Application to trusts of the rule that a participating FFI
cannot have affiliates that are nonparticipating FFIs.
• Whether a trust managed by an individual professional
trustee or private trust company (or the private trust company
itself ) is an FFI.
• Whether a US estate can be a specified US person who may
be a substantial US owner of a trust or other entity.
• Whether the payment of trustee fees is a withholdable
payment.
• Procedures for a foreign person obtaining a refund of
overwithheld tax.
• Whether a trustee can assign beneficial ownership of income
on which tax has been withheld to facilitate a refund.
ELLEN K HARRISON TEP IS A PARTNER AT PILLSBURY WINTHROP SHAW PITTMAN LLP
FATCA
ELLEN K HARRISON
Hiring Incentive to Restore
Employment Act of 2010,
Public Law 111-147 enacted
18 March 2010
2
Treas Reg ss1.1471-2(a)(1)
and 1.1472-1(b)
3
See e.g. Treas Reg s1.14715(e)(4)(v) examples 5 and 6
4
Treas Reg s1.1473-1(a)
5
Treas Reg s1.1473-1(a).
There are categories of
FDAP that are not subject to
withholding under Chapter 3,
but are subject to withholding
under Chapter 4, such as
bank deposit interest and
portfolio interest. See Treas
Reg s1.1473-1(a)(2)(i)(C),
providing that an amount not
subject to withholding under
Treas Reg s1.1441-2(a) does
not apply to Chapter 4.
However, tax-exempt
municipal bond income is
not FDAP. See Treas Reg
s1.1441-2(b). The reduced
withholding rate provided
by a treaty that is allowed
under Chapter 3 may not
apply to withholding under
Chapter 4. The regulations
do not specifically address
this question
6
Backup withholding under
s3406 of the Code applied
to gross proceeds as well as
other payments but generally
withholding on gross
proceeds paid to foreign
persons was not required
7
Treas Reg s1.1473-1(a)(4).
Withholding also applies to
effectively connected income
earned through a partnership
or limited liability company
8
Treas Reg s1.1473-1(a)(4).
The regulations do not
mention whether trustee fees
qualify for this exemption
9
TD 9610, 78 Fed Reg 5874
10
The IGAs to date are with
the UK, Ireland, Mexico,
Denmark, Spain, Switzerland
and Norway
11
A trust will be considered
resident in a FATCA partner
jurisdiction if it is resident
for tax purposes in such
a jurisdiction. Under the
UK-US IGA, for example, a
trust is resident in the UK if
all trustees are resident in
the UK or, if there are both
UK and non-UK trustees,
if the settlor was resident
and domiciled in the UK.
Section 2.22 of the guidance
notes issued by HMRC
on Implementation of
International Tax Compliance
(US) Regulations 2013, Tax
Analysts Doc 2012-26100
12
Withholding is not required
of trusts resident in a
‘Model 1’ IGA, discussed
below, and is required of
1
trusts resident in a ‘Model 2’
IGA for payments to
nonparticipating FFIs,
but not for payments to
recalcitrant account holders
13
An obligation outstanding
on 1 January 2014 is
grandfathered. Treas
Reg s1.1471-2
14
Treas Reg ss1.1471-2(a),
1.1472-1(b) and 1.1473-1(a)
15
Treas Reg s1.1471-5(h)
16
Section 1471(d)(7) of
the Code
17
Treas Reg s1.1471-4(b)(4)
18
A foreign trust is defined
in s7701(a)(31) of the Code
as a trust that is not subject
to the primary jurisdiction
of a court in the US or that
allows a foreign person
or persons to control any
substantial decision
19
See e.g. Treas Reg s1.14715(e)(4)(v) examples 5
and 6, Treas Reg s1.1471-5
(b)(3)(iii)(B) and Treas Reg
s1.1471-5(b)(1)(iii)
20
Treas Reg s1.1473-1(c).
The term ‘person’ includes
an entity other than an
entity that is disregarded
for tax purposes as an
entity separate from its
owner. Treas Reg s1.14711(b)(94). A payment to an
entity that is disregarded
as an entity separate from
its owner under Treas Reg
s301.7701-2(c)(2)(i) is
treated as paid to the single
owner as payee. Treas Reg
s1.1471-3(a)(v). However,
Treas Reg s301.7701-2(c)
(2)(i) applies to disregarded
business entities, such as
an LLC with a single owner,
and not to a grantor trust.
Grantor trusts are treated
as flow-through entities and
not disregarded entities.
Treas Reg s1.1471-1(b)(54).
Note that although Treas Reg
s1.1473-1(a)(5)(v) provides
that a payment to a grantor
trust is treated as made to
the grantor when paid to the
trust , this has to do with the
timing of the withholding
obligation and does not
make the grantor trust a
disregarded entity. If the
payment is to a grantor trust
that is a nonparticipating
FFI and the payment is
US-source FDAP, withholding
applies even if there is
documentation concerning
the grantor-owner. Treas
Reg s1.1471-3(a)(2) and
-3(a)(3)(ii).
21
Treas Reg s1.1471-5(a)(2).
The determination of
whether an entity is USowned is different under the
regulations and the IGAs
(iii). The rule in clause (iii)
is not applicable to trusts
covered by an IGA,
as discussed below
23
(ii). The definitions of US
person and foreign person
are the same as for purposes
of s7701 of the Code
24
Even though the amounts
received from a grantor trust
are not taxable to the US
beneficiary, they need to
be reported on Forms 3520
25
Treas Reg s1.1471-5(e)(4)
(i)(B); s1.1471-5(e)(4)(v)
examples 5 and 6
26
Treas Reg s1.1471-5(e)(4)
(i)(A)
27
Guidance notes issued by
HMRC on Implementation of
International Tax Compliance
(US) Regulations 2013, Tax
Analysts Doc 2012-26100
state that an individual
professional trustee is a
‘financial institution’. Section
2.20 provides: ‘Trustees
acting on behalf of Trusts
will be seen as a Financial
Institution for the purposes
of this legislation, where
they are a remunerated
independent legal
professional[s] or a trust or
company service provider
as defined in the Money
Laundering Regulations
2007’. The professional
trustee is charged with
responsibility to fulfil the
reporting on behalf of the
trusts of which it is trustee.
Where the trustee is not a
financial institution, the trust
is an NFFE
28
Treas Reg s1.1473-1(b)
(1)(iii); 1.1473-1(b)(5)
29
(1)(iii)
30
(2)(v). This related-party
attribution of ownership rule
is probably limited to NFFEs
as a beneficiary with a more
than zero per cent interest in
a trust classified as an FFI is
considered to be a substantial
US owner and Treas Reg
s1.1471-1(b)(83) says that a
discretionary beneficiary who
does not receive a distribution
is not an owner. Any
discretionary beneficiary who
receives a distribution from a
trust classified as an FFI is a
substantial US owner without
the need for attribution, and
attributing ownership to a
person who does not receive
a distribution is contrary to
the definition of ‘owner’
31
Treas Reg s1.1473-1(b)(3)(ii)
32
Treas Reg s1.1473-1(b)(4).
It is not clear whether this
22
exception applies to a trust
that is an FFI
33
Treas Reg s1.1471-1(a)(83)
34
35
36
(iv). This doesn’t help meet
reporting obligations that
require the identification
of account holders and
account balances
37
38
Treas Reg s1.1472-1(c)
39
Treas Reg s1.1474-2(a)(1)
and 1.1473-1(d)
40
41
Treas Reg ss1.1474-5(a)(1)
and 1.1471-1(b)(7)
42
A foreign trust is taxed like
a nonresident alien individual,
and such a person is not
taxable on the sale of US
securities unless they are
present in the US for 183 days
or more during the relevant
calendar year
43
Claiming the refund may
require the individual to file
a Form 1040NR
44
(3)(ii)
45
Treas Reg s1.1471-1(b)(46).
A grantor trust does not
appear to be treated as a
disregarded entity even if
it is entirely owned by the
grantor, but see 1.1471-1(b)
(94) defining ‘person’ to
exclude a ‘wholly owned
entity that is disregarded for
federal tax purposes’ and
1.1471-5(a)(3)(ii) providing
that a trust is not treated as
an account holder if a person
is treated as the owner of the
entire trust under the grantor
trust rules, in which case
the account holder is the
grantor/owner
46
(v) and 1.1471-3(a)(3)(ii)(B)
47
Treas Reg s1.1471‑5(b)
(2)(iii) provides that an
account owned entirely by
an estate is not a ‘financial
account’ if documentation
includes a copy of the
deceased person’s will or
death certificate and Treas
Reg s1.1471-2(a)(4)(viii)
provides that withholding is
not required for payments
to an account described in
Treas Reg s1.1471-5(b)(2).
Thus, an account owned
by an estate is not a ‘US
account’ even if the decedent
was a US person because
a US account is defined as
a financial account held by
one or more specified US
persons or US-owned foreign
entities. Treas Reg s1.14715(a)(2). A financial account
is a depository or custodial
account or a debt or equity
interest in an investment
entity. Treas Reg s1.1471-5
(b)(1). A trust is treated as
an investment entity if it
has primarily investment
income and is professionally
managed. Treas Reg s1.14715(e)(4)(i) and (v) examples
5 and 6. Thus, an estate’s
beneficial interest in a trust
would not be considered a
US account. However, it is not
clear whether the trust would
be considered to be a USowned entity if a US estate
had a beneficial interest in
the trust
48
Treas Reg s1.1471-6
49
Deemed-compliant FFIs
are defined in Treas Reg
s1.1471‑5(f)
50
Treas Reg s1.1471-5(f)(1)
(i)(F)
51
Treas Reg s1.1471-5(f)(3)
52
Treas Reg s1.1471-5(f)
(2)(iii)
53
Treas Reg s1.1471-3(d)
(6)(iv)
54
(6)(ii)
55
Treas Reg s1.1471-1(b)(83)
56
(2)(iii)
57
Treas Reg s1.1471-1(b)(52)
58
For example, withholding
does not apply to payments
made to exempt persons,
such as governmental
entities, non-profits,
certain retirement plans,
foreign central banks and
international organisations
and payments under
grandfathered obligations.
See Treas Reg s1.1471-2(a)
(4) and Treas Reg s1.14716. Payments made to
nonparticipating FFIs that are
beneficially owned by exempt
persons are not subject
to withholding. Treas Reg
s1.1471-2(a)(4)(v)
59
Draft Forms W-8 BENE-E
(for entities) were released
on 31 May 2012. New draft
Forms W-8 (for individuals)
W-8IMY (for intermediaries),
W-8ECI (for reporting
income effectively connected
with a US trade or business)
and W-8EXP (for certain
exempt persons) have also
been released. The Forms are
available on the IRS website,
irs.gov. When these forms
become final, the prior forms
will become ineffective,
subject to transition rules.
Treas Reg s1.1471-3(d).
Generally, ‘old’ forms will
become ineffective no later
than 1 January 2017
60
61
and (e)
62
Treas Reg s1.1471-5(g)(2)
Treas Reg ss1.1471-4(a)(4);
1.1471-4(e)(2)(v)
66
Treas Reg s1.1471-5(i)(3)
and s954(d)(3) of the Code
67
Treas Reg s1.1471-4(i)(2)
68
and (i)(3)
69
70
(3)(vi)
71
Treas Reg ss1.1471-5(b)(1)
(iii); 1.1471-5(b)(3)(iii)(B)
72
Treas Reg s1.1471-4(d)(4)
(iv)(C)
73
(iii) and (iv)
74
75
(5)(ii)
76
Section 6034A of the Code
requires that Forms K-1 be
filed reporting distributions
to beneficiaries
77
and s1471(b)(3) of the Code
78
See Treas Reg s1.14714(d)(9) example 1. The
participating FFI must
obtain appropriate
documentation showing
that the FFI is a participating
FFI or registered deemed
compliant FFI, including
its GIIN
79
Model 1 IGA Article 4
paragraph 1
80
paragraph 2
81
paragraph 1(e) (unless
the entity is a qualified
intermediary, withholding
partnership or withholding
trust), but the entity
is required to provide
information to the ‘immediate
payor’ of the US-source
withholdable payment
required for withholding
to occur
82
paragraph 5
83
paragraphs 2 and 5
84
paragraph 1(e)
85
paragraph 1(b) and (c),
and paragraph 2
86
paragraph 1(cc) and Article 2
paragraph 2(b)
87
paragraph 1(mm) defines
controlling persons and
Article 2 paragraph 2(a)(1)
requires identification
and reporting
88
paragraph 1(t) and (ff)
89
paragraph 2
90
paragraph 1
63
64
65
AP R IL 20 1 3
11
TO REMOVE OR
NOT TO REMOVE?
ANGUS v EMMOTT, KERSHAW v MICKLETHWAITE AND ALKIN v RAYMOND
BY MICHELLE ROSE AND JULIA HARDY
W
hat will it take to make the court to
intervene and remove a personal
representative? It is evident that
the court has inherent jurisdiction
to remove or substitute personal
representatives, and most
applications of this type are
brought under s50 of the Administration of Justice Act 1985
(s50 AJA).1
Until recently, case law interpreting the statute was sparse
and practitioners mainly relied on the old, but good, authority
of Letterstedt v Broers.2 This Privy Council South African case
provided the key guidance that the same principles will apply
for the removal of personal representatives as will apply to
the removal of trustees, and that the overriding consideration
is whether the trusts are being properly executed. The main
guide for a court in determining this must be ‘the welfare of
the beneficiaries’.
Letterstedt remains good law, but much-needed updated
guidance came for practitioners in a trio of cases decided
in 2010.
Angus v Emmott3
In this unusual case, a dispute arose between the three executors
in the estate of Anthony Steel. Mr Steel was convicted of murder
in 1979 but after spending 19 years in prison protesting his
innocence and after finally being released in 1998 on licence,
his conviction was quashed on appeal in 2003. Unfortunately,
Mr Steel died before his compensation award had been
determined by the Home Secretary.
Mr Steel’s estate was due to benefit from the compensation
award but the administration ground to a halt when a dispute
arose between the three executors: Margaret Angus (Mr Steel’s
partner), Angela Emmott (Mr Steel’s sister ) and Donald
Emmott (Angela’s husband). Theirs was an uneasy alliance
12
A PRI L 2 01 3
from the outset. Margaret was the residuary legatee under
the will and was due to inherit a substantial proportion of
the compensation award. Angela and Donald were entitled to
pecuniary legacies, as were other members of Mr Steel’s family.
The administration was plagued by disagreements between the
executors and their dispute culminated in a final falling-out over
the contents and form of the compensation submission. This
prompted Margaret’s application for the removal of Angela and
Donald as executors.
Margaret’s main allegations were that Angela and Donald had
acted with misconduct regarding the compensation application
and, as she put it, that ‘because of the animosity and apparent
distrust which [Mr and Mrs Emmott] have towards me as their
co-executor, I do not believe it will be possible for us to work
together in a most unsatisfactory situation’.
In considering this, the Court looked first to a 2007 case,
Thomas & Agnes Carvel Foundation v Carvel (2007), in which
Lewison J reaffirmed the key principle cited in Letterstedt:
that the welfare of the beneficiaries and proper execution of
the trusts should be of overriding concern. However, Lewison
J in Carvel also referred to the further guidance set down in
Letterstedt as follows:
• That not every mistake or neglect of duty should persuade
a court to remove executors.
• In cases of positive misconduct the court will have no
difficulty in intervening to remove trustees who have abused
their trust. However, the acts must endanger the trust
property or show a want of honesty, a want of proper capacity
to execute the duties, or a want of reasonable fidelity.4
• That hostility or friction alone is not sufficient reason to
remove personal representatives.
• If the applicant can show that the hostility is preventing the
trust from being administered, the removal is justified.
Back to Angus v Emmott. When deciding the case, Richard
Snowden QC, by reference to Carvel and Letterstedt, found that
REMOVAL OF PERSONAL REPRESENTATIVES
MICHELLE ROSE AND JULIA HARDY
Angela and Donald may have proved misguided in their actions,
but there had been no misconduct. Having said that, the judge
was persuaded that a situation existed ‘in which there is such
a degree of animosity and distrust between the executors that
the due administration of the estate is unlikely to be achieved
expeditiously in the interest of beneficiaries unless some change
is made’.
As matters stood, the application to the Home Secretary
could not be made because the three executors could not agree
on the application’s form and content. However, its submission
was necessary for the proper execution of the estate. The judge
therefore removed all the executors (which, notably, was not
what Margaret had applied for) and replaced them with a
professional executor.
Kershaw v Micklethwaite5
The day after Angus v Emmott was decided, the judgment in
Kershaw v Micklethwaite was handed down.
Mrs Kershaw had died in July 2008 and had named her two
daughters, Mrs Micklethwaite and Mrs Barlow, as her executors,
together with an accountant, Mr Humphries.
Mrs Kershaw’s son was not happy about being passed over
as an executor and raised complaints about the executors and
the way they were administering the estate. Having locus as
a beneficiary of the estate, he brought his application for the
removal of some, or all, of the executors.
The estate contained property, including a farm and some
flats. The will, made in July 2004, stated that the residuary
estate was to be split into fifths, with Mrs Kershaw’s son
receiving two fifths, Mrs Micklethwaite receiving the same
and the last fifth going to Mrs Barlow.
The basis for the son’s application was as follows:
i)that the executors had failed to value the assets in the
estate correctly, in particular that they had obtained
probate valuations of the farm and the flats that were
too low
ii)that the executors had failed to keep the son informed
of progress about the administration, including failing
to provide him with a promised monthly bulletin
iii)that the executors had failed to identify the extent
of the estate properly, in that boundaries to the farm
had not been ascertained and the estate was entitled
to certain other property assets that had not been taken
into account
iv)that there was potential for a conflict of interest with his
sisters being executors because they may wish to acquire
some of the estate’s assets for themselves; and
v)that the relationship between the son and his sisters had
broken down and he lacked confidence in their competence
to deal with the estate.
The Court dismissed each of these reasons in turn. Newey J
directed that:
i)As regards the valuations of the farm and flats, the executors
had obtained valuations prepared by professional valuers
and it was for HMRC to challenge the figures if necessary.
ii)
Regarding the monthly bulletin and updates, certain
oversights were conceded by the executors regarding
the timing of information provided to the son. However,
the judge found that ‘these matters provide no basis for
the removal of the defendants as executors’. Referring to
Letterstedt, Newey J stated ‘it is not indeed every mistake
or neglect of duty, or inaccuracy of conduct of trustees
which will induce courts of equity to remove a trustee
(or, I would add, an executor)’.
iii)
The judge dismissed the allegations regarding the failure to
identify the extent of the estate, directing that the executors
had submitted that they were missing a key conveyance
document and, further, that they had not been aware of the
existence of the land and ground rents omitted from the
assets list.
iv)
Regarding the potential conflicts of interest, the judge was
quick to direct that Mr Kershaw’s sisters had been placed in
their position as executors by their mother’s testamentary
direction and had therefore not chosen to put themselves
in a position of conflict. Furthermore, the judge found that
such potential for conflict must be common among family
members who are also executors, but that this did not create
a need for their removal per se.
v)Finally, the judge agreed that it was ‘abundantly clear’
that the relationship between the sisters and the son
had broken down. The judge commented that this
application was the fifth piece of litigation brought
by the son against Mrs Micklethwaite. The judge also
noted that the son was expressing dissatisfaction about
his mother’s choice of executors very soon after her death
and before he had had any experience of the executors’
manner of administration.
One of the key rulings to emerge from this case was this
comment by Newey J:
‘I am not in a position to assess the rights and wrongs of this
litigation… however, I do not consider that friction or hostility
between an executor and a beneficiary is of itself a reason for
removing the executor… While, though, it may well be that the
administration of the estate could be carried out more quickly
and cheaply were Mr Kershaw and his sisters to be on good
terms, I do not think that the potential problems are such as
to warrant the executors’ removal.’
Notwithstanding the above, reading between the lines of this
case, the judge was not persuaded by the submissions put
forward for the son. The judge also paid great attention to
the reasons submitted as to why Mrs Kershaw had not chosen
her son to be an executor. This may help to explain why each
of the reasons put forward by the son for the removal were so
readily dismissed.
Newey J added two further points to his judgment:
i)First, that it was right to take into consideration the
choice of the testator, Mrs Kershaw, in making her
selection of executors.
AP R IL 20 1 3
13
Advise clients that removal applications should
be a last resort where all other attempts to resolve
the dispute have failed
ii)
Second, a practical point on costs. The judge commented
that changing personal representatives and appointing
a fresh professional executor would increase the costs of
the administration significantly, which would be to the
detriment of the beneficiaries.
Alkin v Raymond 6
Our final case concerns Harry Alkin, a retired solicitor who died
in October 2008.
The applicants were Harry’s widow and his only daughter,
Nicole Price.7
The defendant executors, Mr Raymond and Mr Whelan,
were both former business associates and friends of Harry.
The estate was valued at around GBP2.5 million and was split
in two parts. The first was a discretionary trust in which Harry’s
widow and Nicole were included as discretionary beneficiaries.
The second was a life-interest trust with the income payable
to Harry’s widow. Nicole and Harry’s grandchildren were the
remainder beneficiaries.
Nicole was unhappy about the way the executors were
administering the estate and applied for their removal on
the following grounds:
i)That they had not made any income payments from the
discretionary trust to her mother.
ii)
That they had improperly offered Nicole’s ex-husband
a loan to pay her children’s school fees.
iii)
That Mr Whelan’s behaviour towards Nicole was allegedly
disrespectful and inappropriate. The case bears reading
for details of such behaviour, which include Mr Whelan’s
suggestions to Nicole that she might have cosmetic surgery
and his gift to her one Christmas of some lingerie.
iv)
That the executors had approved payments between
themselves of invoices rendered after Harry’s death,
which had been back-dated to when he was alive,
concerning Harry’s business involvement in Mr
Whelan’s building company.
In making his ruling, Mr A G Bompas QC confirmed the
Letterstedt principle that the main guide the court must apply
was to ensure the welfare of the beneficiaries. Of course, in
this case, unlike the first two considered, there was a clear
differentiation between the defendant executors (who
14
A PRI L 2 01 3
were not beneficiaries) and the applicant beneficiaries,
who were Harry’s family members.
Furthermore, the judge accepted that there could be
situations in which executors could be removed even if it
could be shown that charges of misconduct were not justified
(as in Angus v Emmott). However, he emphasised that, in cases
of friction or hostility between the executors and beneficiaries,
the court had to be satisfied, before it would intervene to remove
them, that the friction or hostility was impeding the proper
execution of the trust.
The judge considered that in exercising his discretion,
considerable importance should be attached to the testator’s
choice of executors (as in Kershaw v Micklethwaite).
Therefore, in deciding Alkin v Raymond, the judge dismissed
all of the beneficiary applicants’ submissions on the grounds
that they lacked substance, save for the submission relating to
the payment of the invoice, which had been back-dated to when
Harry was alive.
Had it not been for the invoice, it appears that the defendant
executors would have held their own and remained in place.
However, the judge found that the invoice was unsubstantiated
in its description of the works carried out, that it related to
overheads of Mr Whelan’s company and that it had not been
approved for payment before Harry’s death.
As a result, and because Mr Raymond had supported the
payment of the invoice out of the estate, the judge directed that
both executors should be replaced, and replacement executors
were appointed instead.
The conclusion to draw from this case is that where there
is clear evidence of misconduct, an application for removal
should succeed.
Practical guidance
As practitioners, we often come across cases where personal
representatives and beneficiaries cannot get on. It is common
for the situation to escalate and for one party to set their sights
on the removal of the other. These recent cases have given
valuable guidance on what the court will consider constitutes
sufficient grounds for removal and what it will not.
The following is not an exhaustive list but should serve
as a useful checklist for consideration in such cases.
REMOVAL OF PERSONAL REPRESENTATIVES
MICHELLE ROSE AND JULIA HARDY
• Courts tend not to look favourably on costly applications
for removal of personal representatives unless there is a
clear and compelling reason to justify the expense.
• The costs of the application could outweigh the benefit,
especially where the estate is small or an alternative means
of resolving the dispute could be achieved.
• The negotiated retirement or replacement of personal
representatives who are failing to please may be cheaper,
less risky and ultimately better.
• Where hostility between the parties is intense, consider
proposing a neutral replacement executor to allow the
existing parties to stand down altogether. This solution
is also appropriate where a personal representative lacks
capacity or is otherwise unable to act.
• Seek to advise clients that removal applications should
be a last resort where all other attempts to resolve the
dispute have failed.
fee is currently GBP465. Applications may be brought separately
or as part of existing proceedings. CPR Part 57.13 and PD 57
provide the criteria that must be followed.
Bear in mind that if there is only one existing personal
representative, you must propose a substitute to ensure there
is always one personal representative remaining to administer
the estate. Additional criteria are required if you are seeking to
substitute, as well as replace, personal representatives.
Applications can be made either before a grant is issued
or afterwards, but bear in mind that making an application
too soon may leave your application prejudiced because it
may be hard to provide sufficient evidence of the appropriate
level of misconduct or hostility on the part of the personal
representatives at such an early stage.
Acting for personal representatives
If your client is faced with defending an application, make sure
that their witness evidence deals with why the testator chose
those particular executors, where possible.
Try to show that, even if there is friction or hostility, it is still
possible to administer the estate effectively.
Set out a checklist of things remaining to be done in the
administration and how quickly they can be achieved, to
illustrate how progress is being made.
Consider proposing a neutral replacement if that appears
to be the only route out of the dispute.
Bear in mind the costs risks of losing an application, especially
where a personal representative is not also a beneficiary.
Question whether the risks of defending an application are
worthwhile. Removal or retirement may, in many cases, prove
to be the wisest choice.
Acting for an applicant
If you find yourself acting for the applicant in a removal
application, be ready to demonstrate that the estate cannot be
properly administered for the benefit of the beneficiaries in the
existing situation.
Remember that applications based on insubstantial
complaints or personal friction, which do not impede the
administration of the estate, will be rejected.
Ask yourself whether the failing complained of is likely to
prevent the proper administration of the estate.
If friction or hostility is all you have to go on, seek to show
that the estate is in deadlock and that the benefits of new
personal representatives will outweigh the additional costs
of their replacement.
Procedure
Applications under s50 AJA are made under CPR Part 8 and are
brought in the Chancery Division of the High Court. The court
See also s1 of the Judicial Trustee Act 1896, s41 of the
Trustee Act 1925 and s116 of the Supreme Court Act 1981
2
Letterstedt v Broers (1884) 9 App Cas 371
3
Angus v Emmott [2010] EWHC 154 (Ch)
1
MICHELLE ROSE IS PARTNER AND HEAD OF PRIVATE CLIENT AND
JULIA HARDY IS AN ASSOCIATE AT VEALE WASBROUGH VIZARDS
In Carvel it was the trustee’s want of capacity that justified her removal
Kershaw v Micklethwaite [2010] EWHC 506 (Ch)
6
Alkin v Raymond [2010] WTLR 1117
7
Nicole also acted as litigation friend for her mother, who suffered from dementia
4
5
AP R IL 20 1 3
15
THE FRUSTRATION OF
GENUINE WILLS
WHY IT IS TIME FOR A DISPENSING POWER
BY JEREMY GOLDSMITH
O
n 23 February 1837 Lord Langdale MR
told the House of Lords that:
‘It is so important to the welfare of
families, and to the general interests of the
community, that men should be able to
dispose of their property by will, and that
their lawful intentions should be faithfully
carried into execution after their deaths, and the laws under
which these objects are to be effected are now attended with so
much doubt and perplexity, that I am induced to hope that an
attempt to introduce some improvement will not be considered
to require any apology.’
He was introducing the Second Reading of what was
to become the Wills Act 1837 (the 1837 Act) later that year.
Despite these noble sentiments and the consequent amendment
to probate law, testators’ ‘lawful intentions’ continue to be
frustrated. This is due not to doubt over the true wishes of a
deceased, but to administrative errors regarding the formality
of their will. The provisions of the 1837 Act prevent the court
from looking behind the objective formalities of a will to
realising the intention of the testator, even where clear
from other evidence.
Nevertheless, attempts to remedy the evil have been made
extensively throughout the common-law jurisdictions. In the
UK the issue has been highlighted by the striking recent case
of Marley v Rawlings,2 where the Court of Appeal knew it was
doing an injustice to the intended beneficiary but declined to set
aside the formalities of the 1837 Act. To prevent the frustration
of a testator’s wishes in future, I propose that the 1837 Act be
amended in line with other jurisdictions, permitting the court
to give weight to external evidence of the testator’s wishes.
The existing law will be explained, followed by an overview of
reforms undertaken in foreign jurisdictions, then by an analysis
of the recent problem case of Marley. The proposed reform will
then be set out as desirable, practical and useful.
16
A PRI L 2 01 3
The 1837 Act
Lord Langdale explained that ‘one would wish it to be practicable
to direct the observation of certain forms for security without
absolutely excluding the validity of wills in which those forms
had not been observed, in cases where in the absence of the
forms full and satisfactory evidence of the genuineness of the
wills could be produced’. Nonetheless, he felt that ‘at present,
all that can be done to avoid the frustration of genuine wills,
whilst you are imposing forms to prevent the imposition of
spurious wills, is to make the directions for those forms as clear,
uniform, and simple, as the nature of the case admits of’.3 These
formalities would be that the testator’s wishes should be in
writing, signed by the testator and by two witnesses, to ensure
that the testator was of sound mind and not under duress when
making that will.
Section 9 of the 1837 Act (as amended by s17 of the
Administration of Justice Act 1982) provides that:
‘No will shall be valid unless –
a)it is in writing, and signed by the testator, or by some other
person in his presence and by his direction; and
b)it appears that the testator intended by his signature to give
effect to the will; and
c)the signature is made or acknowledged by the testator in
the presence of two or more witnesses present at the same
time; and
d)each witness either –
i) attests and signs the will; or
ii)
acknowledges his signature,
in the presence of the testator (but not necessarily in the
presence of any other witness),
but no form of attestation shall be necessary.’
The Administration of Justice Act 1982 also gave powers to the
court to rectify a will where the testator’s wishes are unclear on a
WILLS REFORM
JEREMY GOLDSMITH
literal construction (s20) and extrinsic evidence may be adduced
to ascertain the testator’s wishes (s21). No power was given to
rectify deficiencies in execution.
Reforms in other jurisdictions
Notwithstanding this, there have been developments in
countries that initially adopted the principles of the 1837 Act
in their own domestic legislation. The first movement came in
November 1975, when South Australia amended its probate law
(‘the 1975 Act’).4 This introduced a ‘dispensing power’ where a
court would have the discretion to admit to probate a document
claiming to be will, even if the 1837 Act formalities had not been
complied with.
Shortly before this (January 1975), the US law professor
John H Langbein advocated an alternative approach to
remedying defective wills: ‘substantial compliance’.5 This
principle, taken from contract law, states that if a document
appears to all intents and purposes to be a will, but there has
been some defect in the signing or witnessing of it, the court may
consider it a valid will. Following Langbein’s article, Queensland
introduced substantial compliance in 1981 (still in force).6
Critics of substantial compliance argue that while intended
to implement a testator’s wishes, it may inadvertently admit
fraudulent or draft wills.7
The Queensland experiment was generally held to be a
failure: the evidential benchmark was so high the legislation
let in very few wills that would otherwise fail, in comparison
to a dispensing power provision.8 Even Langbein later came to
favour the dispensing power approach.9
The South Australian model was soon emulated elsewhere.
All the other Australian states have now adopted dispensing
power legislation: Western Australia (1987), New South Wales
(1989), Northern Territory (1990), Australian Capital Territory
(1991), Tasmania (1992) and Victoria (1997).
Canada was also quick to create a dispensing power. Manitoba
led the way in 1983, followed by Prince Edward Island (1988), Nova
Scotia (1989), Saskatchewan (1990), Quebec (1993 – substantial
compliance), New Brunswick (1997) and Alberta (2010). In 2000
the Uniform Law Conference of Canada, a body recommending
harmonised legislation to be enacted by the provinces, included
a dispensing power in its Wills Amendment Act.
Reform in West Indian and African states that adopted the
provisions of the 1837 Act has been slower. Although South
Africa moved to a dispensing power in 1992 and Zimbabwe
in 1998, many other jurisdictions, such as Kenya and Nigeria,
have retained their formalities requirements.
Most recently, the US amended its Uniform Probate Code –
intended to provide a model for individual states to enact, much
as in the Canadian system – in 2006 to include a dispensing
power in its latest revision (s2-503). In 2007 New Zealand
introduced a new Wills Act allowing its High Court to admit
a document to probate that clearly expressed the intentions
of the deceased (s14).
Thus, several common law jurisdictions that previously
upheld the 1837 Act formalities have amended their probate
laws to allow their courts to apply a dispensing power. Given
that these countries have highly developed and sophisticated
legal systems, this leaves the UK lagging behind in good
probate practice.
Recent case law: Marley v Rawlings
The English courts have recently considered errors of
testamentary execution. Here one of the most distressing
examples will be discussed to illuminate the problems
of the current law’s reliance on a will’s strict compliance
with the formalities.
In 1999 Mr and Mrs Rawlings saw their solicitor to execute
mutual wills. The entire estate was to pass to the surviving
spouse. When the survivor died the property was to be inherited
not by the couple’s natural and legitimate sons, but by Terry
Marley, who was unrelated to them but had been informally
adopted. Mr and Mrs Rawlings regarded Mr Marley as their
son. Unfortunately, the Rawlings’ signed each other’s wills by
mistake; the respective signatures were attested by the solicitor
and secretary but the error was not noticed. When Mrs Rawlings
died in 2003 the mistake went unseen and the will was proved.
Mr Rawlings then died in August 2006. A dispute arose between
Mr Marley and Mr Rawlings’ two sons. The validity of the will
was contested as Mr Rawlings’ will did not comply with the
necessary formalities under the 1837 Act.
If the will was thus invalid Mr Rawlings would have died
intestate. The statutory rules of intestacy would apply, allowing
the sons to inherit but not Mr Marley, never having formally
been adopted. The High Court rejected Mr Marley’s claim: the
will did not comply with the requirements of the 1837 Act as it
was not his will.
The Court of Appeal considered the case. Their Lordships
were satisfied that Mr Rawlings had genuinely intended Mr
Marley to be the sole beneficiary of his estate. Black LJ made
clear the Court’s position: ‘There can be no doubt as to what
Mr and Mrs Rawlings wanted to achieve when they made their
wills and that was that Mr Marley should have the entirety
of their estate and their sons should have nothing’. However,
this ‘certain knowledge is not what determines the outcome
of this appeal. The answer is contained in the law relating to
the making and rectification of wills’ (para 7).
Although there had been few decided cases on this point it
was not an entirely new issue. The Court of Appeal approved
the decision in Re Meyer.10 This concerned valid mutual wills
made by two sisters which later had codicils attached. Each
codicil was signed by the wrong sister. The wills were recognised
but not the codicils.
The Court of Appeal was also not persuaded by a number of
foreign authorities – that advocated rectification of formalities
– from jurisdictions as diverse as Canada, South Africa, New
Zealand and Jersey. It was noted that many of these cases relied
on the relevant domestic legislation having been changed to
allow for ‘substantial compliance’ or ‘dispensing power’, and
were thus irrelevant since English statutes did not embrace
those principles.
AP R IL 20 1 3
17
If the testator’s estate is not distributed according to
their wishes, that represents a substantial injustice
to them and to the intended beneficiaries
Ultimately, the Court felt strictly bound by the 1837
and 1982 legislation, and believed that its powers of
interpretation could not render Mr Rawlings’ will valid.
On giving his judgment, Kitchin LJ stated that ‘this is a
conclusion I have reached with great regret, but Parliament
made very limited changes to the law in 1982 and it would
not be right for a court to go beyond what Parliament then
decided’ (para 109). Their Lordships could not give effect
to Mr Rawlings’ intentions and set a clear precedent until
change was enacted in statute.
If there is a question about the way a will has been witnessed,
the courts have shown some willingness to give the testator the
benefit of the doubt. While in Ahluwalia v Singh11 a will signed in
the presence of only one witness was declared invalid, the earlier
judgment of Kentfield v Wright12 found that a will apparently
signed in the presence of only one witness was valid; the Court
felt that only the ‘strongest evidence’ could rebut a presumption
of due execution.
The need for reform
Following the 1975 Act in South Australia, the Law Reform
Commission of England and Wales considered the formalities
of wills in a 1980 report. It received sharply divided evidence
on the question of whether to introduce a dispensing power,
but rejected the possibility since such a power ‘could lead to
litigation, expense and delay, often in cases where it could be
least afforded’, such as with home-made wills.13 Since cases
were only beginning to be brought under the South Australian
provisions the Commission had reservations about trying to
cure a ‘tiny minority of cases’ while creating more problems
than a reform would solve. A dispensing power has not been
reconsidered in the past 30 years; meanwhile, the commonlaw world has largely moved in this direction without creating
onerous unintended consequences. The time is ripe for probate
reform to be revisited.
Statistics are lacking for the number or proportion of invalid
wills in the UK, though a recent survey undertaken by the Legal
Services Consumer Panel (on behalf of the Legal Services Board)
18
A PR I L 2 01 3 discovered a number of defective wills. A mystery shopping
survey discovered that of 101 wills, eight were improperly
executed (8 per cent).14 Meanwhile, the Probate Service
reported in 2011 that only 135 wills were contested in a
year when 261,352 grants of representation were made
(0.05 per cent).15 These figures are low but significant. It
would be right to assume that most wills are duly executed
and unambiguous, so only a minority would be contested.
Also, after Marley, clients may have been discouraged from
contesting imperfectly executed wills. While a will may
distribute an estate of a few hundred pounds, it may equally
involve millions; either way, the formalities must be the same.
If the testator’s estate is not distributed according to their
wishes, that represents a substantial injustice to them and to
the intended beneficiaries. There is, therefore, an important
evil to be reformed.
The proposed reform
In adopting a reform to excuse a mistake in the execution of
will, consideration must first be given to the nature of the power
the court is to have: a ‘substantial compliance’ discretion, or
a ‘dispensing power’? The example of Queensland in using
substantial compliance was unsuccessful and has subsequently
been adopted in Quebec only. Having first been used in South
Australia in 1975, the dispensing power has been adopted
throughout Australia, New Zealand, Canada and parts of Africa.
The feared risks of increased fraud and undue influence have
proved unfounded.
Next, the form of the dispensing power must be determined.
Going back to South Australia, the dispensing clause of the 1975
Act was as follows:
‘A document purporting to embody the testamentary
intentions of a deceased person shall, notwithstanding that it
has not been executed with the formalities required by this Act,
be deemed to be a will of the deceased person if the Supreme
Court, upon application for the admission of the document to
probate as the last will of the deceased, is satisfied that there
WILLS REFORM
JEREMY GOLDSMITH
can be no reasonable doubt that the deceased intended the
document to constitute his will (s12(2)).’
This provides a sound basis for similar UK legislation,
with such a subsection being added to s9 of the 1837
Act. A recommended change would be the substitution
of there being ‘no reasonable doubt’ of the testator’s
intentions to an assessment ‘on the balance of probabilities’.
Here the civil standard of proof is ‘more likely than not’,
save in cases that impinge upon criminal conduct (e.g.
fraud, contempt of court); there should be a reluctance
to disturb this.16 If the court is satisfied that a document
was intended to be a will but fell short of the strict formalities,
that standard – once the court has heard the available,
admissible evidence as to intention – should be sufficient
to determine the matter.
While the most direct reform would be a bill amending
s9, Parliament may wish to consider a more fundamental
consolidation act. The structure and most of the content of the
1837 Act may be retained, while incorporating the rectification
powers conferred in 1982, and the provisions of the Inheritance
(Provision for Family and Dependants) Act 1975 (allowing the
court to make distribution out of a deceased’s estate for spouses,
dependants and relatives not provided for by will). This would
mean the English probate code would be reduced to a single
statute, helping reduce confusion over this complicated but
frequently litigated area of law.
A dispensing power would have enabled Marley to have
been decided quite differently. In South Australia a case
of mirror wills of spouses whose facts were remarkably
similar to Marley was considered. In Re Blakely17 White J
judged ‘the circumstances of intention to constitute this
document his will are here so convincing’ that the will
could be accepted as valid. Thenceforth defective mirror
wills in that jurisdiction were admitted to probate without
litigation. It is likely that the High Court or the Court of
Appeal would have given effect to Rawlings’ wishes had
it the power I now propose.
Conclusion
There is evidence that the formalities for wills required by
current UK legislation mean that in some cases testators’
wishes have been ignored. The smallest deficiency renders
a will invalid. While the rules of intestate succession ensure
that the core dependants of the deceased are provided for,
this is of no assistance in cases such as Marley, where the
testator clearly intended his estate to pass to a person outside
his kinship group.
I therefore propose the introduction of a statutory
‘dispensing power’ allowing the court to admit a will to probate
if it is satisfied, on the balance of probabilities, that the putative
will, while not complying with the formalities, represents the
deceased’s true intentions. The South Australian 1975 Act
provides the oldest reliable model for this.
While it is important to retain formalities in wills to guard
against fraud, a dispensing power would allow justice to be
done to testators and beneficiaries in the few, but nonetheless
important, cases where wills are formally defective. The leading
Commonwealth jurisdictions have walked this path and it is now
time for English law to follow.
JEREMY GOLDSMITH IS A BARRISTER SEEKING PUPILLAGE. THIS ARTICLE
WON THE BAR COUNCIL LAW REFORM COMMITTEE’S 2012 ESSAY PRIZE
Hansard (House of Lords),
1837, Vol 36, col 963
2
[2012] EWCA Civ 61
3
Hansard (House of Lords),
1837, Vol 36, col 969
4
Wills Amendment Act (No.
2) 1975, 8 S Austl Stat 665
5
‘Substantial Compliance
with the Wills Act’, 88
Harv L Rev 489; ‘Excusing
Harmless Errors in the
Execution of Wills’, 87
Colum L Rev 1
6
Queensland Succession Act
1
1981, s9(a), 1981 Queensl
Stat No 69
7
Lloyd Bonfield, ‘Reforming
the Requirements for due
execution of wills’, 70 Tul L
Rev 1893 at 1896
8
Law Reform Commission,
New South Wales, Issues
Paper 10: ‘Uniform
Succession Laws: The
Law of Wills’ (1996), 3.7
9
‘Excusing Harmless Errors’,
87 Colum L Rev 1, 41
10
[1908] P 353
[2011] EWHC 2907 (Ch)
[2010] EWHC 1607 (Ch)
13
‘The Making and
Revocation of Wills’,
Cmnd 7902, para 2.5
14
Legal Services Consumer
Panel, ‘Regulating Will
Writing’, July 2011, p22
15
Ministry of Justice, Judicial
and Court Statistics 2011,
Table 2.12
16
Miller v Minister of Pensions
[1947] 2 All ER 372 at 374
17
32 SA St R 473 (1983)
11
12
AP R IL 20 1 3
19
DEFECTIVE
EXECUTION
THE CASE OF THE SHINORVIC TRUST
BY ROBERTA HARVEY AND AIMEE WEST
W
hat should trustees do if they
realise that a document purporting
to exercise a power to appoint a
beneficiary is defective because
the formalities required for the
proper execution of the document
are not complied with? Moreover,
what should they do if the document they had relied on led to a
loss to the trust?
Such a situation arose in the case of Shinorvic Trust [2012] JRC
081, before the Royal Court of Jersey. The settlor, the donee of
the power to add to the class of beneficiaries, purported to add his
long-standing girlfriend, Mrs B, as a beneficiary of the trust. The
terms of the settlement required the settlor to exercise the power
by an instrument in writing, signed by the parties, witnessed
and dated. The settlor had indicated in a letter of wishes that he
would like Mrs B’s welfare to be the trustees’ paramount concern.
Guided by these wishes, and having considered whether it would
be an appropriate exercise of their discretion, the trustees made
distributions from the trust to Mrs B.
Following the settlor’s death, the trust documents were
reviewed and it became apparent that the document purporting
to add Mrs B to the class of beneficiaries was defective, as it
had not been witnessed; therefore it did not accord with the
definition of ‘instrument’.
The trustees considered their position and realised that they
were not able to rely on the equitable doctrine of rectification
as the intention of the settlor had been accurately reflected and
recorded in the document. The trustees had to consider whether
there were any other equitable principles that could provide
relief for the defective execution of the document. On doing so,
they were required to apply to the court to determine whether
Mrs B was a member of the beneficial class of the settlement in
reliance on the established doctrine that equity would aid the
defective execution of a power.
20
A PRI L 2 01 3
The principle that equity will aid
the defective execution of a power
The principle’s founding authority dates back to 1762. Halsbury’s
Laws of England Vol 36(2) (para 359) states that the principle
applies ‘whenever a person who has the power over an estate,
whether or not a power of ownership, shows an intention
to execute the power in discharge of some moral or natural
obligation’. At that point, ‘equity will act on the conscience
of those entitled in default of appointment and compel them
to perfect the intention’.
Case law has established that five conditions must be met for
the principle to apply.
i)There must be evidence that the donee intended to exercise
the power.
ii)
The defect must be one of form.
iii)
The donee must have been properly able to exercise the
power under the terms of the settlement (for example, the
donee must not have been doing something that would
have constituted a fraud on a power).
iv)
The donee must have attempted to exercise the power.
v)The person seeking to invoke the aid of equity must be
either a purchaser for value, a creditor, a charity or a person
for whom the donee is under a natural or moral obligation
to provide.
The facts of the Shinorvic Trust case satisfied conditions one to
four. However, the Royal Court had to give careful consideration
to whether Mrs B satisfied the fifth condition, namely that the
settlor was under a natural or moral obligation to provide for
her. Previously, the case law had restricted the class of persons
to whom such an obligation was owed to wives and children of
the donee. Husbands, illegitimate children, unmarried partners
and remoter relations of the donee were not included.
The principle had not been successfully applied since 1908,
when social attitudes were very different from those of today;
the Royal Court had to consider whether the class of persons
FORMAL DEFECTS
ROBERTA HARVEY AND AIMEE WEST
who could invoke the principle should be extended to take
account of the change in social attitudes. Mrs B was the
long-standing girlfriend of the settlor and so the Court had
to consider a significant extension to the class. It is unlikely
that the analysis would have been particularly controversial
if, for example, the person had been a husband or civil partner
of the settlor, given the significant shift in social attitudes
towards equality.
The relationship between the settlor and Mrs B was
unconventional. While they had been in a relationship for
more than 40 years, they had never married and Mrs B had
turned down proposals of marriage from the settlor and briefly
married another man. The settlor also had relationships with
other women throughout the duration of their relationship.
Notwithstanding this, the settlor and Mrs B had lived together
for approximately 20 of their 40 years together. Mrs B helped
the settlor in various business ventures. The settlor and Mrs
B continued their relationship after they had stopped living
together, even when the settlor briefly married another woman.
In the years before the settlor’s death Mrs B was financially
dependent on the settlor and he maintained her day-to-day
living to a high standard and even bought her a house. He also
named her as a beneficiary in his will.
Arguments advanced at Court for and
against the application of the principle
Those acting on behalf of the trustees argued that the class of
people who should be entitled to seek relief under the equitable
principle must be extended to take account of the change in
social attitudes. It was argued that the settlor and Mrs B had
a sufficiently close relationship and she had been financially
maintained by the him. It followed that the settlor should be
deemed to have been under a moral obligation to provide for her.
The representation on behalf of the trustees was challenged
by the settlor’s sister. Those acting on her behalf argued that the
class of persons who could rely on the principle was closed as set
out in the case law. Further, it was argued that even if the Court
was minded to extend the class to non-married couples, the
nature of the relationship in question was so unconventional it
would be too wide an extension to apply in these circumstances.
The Royal Court’s decision
The Royal Court held that the relationship between the settlor
and Mrs B was sufficiently close, and that the settlor had shown,
by his actions, that he believed that he owed a moral obligation
to provide for Mrs B during his life and after his death.
The Bailiff stated: ‘We think that the general principle is an
entirely beneficial one and prevents errors in formality leading
to real hardship for those to whom the donee of the power owes
a moral or natural obligation and resulting in the clear intention
of the donee being defeated for no good reason.’ He went on
to state: ‘We see every reason to develop the principle to take
account of modern standards and mores. We hold therefore
that, under Jersey law, the principle may operate in favour of
any person for whom the donee of the power is under a natural
or moral obligation to provide.’
The principle was applied and Mrs B was deemed to have
been validly appointed to the class of beneficiaries from the
date of the declaration purporting to add her. This decision
was particularly important for the trustees as it meant that
there could be no challenge to the validity of payments made
to Mrs B from the trust before the date of the order.
Alternative remedy
The Court asked both parties to give consideration to the case
of Re The T 1998 Discretionary Settlement [2008] JRC 062, in
which the Royal Court considered whether an intention to
exercise a power could be imputed on the donee, where there
was no evidence of such an intention.
The reason for the further consideration was that several
years after the settlor had executed the deed appointing Mrs
B to the class of beneficiaries, he signed a further declaration
adding one of his brothers to the class. That instrument
included a recital that described itself as being supplemental
to a deed of declaration in which Mrs B was added to the class
of beneficiaries. The instrument also contained a recital of the
power in the settlement by which the settlor could add to the
class of beneficiaries. It was signed, dated and witnessed, and
so was validly executed under the terms of the settlement.
Under English law, for a power to have been validly exercised,
the donee must have capacity to exercise the power, the formal
The principle that equity will aid the defective execution
of a power had not been successfully applied since
1908, when social attitudes were very different
AP R IL 20 1 3
21
requirements for its exercise must have been complied with and
there must be sufficient evidence that the donee intended to
exercise the power. Those acting on behalf of the trustees argued
that the recital in the declaration appointing the settlor’s brother
as a beneficiary was also an effective appointment of Mrs B.
The Court held that if it was wrong in relation to the
application of the principle to Mrs B, then it further held that
the recital in the instrument appointing the settlor’s brother as
a beneficiary was sufficient evidence of the settlor’s intention to
add Mrs B as a beneficiary from the date of the latter deed. The
Bailiff stated: ‘The Court is merely treating as done what was
clearly intended by the settlor to have been done in 1990 and
which has been confirmed as having been done by him by means
of a duly executed instrument in 1998. If it is acceptable for
equity to impute an intention in the necessity cases, it seems to
us equally, if not more acceptable, to impute a similar intention
in a case such as the present.’
Will Shinorvic be followed by the English courts?
There have been few cases in the past ten years in which the
court has been asked to invoke the principle, none of which
have been successful.
In the most recent case of this kind, Breadner v GranvilleGrossman [2001] Ch 523, the trustees had failed to exercise
a power in time; it was a case of non-execution, rather than
defective execution. In that case, the trustees were the donees
of the power in question, not the settlor. The trustees asked
the Court to look through them to the settlor to establish if
there was a moral obligation to provide. The judge said, ‘I might
be willing to expand the doctrine if I felt that it had vitality
in modern conditions and ought to be expanded. However, I
do not feel that. A doctrine which was last applied in 1908 is
falling into disuse. I believe that it was developed when family
settlements, and powers exercisable in relation to trust funds,
took very different forms from those which they take today.’ He
22
A PRI L 2 01 3
went on to say that, ‘Where the trustees have failed to exercise a
power I do not feel an inclination to expand the circumstances
where the Court may intervene and hold that the trust should
be administered as if they had exercised it.’ The facts in this case
are very different from the Shinorvic Trust case, as the judge
was being asked to use the principle to rectify a mistake of the
trustees, not the donee of a power, and it was a case of nonexecution, rather than defective execution. Perhaps, if the facts
had been more akin to those in the Shinorvic Trust, the judge
may have taken a different view of whether to expand the class
of people who could seek relief under the principle.
In the case of Kain v Hutton [2005] WTLR 977 the High Court
of New Zealand was asked to apply the principle to the niece of
the donee. In that case the Court declined to apply the doctrine
on the ground that it did not operate in favour of a niece.
However, the Court did not consider whether to extend the class,
as it had determined that the purported exercise of the power
was void under statute and therefore it was unnecessary to do so.
It is not clear whether the English court would follow the
Royal Court in its decision to expand the class of people to whom
the principle applies and, if it would, how far it would be willing
to extend the class. It is difficult to imagine that the court would
not be willing to extend the class to apply to a husband or a civil
partner, even if it would not wish to go as far as the Royal Court.
It is clear from the Bailiff’s judgment that he was conscious not
to extend the class too far, stating that the decision as to whether
there is a moral or natural obligation to provide for a person,
‘will be a matter of fact to be decided in each case’.
Surprisingly, the principle has not been relied on widely in
recent times, so it may be a long time until we have an answer.
ROBERTA HARVEY IS A SENIOR ASSOCIATE AND
AIMEE WEST IS AN ASSOCIATE AT CHARLES RUSSELL LLP
RISK MITIGATION
CHRIS MOORCROFT
TAKING ON HIGHERRISK BUSINESS
FIDUCIARY AND REPUTATIONAL RISK MITIGATION
BY CHRIS MOORCROFT
Y
ou are approached to act as the trustee of
a significant new trust. The client passes
all compliance checks and the matter is
both intellectually appealing and lucrative.
But you immediately sense that there is
a heightened element of risk – perhaps
because of a high-risk asset class or because
the settlor’s wishes are unusual – and you are unsure whether
you can take the business on. What can you do?
The management of fiduciary and reputational risk provides
trustees and other fiduciary providers with one of their most
difficult challenges. No matter how well run an institution and
how rigorous its procedures, trustees must come to terms with
the fundamental principle of equity, which holds trustees and
other fiduciaries to higher standards of care than is the case for
most other forms of legal relationship. Sometimes things go
wrong. Simple human error, or perhaps just sheer bad luck,
can lead to a breach of duty and potential liability.
Standard documents will contain clauses aimed at reducing
the fiduciary’s liability. However, if there is a recognition from
the outset that a new matter comes with a higher than normal
level of risk, can a fiduciary further mitigate that risk through
its choice of structure?
The points made in this article are of growing relevance for two
reasons: first, because of a growing tendency towards litigating
against trustees, and second, because of the desire of clients to
settle assets that are of an inherently risky nature on trust. That
risk might arise from of one or more of the following factors:
• the assets are difficult for the trustees to control and supervise
(cars, yachts, planes, art)
• the trustee has insufficient expertise to manage the asset or
the asset gives trustees problems with a lack of diversification
(such as single asset classes that are capable of depreciating
in value – the most common being private company shares or
holding a portfolio of intellectual property rights)
• there are risks that can be particularly high in quantum or
profile (such as the significant environmental liabilities
attached to shares in companies associated with gas or oil); or
• the settlor wishes the trustee to do something unusual or
specific with the trust fund (such as lending the whole of
it to a company connected with the settlor).
It is therefore more important than ever that fiduciaries look
at new and alternative ways of controlling their risk.
Common risk-mitigation strategies
Most modern trust deeds contain common provisions aimed
at mitigating trustees’ risk. In general, these will include:
• Rights of indemnity, which allow trustees to be reimbursed
from the trust where they incur certain liabilities and costs.
• Exoneration clauses, which attempt to limit the liability of
trustees in certain situations, thus providing the trustee
with a defence should they be criticised. In general these
clauses cannot validly exclude liability for fraud or, in certain
jurisdictions, gross negligence.
• Clauses that extend the trustee’s powers, such as the power of
investment, to expressly permit actions that may otherwise be
disallowed by the governing law of the trust.
• An anti-Bartlett clause, so-called because of the concept’s
creation in response to the decision in Bartlett v Barclays
Bank Trust Co Ltd,1 which restricts or modifies the trustees’
duty to enquire or supervise the actions of its underlying
corporate investments.
In addition, the trust law of the relevant jurisdiction may
provide the trustees with some protection. This can take many
forms, from discretionary court powers under English law,
where s61 of the Trustee Act 1925 provides the court with the
ability to exonerate trustees where it ‘ought fairly’ to do so,
to automatic powers such as s99 of the British Virgin Islands
Trustee Act 1961 (as amended), which protects trustees from
tortious liability where they were not personally at fault.
AP R IL 20 1 3
23
In most situations well-drafted standard clauses, combined
with the protection of the general law, should be sufficient to
protect fiduciaries from loss, except perhaps where their actions
have fallen considerably short of the standard expected (bearing
in mind the higher standard expected of professional trustees –
another consequence of the Bartlett decision). However, in some
cases these protections simply might not go far enough, and they
also do little to alleviate the risk of reputational damage, the
consequences of which can sometimes be far more serious to the
fiduciary than the pure monetary liability (that may in any event
be covered by insurance).
Some jurisdictions have tackled these issues head-on
by devising legislation to mitigate fiduciary risk in specific
situations. This is perhaps most notably the case in respect of
the BVI’s Virgin Islands Special Trusts Act 2003 (VISTA), which
is designed to enable trustees to hold shares in companies
even where doing so might ordinarily result in a breach of the
trustees’ fiduciary duties. Generally, the VISTA trust is seen
as being an effective device in the context of fiduciary risk.
However its application is, by its nature, limited. This article
goes on to look at some of the options and arguments in respect
of structures with potentially wider application.
The limited role of reserved powers trusts
Trusts where powers are reserved to the settlor or a protector,
such as the reserved powers trust (RPT), are worth mentioning
here because there is an argument that they can provide
some fiduciary protection for trustees that standard fully
discretionary trusts do not. This may not have been the original
thought process behind the creation of these types of trust,
which were primarily designed to tackle the concern that many
clients had with the idea of giving up control of their assets, but
it is a relevant by-product nonetheless.
The argument is that where the trustee merely takes
directions from the settlor with no power to deviate from those
instructions, the less vulnerable to criticism the trustee should
be when something goes wrong. This might be the case where,
say, the settlor has reserved the power to direct investments and
exercises the power in such a way that leads to a collapse in the
value of the trust fund. In this case the trustees would surely
look to run an argument that they could not be at fault because
they were not the ones exercising the power.
However as Nicholas Jacob notes, the drafting of the trust
instrument is critical if this defence is to have any real merit.2
If RPTs are to be used as a way of mitigating fiduciary risk, it is
essential that the trustees’ duties to supervise and intervene
are considered. To the extent possible, the trustees’ ability
to intervene, overrule or remove the settlor (or protector) as
decision-maker should be expressly limited in the trust deed.
However, attempts to completely carve out these duties will
almost certainly be invalid, making this at best an imperfect
solution. In any event this point is generally given insufficient
consideration when template RPTs are drafted, not least
24
A PR I L 2 01 3 because settlor control and not fiduciary risk mitigation is
typically the main driver behind the use of RPTs.
It would therefore be unwise for a fiduciary to use its standard
RPT for the express purpose of mitigating its fiduciary risk,
although a tailored version could be considered in some
circumstances. If reputational risk is an issue, an RPT is
unlikely to provide much protection.
The private trust company
If trustees wish to mitigate fiduciary risk by distancing
themselves from trust assets (and decisions relating to those
assets), a better option may be the private trust company (PTC).
A PTC is a special purpose vehicle formed specifically to act as the
trustee of a trust or trusts, usually operated by the family itself. As
with RPTs, PTCs are typically used by settlors who wish to obtain
the benefits of a trust while retaining some influence or control.
However, a PTC should provide greater comfort where
fiduciary risk is concerned, because in general the fiduciary
provider simply acts as a service provider to the PTC through
a straightforward contractual relationship. If the PTC is set up
correctly, with a view to minimising the fiduciary’s risk (by, for
example, ensuring that no representative of the fiduciary acts on
the board of the PTC), then it should provide a level of distance
between the fiduciary provider and the asset or decision-making.
PTCs may also help manage reputational risk to the fiduciary
provider. In fact, if reputational risk is a serious concern then
the PTC may be the strongest weapon in a fiduciary’s armoury.
This is first because the fiduciary’s name would not appear
on any public registers of ownership of the assets (which may
be critical where an operating company incurs high-profile
environmental liabilities after its shares have been settled into
trust, for example), and second because the arrangement can be
terminated more easily and (assuming a well-drafted services
agreement between the PTC and fiduciary provider) more
quickly than if the fiduciary is the trustee.
Despite this, a potential danger lies in wait if (as is common)
the fiduciary owns the shares of the PTC through a purpose trust.
In that scenario, reputational and possibly fiduciary risk may
still be in point as the ultimate shareholding may be traceable
up to the fiduciary, so an alternative owner should be found.
PTCs, however, are not a solution appropriate for all clients,
or indeed all trustees. They can be costly, particularly in setup,
and so require a minimum asset value and level of liquidity to be
worthwhile. From a practical perspective, clients may not wish
to be burdened with the duties of trusteeship, while the settlor
may not know individuals they would want to act as directors of
the PTC, or may for other reasons simply prefer a professional
trustee. In addition, not all fiduciary providers will wish to
provide PTC services, either because they are not set up to do so,
because they are not located in jurisdictions with appropriate
regulatory frameworks, or for other reasons. The PTC can thus be
a good solution for mitigating both fiduciary and reputational risk
in some cases, but alternatives need to be open to the fiduciary.
RISK MITIGATION
CHRIS MOORCROFT
If reputational risk is a serious concern then the private
trust company may be the strongest weapon in
a fiduciary’s armoury
Arise the purpose trust
For settlors who wish to appoint an institutional trustee rather
than a PTC, the purpose trust provides an interesting alternative.
Non-charitable purpose trusts, while invalid under English
and Welsh law, are a feature of many offshore jurisdictions. They
typically require the appointment of an ‘enforcer’ to deal with the
‘beneficiary principle’, which is the main objection of the English
courts to trusts established for these purposes – that there is
nobody with locus standi before a court to enforce its terms.
Purpose trusts used in this way rely on considered and
precise drafting of the purpose clause. The aim is to provide an
additional line of defence to a trustee, not (as with the RPT) by
arguing that the trustee lacked a power to do something, but
by arguing that the purposes compelled it to take a particular
course of action and no other.
Take, for example, a settlor who wishes to establish a trust
to provide liquidity to their trading company by way of loans. A
purpose trust could be used that, if the drafting was sufficiently
tight, would require the trustees to make those loans, even if
they felt that the loans were unlikely to be repaid or they were
worried about breaching their duty to diversify the trust fund.
By taking any other course of action, the trustees would be
failing to fulfil the trust’s purposes, which they cannot validly do.
Such an argument is helped by case law, which states that
the trustee is bound to exercise its powers only in furtherance
of the purposes for which those powers were granted. This, it
could be argued, effectively gives the trust purposes precedence
over the general duties of a trustee. Such a proposition finds
some support in such cases as Balls v Strutt,3 where Sir James
Wigram VC expressed the ‘principle in this court, that a trustee
shall not be permitted to use the powers which the trust may
confer upon him at law, except for the legitimate purposes of
his trust’ and Cowan v Scargill,4 where Megarry VC stated that
‘powers must be exercised fairly and honestly for the purposes
for which they are given and not so as to accomplish any ulterior
purpose’. However, the ability of trust purposes to constrain
powers and override general duties is not known to have been
directly addressed by a court. Nevertheless, the idea is finding
increasing favour in offshore jurisdictions where purpose
trusts are routinely used to hold shares in businesses, or shares
in PTCs, on the basis that the duty to diversify the trust fund
is overridden. Combined with more common risk-mitigation
provisions, the use of a purpose trust may provide an additional
line of defence with relatively little downside.
One key difficulty with using a purpose trust for fiduciary risk
mitigation is that if the purposes clause is geared exclusively
towards the mitigation of risk, it may become difficult for the
settlor’s wishes to be achieved, particularly where the settlor
also wishes, ultimately, to benefit individuals.
The Cayman Islands Special Trusts (Alternative Regime) Law
(STAR) provides an interesting response to this, allowing as it
does a mixture of both purposes and beneficiaries. As ever, the
key is in the drafting of the trust deed, where the draftsman must
carefully strike a balance between the rigidity of the purposes
and the flexibility to make distributions. With some precise
drafting, it may even be possible to incorporate the provision for
beneficiaries into the trust purposes alongside the mitigation
of risk, opening the use of such techniques beyond Cayman to
other offshore jurisdictions that permit non-charitable purpose
trusts. Alternatively, some foundations allow a mix of purposes
and beneficiaries and therefore may also solve the conundrum
of how to incorporate beneficiaries.
The trustee must also bear in mind that, while it needs to be
constrained to follow the purposes in almost all circumstances,
it has to have flexibility to avoid more extreme situations. At the
least, it should retain the ability to step down or even wind up
the trust in situations where it believes that its involvement
may cause it criminal or civil liability. As ever, an eye must also
be had to reputational risk, because the fiduciary will ultimately
own assets over which it has no effective discretion. Therefore
the trustees’ ability to step down should also normally be
extended to circumstances where they reasonably believe
that reputational damage may be caused.
Easy as ABC
Finally, some strategies may also exist outside the law of trusts.
For instance, if, as is common, a trustee’s concern arises from its
lack of expertise in dealing with a particular asset, then instead
of simply using trusts-law-based techniques to mitigate that
risk (trust law having proved itself to be rather stubborn when it
comes to trustees attempting to remove their fiduciary duties),
it may also be worth looking to the field of company law.
AP R IL 20 1 3
25
One option is to create two classes of shares in a holding
company: ‘A’ shares and ‘B’ shares. The ‘A’ shares have rights to
vote but no rights to dividends or capital, while the ‘B’ shares
exclusively hold economic rights, with no ability to vote or
otherwise influence company decisions. The holding company
then owns the underlying asset, which might for example be
shares in a business operating in an unusual industry or in a
location that is geographically remote from the trustees.
If the trustees then own the ‘B’ shares, while the settlor retains
the ‘A’ shares, the economic value will be transferred to the trust
while the settlor will take all the management decisions. As the
trustees are shareholders with no voting rights whatsoever,
even trusts law might struggle to fault them for decisions that
result in a loss to the trust fund. The trustees might conceivably
be criticised for retaining the shares, but even then the concept
could be used in tandem with a trusts law solution, such as a
purpose trust, to minimise the risk further.
Conclusion
Lawmakers and practitioners have attempted to devise
ways for trustees to mitigate fiduciary risk. These range
from specific types of trust designed to cater for particular
situations (such as VISTA) to statutory protections of general
application and exoneration or limitation of liability clauses
in trust deeds.
Where there is a risk that these protections may still be
insufficient, a PTC is one of the safest ways for fiduciaries to
mitigate fiduciary risk. PTCs are useful in many scenarios, such
as where the settlor wishes to retain some element of control
or put in place a family governance structure, and fiduciary and
reputational risk mitigation should certainly be added to the list
of advantages. By providing administrative services to the PTC,
the fiduciary is at less risk of being criticised for decisions made
by the PTC in the course of its trusteeship. In addition, where
the fiduciary is uncomfortable with its involvement it is usually
26
A PRI L 2 01 3
far easier for it to cease the provision of its administrative
services than to resign as trustee, particularly if a willing
replacement trustee may not easily be found.
Where a professional trusteeship is required, fiduciaries
should consider whether a purpose trust can help reduce
its fiduciary risk. This requires careful drafting of the
purposes because the trustees must be sufficiently
constrained to follow a particular course, while flexible
enough to accommodate beneficiaries and protect itself
from taking actions that might cause criminal or civil liability,
or reputational damage. Nevertheless, the purpose trust is
potentially extremely useful, often with little downside to
the trustee or client. Many of the same considerations will
be relevant in the context of foundations, if that vehicle is
preferred for tax or other reasons.
Reputational risk is a separate point and should also be
considered carefully. While there is frequent overlap with
fiduciary risk, as the two often come hand in hand, fiduciaries
should be aware that strategies that reduce fiduciary risk are
not always equally effective for reputational risk.
Ultimately, the key to mitigating any risk is an appreciation
of the issues and careful drafting. If both are present, the trustee
may be able to equip itself with a wider range of defences if
something goes wrong. If that additional comfort makes the
difference between the trustee accepting or turning away
the business, the benefits for clients may be even greater.
CHRIS MOORCROFT IS A SOLICITOR AT HARBOTTLE & LEWIS LLP
[1980] 1 All ER 139
Nicholas Jacob, ‘The legal realities of reserved powers trusts’, Trusts & Trustees June 2006 25
3
(1841) 1 Hare 146
4
[1985] Ch 270
1
2
HOME LOANS
AN UPDATE ON COMMON INHERITANCE
TAX MITIGATION SCHEMES
BY EMMA CHAMBERLAIN
H
ome loan or double-trust schemes
proliferated in the decade ending
1 December 2003. With the introduction
of the pre-owned assets income tax charge
(POAT) on 6 April 2005, HMRC had to
form a view on whether the arrangements,
if properly implemented, succeeded in
their goal of reducing the inheritance tax (IHT) charge on the
taxpayer’s main residence, provided that they survived for seven
years (with some savings if they survived three). If the schemes
did reduce IHT, POAT would generally be payable.
The structure of a typical home loan scheme
Step 1: A settlor (S) set up a life-interest trust (Trust 1: the
property trust), under the terms of which they were a life
tenant with the right to enjoy the income of the trust and
the use of the trust property. The trustees were given the
usual modern flexible powers, e.g. to advance capital to S
or to terminate S’s life interest. The remainder beneficiaries
were S’s family.
Step 2: S set up a second (generally) qualifying pre-2006
interest in possession trust (Trust 2: the debt trust) for the
benefit of their children. S was wholly excluded from benefit
under this trust.
Step 3: S sold their house to the trustees of the property trust,
leaving the purchase price outstanding as a loan.
Step 4: S gifted the benefit of the debt into the debt trust
(a potentially exempt transfer (PET) by S).
On S’s death it was thought that the position was as follows:
• S enjoyed a life interest in the property trust and so was
subject to IHT on the house (s49(1) of the Inheritance Tax Act
(IHTA) 1984). On these facts, and assuming no increase in the
value of the property, because the debt would reduce the value
of the house to nil, the net value of the property subject to IHT
was nil.
• Provided that S survived for seven years, the PET of the debt
became an exempt transfer; even if S died, there was often a
substantial discount if the debt was structured so as not to
be repayable until S’s death, since the value of the debt gifted
was then generally less than its face value.
It was in the precise terms of the loan that the schemes
varied significantly:
• In some cases it was interest-free and repayable on demand.
• In others it was interest-free but repayable after the
death of S.
• Sometimes interest was payable and rolled up with the
principal; in other cases the debt was indexed (e.g. by
reference to the Retail Prices Index or to a property index).
• In some cases the loan was structured as a relevant discounted
security but repayable on demand, and in other cases as a
relevant discounted security repayable only when S died.
• One arrangement involved the use of a tripartite loan
agreement between S and the two sets of trustees, avoiding
the necessity for a separate assignment of the debt by S.
This was thought to avoid capital gains tax problems
on repayment of the debt to debt trust (given that the
trustees of the debt trust would not otherwise be the
original creditor of the trust) (s251(1) of the Taxation
of Chargeable Gains Act 1992).
HMRC’s approach to home loan schemes
HMRC has now seen a significant number of home loan
schemes. Its initial approach was published in the POA
guidance notes in 2005, which stated its views as follows:
a) Where the loan was repayable on demand because the
trustees had not called in the loan, it had conferred a
significant benefit on the taxpayer in enabling them to
continue to reside in the property ‘and therefore the debt
was not enjoyed to the entire exclusion of any benefit to
the vendor(s) by contract or otherwise’.
AP R IL 20 1 3
27
b) Where the debt was only repayable at a time after the death of
the life tenant ‘since… the loan cannot be called in by the loan
trustees it is generally thought that these schemes will not be
caught as gifts with reservation’.
Accordingly, taxpayers in some cases opted to pay the POAT
charge in the belief that the IHT savings would be secure.
However, in October 2010, the guidance was revised by the
inclusion of the following sentence:
‘HMRC is now of the view that these schemes… [i.e. gifts
where the loan is not repayable on demand] are also caught
as gifts with reservation. Further guidance, including the
consequences for the POA charge, will be issued shortly.’
In 2011 HMRC reissued the POAT guidance. This said:
‘A variant of the scheme described above is where the terms
of the loan provide that the debt is only repayable at a time
after the death of the life tenant. Since, unlike the position
with loans repayable on demand, the loan cannot be called in
by the loan trustees, it was previously thought that, in general,
these schemes would not be caught as gifts with reservation.
However, it is now HMRC’s view that as the steps taken under
the schemes are a pre-ordained series of transactions a realistic
view should be taken of what the transactions achieve, as a
composite whole, when considering how the law applies. This
follows the line of authority founded on W T Ramsay v IRC
[1981] 1 All ER 865. The composite transaction has the effect
that the vendor has made a “gift” of the property concerned
for the purposes of [s102 of the Finance Act (FA) 1986] and has
continued to live there. The property is therefore subject to
a reservation of benefit.
‘It is considered that this approach will apply to all
variants of the home loan or double trust scheme and,
where it produces a higher amount of tax, will be applied
in preference to the position outlined above where the loan
is repayable on demand.’
IHT litigation
HMRC now considers that any home loan scheme fails to
mitigate IHT for four reasons:
1.Section 103 FA 1986 applies, with the result that the
loan is not a valid deduction against the trust fund of
the property trust.
2.The Ramsay principle applies, so the gift is to be
recharacterised as a gift of the house, and the continued
occupation by the taxpayer involves a reservation of benefit.
3.The scheme involves a series of associated operations,
so there is a reservation of benefit in the loan.
4.In any event, if the loan is repayable on demand, on basic
principles alone it is subject to reservation of benefit.
HMRC therefore argues different grounds. Its first says
there is a disallowance of the debt in the hands of the trustees;
its second that there is a reservation of benefit in the house
and no deduction for the debt, and its last two claim there is a
reservation of benefit in the loan note held by the debt trust. The
28
A PR I L 2 01 3
IHT consequences will depend partly on the grounds on which
HMRC succeeds, if any.
In correspondence, HMRC presents the argument on
disallowance of debts under s103 FA 1986 as follows:
1.Section 103 is designed to disallow the deduction of
artificial liabilities. If a liability is to be taken into account
in establishing the value of an estate, then it is capable of
being a debt or an incumbrance within s103.
2.While the loan may not have been secured on the property,
it has given rise to an equitable lien in favour of the trustees
against the property in respect of their indebtedness to
the deceased.
3.That lien is then an encumbrance, brought into being or
created by the disposition.
Against the HMRC view, it is not clear that the trustees’
lien is an encumbrance within the meaning of s103. Even if
it is, the encumbrance was not itself created by the sale of the
property: rather it arose out of the rights of reimbursement
that trustees always have against the trust fund in respect of
their liabilities, and the property sold to the trustees was not
consideration for any encumbrance – it was consideration for
the debt. Green and another v CIR [2005] EWHC 14 (Ch) outlines
how the trust property should be valued for IHT purposes and
clearly takes account of any trust lien, whether or not the debt
is secured.
The settlor does not have any direct lien; it is the trustees
who have the lien, and in these circumstances s103 does not
seem apposite.
HMRC’s Ramsay point seems misconceived. It says: ‘… the
rule is one of statutory construction – we are required to take
a realistic view of what the transactions achieve, as a composite
whole, when considering how the law applies.’
The assertion that a sale of a house is a gift of the house
where the proceeds are given away is striking. There is no
basis under Ramsay for recharacterising a gift of a debt as
a gift of a house, particularly where the house remains in a
separate trust and the money is still owed to the debt trust.
This suggests that the transactions are shams, but there is
no suggestion that the debt does not exist or can be ignored.
Moreover, even if there is a potential reservation of benefit
in the property trust, given that there is a qualifying interest in
possession in the whole settled property, s102(3) FA 1986 would
appear to disapply the reservation of benefit provisions. HMRC
argues that the settlor’s interest in possession is in the net value
of the property only, and that the settlor reserves a benefit in the
debt element, but this cannot be right: the interest in possession
would then fluctuate depending on how much the debt increased
or decreased from time to time. Non-qualifying interests in
possession would then arise each time a loan was paid off after
22 March 2006.
HMRC argues that the scheme is caught by associated
operations because, after the disposal to the trust, the donor was
no longer the owner of the house but could still, as beneficiary
HOME LOANS
EMMA CHAMBERLAIN
HMRC’s Ramsay point seems misconceived. There
is no basis under Ramsay for recharacterising a gift
of a debt as a gift of a house
of the property trust, occupy the property. By making the loan
repayable only after the settlor’s death, the settlor ensured that
their continued occupation would not be disturbed. HMRC says
that is ‘plainly’ a benefit to the settlor and one that arose directly
from the terms of the loan that was given away. ‘The benefit
arises within the terms of para 6(1)(c), so the loan note should
properly be regarded as subject to a reservation of benefit
under s102(1)(b).’
Even though the gift and prior sale are associated operations
within s268 IHTA 1984, it remains difficult to see how the settlor
has benefited from the loan note. Specifically, there is nothing
in the legislation to require an extended meaning to be given
in determining what has been given away, and the Ingram case
provides House of Lords authority for the principle that, before
seeking to apply the reservation of benefit rules, it is necessary
to identify precisely what has been given away. In that case, for
instance, the fact that the arrangement involved carving out a
lease (retained by the taxpayer) and giving away the freehold
did not result in a benefit being reserved in the gifted freehold
interest, even though the nature of the gift meant that the
freeholder had to allow the donor to continue living in the
property. In this case what is being given away is a debt made on
certain terms and subject to certain rights. It is not the gift of the
debt that enables the donor to continue living in the property.
Moreover, even if the terms of the debt are such that the donor
can occupy the property, it is not the gift itself that does it; the
case law states that the donor is allowed to divide their cake into
slices and keep part and give away the balance. The donor can
live in the house because they have an interest in possession in
the property trust. Whether or not they give away the debt, their
rights of occupation remain the same.
Faced with the above attack, the settlor of a home loan scheme
who has not yet died has three options:
Option 1: release of debt
This is difficult because, if the debt trust writes off or releases
the debt, this would be a breach of trust unless the settlor is
given the debt by the beneficiaries of the debt trust. In addition,
the release may trigger IHT charges since an addition is being
made to the property trust after 22 March 2006. See s52(3)
IHTA 1984. The position is arguable.
Option 2: do nothing
A donor may sit tight and hope that litigation taken by HMRC
against another taxpayer may be defeated. This course presents
the settlor and trustees with considerable uncertainty. Certainty
as to the IHT position may not be obtained for some years. In
addition, there are continuing POAT charges for the settlor to
pay unless they have made an election (in which case different
issues would arise).
Option 3: repay the debt
The parties could renegotiate the loan and obtain early
repayment (often at a discounted value if the loan is expressed
not to be repayable until death). This may raise income tax
or capital gains tax issues, but, if the property is being sold
and the property trust now has spare cash, it is a possibility.
Consider the impact of s103(5) FA 1986 on repayment of the
loan. Arguably, even if s103 is relevant to home loan schemes
in general, on repayment by the trustees during the lifetime
of the settlor, there is no deemed PET under s103(5).
Litigation involving estates where the settlor has died
A case where the loan was not repayable on demand began to
move forward in early 2012, with notices of determination and
appeals. In the meantime, other estates were held up, which
meant that, until the outcome of the litigation was known,
it was not clear whether the property trust, the debt trust or
the executors (or none) would be liable to pay any IHT, so a
certificate of tax deposit could not easily be purchased to stop
interest running.
To deal with this problem, HMRC, in its August 2012
newsletter, commented:
‘HMRC is aware that in a number of estates, the correct
treatment of home loan schemes for the purposes of Inheritance
Tax (IHT) and the pre-owned assets charge is the only matter
to be resolved and is holding up the administration of the estate
being wound up. In order to allow executors and trustees to deal
AP R IL 20 1 3
29
with the estate as far as possible, HMRC will, on request, provide
an estimate of the tax that might be payable should litigation
find in HMRC’s favour.
‘Executors and trustees may then choose to make a payment
on account with HMRC to stop further interest accruing, or they
may make and retain an appropriate reserve from funds in their
hands. Where money is paid on account, HMRC acknowledges
that this does not signify acceptance of HMRC’s view and in the
event that litigation is decided in favour of the taxpayer, HMRC
will then adjust the IHT position as necessary and refund any
money that has been overpaid.’
Bear in mind that if HMRC eventually loses a home loan
case and accepts that your case is similar or identical to any
litigated case, your deposit will be refunded with interest at
0.5%, whereas interest on any unpaid tax is charged at 3%. It
is suggested, therefore, that estates where the settlor has died
should consider doing this on a without-prejudice basis (i.e.
without accepting at this point that the tax is due) since in a
sense they have little to lose if a test case proceeds.
The deductibility of the loan note (or not) is only in point
in relation to the IHT on the deceased’s estate; HMRC accepts
that it remains deductible for the purposes of calculating any
charges under the relevant property regime, such as tax on a
ten-year anniversary.
Latest developments
In December 2012 the above test case settled in favour of
the taxpayer, so HMRC is now looking for a new case to take.
Although IHT was repaid on the test case, HMRC did not accept
the technical merits of the scheme. HMRC agreed that the loan
was deductible for IHT purposes, but only on the particular facts
of that case, namely:
a) the deceased taxpayer who died before the change in guidance
had clearly relied on the 2005 guidance and paid POAT on the
reasonable assumption that the scheme would be accepted
by HMRC as effective for IHT, and the executors and trustees
were prepared to take that point alone to judicial review; and
b) HMRC had previously enquired into the taxpayer’s affairs, in
particular the valuation for POAT purposes, and had accepted
that the correct POAT had been paid.
In fact it was not the apparent reliance on the old guidance
that made HMRC settle the case. HMRC said:
‘With home loan schemes, there is a direct connection
between the POA charge and IHT – if HMRC has agreed that the
POA charge is properly payable it must follow that none of the
[POAT] exemptions apply; and if the exemptions don’t apply, it
must be accepted that there is no potential IHT charge. Reading
across to IHT, it is not unreasonable to take the view that the
closure notice could operate as “clearance” for IHT such that
HMRC is not able to re-open the matter on death.’
30
A PR I L 2 01 3
HMRC now states that: ‘Where there has been an enquiry into
the POA charge and HMRC has accepted that the charge applies,
either in the figures returned or after adjustment, HMRC may
not revisit the position on death. But where the POA charge has
been paid and has not been the subject of an enquiry, HMRC
is entitled to maintain on death that the home loan scheme is
ineffective and seek to recover the IHT accordingly – although
where it does so, allowance will be given for the income tax
already paid.’
It is therefore important that executors of anyone who
has done a home loan scheme should establish whether
there has been any past POAT enquiry into the taxpayer’s
return. If there has been such an enquiry and a closure notice
has been issued, with or without amendment, HMRC has
indicated that it will accept that the scheme is effective for
IHT purposes.
In addition, from my personal experience, HMRC does
appear to accept that, where the taxpayer died before the change
in guidance and the executors submitted the probate papers
claiming a deduction for the loan that was initially accepted
by HMRC and only later queried, the deduction will generally
be given.
However, HMRC does not accept that the guidance
that was repeatedly reissued before October 2010 binds
it or raises any expectation that the taxpayer was entitled
to assume that home loan schemes where the debt was
not repayable on demand were accepted for IHT purposes.
In my view, this is not correct. Where taxpayers can
demonstrate that the deceased person relied on the 2005
guidance (whether directly or through advisers) and the
deceased paid POAT on the reasonable assumption that the
IHT savings would thereby be secured, a legitimate expectation
has been raised, and HMRC is not entitled to resile from that
guidance. It is likely that this situation will apply in only
a few cases. In many cases the taxpayers did not pay POAT
or elected into reservation of benefit, or the loans were or
could be repayable on demand. In these situations the
pre-2010 guidance will be irrelevant.
In the meantime, the technical arguments on whether the
home loan case works remain unresolved. HMRC will no doubt
issue notices of determination against which another taxpayer
can appeal, and another case will have to be taken.
EMMA CHAMBERLAIN TEP IS A BARRISTER AT PUMP COURT TAX CHAMBERS, A
MEMBER OF THE STEP UK TECHNICAL COMMITTEE AND CIOT SUCCESSION TAXES
COMMITTEE, AND CURRENTLY SITS ON THE INTERIM GENERAL ANTI-ABUSE RULE
(GAAR) ADVISORY PANEL. THIS ARTICLE WAS FIRST PUBLISHED IN THE MARCH 2013
EDITION OF TAX ADVISER MAGAZINE
BOOK REVIEW
DRAFTING TRUSTS AND WILL TRUSTS
BOOK REVIEW
DRAFTING TRUSTS AND WILL TRUSTS –
A MODERN APPROACH (11TH EDITION)
BY JAMES KESSLER QC AND LEON SARTIN
REVIEW BY EDWARD BUCKLAND
C
an it really be more than two decades since
the first edition of Drafting Trusts and
Will Trusts – A Modern Approach was
published? It seems hard to believe that
21 years have come and gone since we first
benefited from James Kessler’s wisdom on
this subject.
As so many versions have been produced over the years,
it is easy to forget how this magnum opus has evolved. There
is no need to go back to the beginning to see this. For example,
the fifth edition, published in 2000, was a book of 456
pages with the precedents on a floppy disk – a real blast
from the past.
Today the book runs to 673 pages with the precedents on a CD.
Will the next version have a memory stick, or simply a chip for
us to insert into a device not yet invented?
Furthermore, Kessler has been joined by a co-author, in the
form of Leon Sartin, and while most of the chapter headings
remain the same, matters such as settlor exclusion and default
clauses have become of greater importance. There is now a
chapter for charitable trusts, and indemnities also get their
own chapter – and these are just a few examples.
Of course, bigger is not necessarily better, but this is clearly
a case of a book that started off as an excellent idea, which has
been augmented in a suitable and sympathetic way to make the
edifice before us today even more impressive than the one that
greeted us all those years ago.
Clearly, of course, the meat of the book is still the incredibly
lucid, erudite learning that the reader gains on the subject of
drafting. Kessler’s style and approach has permeated through
the trust drafting world, and for that we should all be grateful.
His mantra of simplicity and being brave enough to omit all
of those words that we used to see in drafts, but which he is
prepared to say added nothing, is a spirit that was bold in 1992
and yet still shines through.
While the precedents have been added to (in particular
the nil rate band trusts and the deeds of retirement and
appointment), the extended commentary and text provide
the greatest additional benefits. Time and time again there
are nuggets of gold.
Take, for example, the interesting area of no-contest clauses
– much-used but seldom addressed in detail. Here half a dozen
pages examine the complexity of the issue and make, as usual,
very sensible drafting suggestions for this difficult area.
Furthermore, the book has become part of a series that
includes jurisdictions as diverse as Australia, the Cayman
Islands and Singapore. A book for Scotland is under way, and
the project will potentially extend to Dubai, Mauritius, Bahrain
and South Africa.
In short, practitioners in many jurisdictions already have the
benefit of Kessler and Sartin’s wisdom, and in other jurisdictions
Kessler links up with leading practitioners to provide locally
based guidance.
It is often said of publications that they are a welcome
addition to the reader’s library. Drafting Trusts and Will Trusts –
A Modern Approach is an exception to that rule. It is clearly not
a welcome addition to that library; it is an absolutely essential
component. If one is involved either in the drafting of trusts
or in any way in their interpretation, it remains, 21 years on, a
must-have. For that, the authors are to be admired and thanked.
Price: GBP122.40
Published by: Sweet & Maxwell
ISBN: 978-0-41-402501-1
EDWARD BUCKLAND IS MANAGING DIRECTOR AND GLOBAL HEAD OF
FIDUCIARY IN THE WEALTH ADVISORY DIVISION AT BARCLAYS, AND IS
A MEMBER OF THE STEP BOARD AND COUNCIL
AP R IL 20 1 3
31
STEP Advanced Certificate
in Family Business Advising
Practical skills for practitioners
working with a family enterprise
A qualification for practitioners worldwide
For lawyers, solicitors, attorneys, accountants, financial
planners, private bankers, wealth managers, trust
and estate planners, trust officers, family business
employees, owners and next generations.
This Advanced Certificate will enable you to:
• Understand the complexities of the family business context
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• Assess the needs of the family enterprise and make recommendations for action
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expected of a competent family enterprise
advisor operating from within the bounds
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Completion of the Advanced
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or www.cltint.com/stepcertfamilybusiness

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