Couple Given Permission to Rip Up Trust Which Had Been Poorly Drafted

A married couple were allowed to destroy a trust which had been incorrectly prepared, when a mistake meant that the wife could not benefit from it.

The trust had been set up by her spouse some years ago, in order to be able to provide for his family in the event of this death, using the bank to act as the trustee.

The man had written to the bank in question, outlining his wish for the trust to help his wife and children in the future, tax efficiently. However, it was only after the wife paid some money into the trust that issues became apparent. Because she had made a payment into the fund, she automatically became a settlor in law, and so could not be one of the trust's beneficiaries any more.

Once they had spotted the mistake, and then tried to put it right, the pair saw that the terms of the trust had significant issues. Under its terms, beneficiaries could receive payments from the trust, but as settlors in law neither the husband nor the wife were eligible to benefit from it.

Clearly, this was in direct contradiction with what the husband had intended when setting up the trust – it had been set up with the two of them both as settlors, yet the whole idea was that the wife would be one of the beneficiaries.

Given the unforeseen complications, the couple decided to take the matter to the High Court, where they asked for permission to alter the trust so that it was more in keeping with their original wishes.

The court stressed that, in cases like this it had to be confident that it was fair and right to give permission to rescind the trust. And it would only do this if there was enough evidence that the error was so significant that it had a major impact on the terms of the trust.

And yet, in this case, this permission was given, and the court cited the letter which the husband had written as a reasonable indication that mistakes had been made when the trust was initially drafted.

This case is also something of a cautionary tale when setting up a trust of this nature. Check the terms with a fine tooth comb if you are doing the same, and make sure you get the best legal advice to ensure that you avoid similar pitfalls.

Source by Matt D Lambourne