Court Agrees to Correct Trust Error
We all make mistakes…and when a contract is set up the terms of which clearly do not reflect what was intended, the court can be asked to rectify it. A recent case shows that that approach can also be taken with regard to incorrectly drafted trust documents.
When a couple wrote their wills, they provided that on death a family trust was to be set up. This was part of an Inheritance Tax (IHT) mitigation exercise. When the wife died, the family home was transferred into the trust, with the husband as the beneficial owner of a half share in the property and their two daughters entitled to a quarter share each in it.
The potential beneficiaries of the trust included the settlors, who included the two daughters. The trust deed allowed the trustees to apply the trust fund for the benefit of any of the beneficiaries.
Regrettably, a later clause in the trust deed specifically prevented the settlors from benefiting from it – a clear drafting error. The apparent position was made worse by the addition of a clause that meant if the trust 'failed' for any reason, the trust assets would be given to charity.
The rectification of the drafting required a visit to court, and although the family were all happy for the trust deed to be amended, the judge did have to consider the potential implications for a future spouse or any children of the settlors, as the trust deed made them a 'contingent gift'.
In a judgment that ran to 36 paragraphs, the High Court ruled that the clause which prevented 'any part of the trust income or capital' to be applied for the benefit of a settlor was to be ruled void.