Neutral Citation No:  NICh 15
Judgment: approved by the Court for handing down
(subject to editorial corrections)*
The deceased's Will and Will Trusts
(a) An interest in possession trust in respect of the deceased's home and lands whereby the home and lands were to be held and rented out. One half of the net proceeds of such lettings was to be paid to the patient during his life and the other half paid to Matt Tracey on the basis that he was to arrange for "masses to be said annually for the souls of (the deceased) and (the deceased's husband) Thomas for a period of at least 10 years after "the deceased's death". ("the Land Trust").
(b) A trust of the residue of the estate whereby the deceased stated the trustees were to hold the residue:"In trust for my son Gerard during his lifetime. I direct my executors and trustees to make such payments as they in their absolute discretion should consider appropriate for the comfort and well-being of Gerard"- ("the Residue Trust").
Tax implications of the Will Trusts
Relevant Legislative Provisions
"(1) Subject to sub-section (2), where property is held on any trusts [or settlements] arising under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of—
(a) any person having, directly or indirectly, an estate or interest, whether vested or contingent, under the trusts [or settlements] who by reason of infancy or other incapacity is incapable of assenting;
any arrangement (by whomsoever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts [or settlements] or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts [or settlements].
(2) Except by virtue of paragraph (d) of sub-section (1) the court shall not approve an arrangement on behalf of any person unless the carrying out of the arrangement would be for the benefit of that person."
Have the Plaintiffs locus standi to apply?
Can the court give approval on behalf of the patient?
What is the extent of the court's jurisdiction – variation or resettlement?
"Section 1(1) of the 1958 Act authorises the court to approve an arrangement varying (or revoking) all or any of the trusts of a will, settlement or other disposition. It does not authorise the court to approve a resettlement. See Re T's Settlement Trusts  Ch 158 at 162."
"22. There is no bright-line test for determining whether it is the one or the other. In Re Balls Settlement Trusts  2 All ER 438 at 442; 1968 1 WLR 899 at 905 Megarry J stated that:
'If an arrangement, while leaving the substratum effectuates the purpose of the original trusts by other means, it may still be possible to regard that arrangement as merely varying the original trusts, even though the means employed are wholly different and even though the form is completely changed.'
That does rather beg what is meant by "the substratum" of the trust and "the purpose of the original trust" and how one is to distinguish these elements.
23. Useful guidance for determining whether what is proposed is a variation rather than a resettlement, indeed the analogy is very close, is to be found in Roome v Edwards (Inspector of Taxes)  STC 96;  AC 279. The case was concerned with a claim for capital gains tax. It was material to that claim to decide whether the exercise of a power of appointment contained in a settlement gave rise to a settlement separate from the main settlement. Lord Wilberforce (with whose speech three of the other four Law Lords agreed: Lord Roskill delivered a separate speech) said this,  STC 96 at 100,  AC 279 at 292-293) speaking generally on the topic:
'There are a number of obvious indicia which may help to show whether a settlement, or a settlement separate from another settlement, exists. One might expect to find separate and defined property; separate trusts; and separate trustees. One might also expect to find a separate disposition bringing the separate settlement into existence. These indicia may be helpful, but they are not decisive. … There are so many possible combinations of fact that even where these indicia or some of them are present, the answer may be doubtful, and may depend upon an appreciation of them as a whole. … I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under examination, would conclude. … There can be many variations on these cases each of which will have to be judged on its facts.'"
"While the testatrix's principal concern was overwhelmingly directed in favour of her son Gerard, she was well aware that there was no prospect of him resuming life in the community and also that his financial needs were being met. The provision in her last Will that one half of the annual letting monies should pass to Gerard was, I believe, intended to provide for additional 'comforts' (eg a new bed or chair) should these be required while her residuary estate could be utilised in the event of a major emergency. It is also my belief that the testatrix appreciated that as a result of his mental condition the considerable estate which she owned was of little use to Gerard and that in these circumstances she would have wished that the four remainder men referred to in her Will should benefit as much as possible."
Having regard to this and the actual wording used in the Will, I am satisfied that the original intention or purpose of the testatrix was to provide for the patient's "comfort and well-being". I am further satisfied that the proposed variation seeks to ensure that the patient receives his inheritance in such a way that it benefits him. The proposed arrangement ensures that his inheritance can be used to purchase items for his comfort and welfare rather than increasing his contribution towards his existing residential fees. I therefore consider it is designed to achieve the intention of the testator. Applying the test set out by Megarry J in Re Balls Settlement Trusts I am satisfied that the proposed arrangement effects the testator's intention by other means and is therefore a variation and not a resettlement.
Test for approval – What does "benefit" mean?
"The court shall not approve an arrangement on behalf of any person unless the carrying out of the arrangement would be for the benefit of that person."
"It is not in our judgment generally in the interests of young persons to come into possession of large sums of money which might discourage them from achieving qualifications and from leading settled and industrious lives to the benefit of themselves and of the community."
"Taken in the round, we have reached the conclusion that the proposed variation is for (the minor's) benefit. Should circumstances change we have no doubt that the trustee will have regard to the history leading up to the establishment of the trust in exercising his discretion in relation to any particular request."
Submissions by the parties regarding benefit to the patient
(a) The variation provided greater clarity as to the tax treatment of the trust.
(b) It reduced the risk to the patient that the inheritance from his mother would lead to a loss of means-tested benefits and state support with his residential fees.
(c) The use of the new proposed discretionary trust meant that the inherited funds could be used to benefit the patient rather than being merely used to replace an existing state support. Even though the patient would no longer have automatic entitlement to income the court could consider how the trustees were likely to exercise their discretion and this could be a mitigation of what otherwise might be seen as a loss of a benefit to the patient.
Valuing the Life Interest
Discussion - Is the proposed variation for the benefit of the patient?
"Should circumstances change we have no doubt that the trustee will have regard to the history leading up to the establishment of the trust in exercising his discretion in relation to any particular request." (Paragraph 9)
Whilst the case of Gates is not binding, I find that it is highly persuasive as it dilates upon the meaning to be given to the word 'benefit' in similarly worded legislation relating to applications to approve variations of trusts on behalf of persons lacking capacity. I am satisfied that the patient's loss of right is mitigated by the fact the trustees are likely to accede to any reasonable requests or proposals asking them to pay or advance monies to the patient for items which enhance his comfort or welfare. The trustees obviously cannot fetter their discretion as to how they would exercise their dispositive discretions going forward but the court has the benefit of a statement by Mr Tracey which gives some indication as to how the trustees might be expected to consider that discretion. Mr Tracey, in his statement, states that he is anxious to provide the patient with all the comforts which he requires. From this, it is clear that the trustees are likely to accede to any request for monies to be paid to the patient which would meet his needs or enhance his comfort or welfare. I note that there is, potentially, a conflict between Mr Tracey and the patient as Mr Tracey is a default beneficiary under the proposed trust. Notwithstanding this, I am satisfied in light of his statement and his conduct during these proceedings that he would not act in a manner which would be contrary to the purpose of the trust and the intentions expressed by the deceased in her Will. Further, any concerns that the court may have in respect of a potential conflict have been mitigated by the fact that the court has now ordered that at least one of the trustees should be a professional person, namely a solicitor.
Overarching discretion of the court
"the court "may" if it thinks fit by order approve any arrangement on behalf of the named persons."
At paragraph 8.075 it states:
"A resident is to be treated as possessing income of which he has deprived himself for the purpose of paying a reduced charge."
Paragraph 8.076 defines 'deprive' as follows:
"A person will have deprived himself of a resource if, as a result of his own act, he ceases to possess that resource."
Further paragraph 8.081 provides:
"There may have been more than one purpose of the disposal of income only one of which is to avoid a charge. This may not be the resident's main motive but it must be a significant one. "
In addition, the CRAG guidance provides for cases where the resident has converted a right to income into a capital asset for the purpose of paying a reduced charge.