England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HIGH COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/06/2016

Mr Justice Norris :

1. The late Anthony Collins ("the Settlor") was formerly married to Valerie Collins ("Valerie Collins"). There were three children of the marriage: a daughter born in 1989 ("Rachel"): a son born in 1991 ("Michael") and a second daughter ("Charley") born on 21 September 1998 (collectively the "Children").
2. In the course of their divorce proceedings the Settlor gave an undertaking to the Court:-

"To execute a declaration of trust within 28 days of the date of this order in favour of the three children of the family namely [Rachel] [Michael] and [Charley] of the Allied Dunbar Policy number 49215.081 on terms to be agreed between the parties until the expiry of the term of that policy".

The policy was a whole life policy on the life of the Settlor. There was an undertaking to continue to pay all the premiums in respect of the policy and not to do anything which might invalidate or prejudice the policy during its term.

3. That undertaking was contained in an order dated 7 June 2005 which also made provision for periodical payments in respect of each of the Children until such time as that child attained the age of 18 or (if later) ceased full time secondary education: and it was declared that upon the last of the children fulfilling that condition the periodical payments would cease.
4. The Settlor did not comply with that undertaking because he did not seek the agreement of Valerie Collins to the terms of any trust. Instead on 30 September 2005 he unilaterally made a declaration of trust ("the 2005 Declaration") in the following terms:-

"Policy number 49215.081 (referred to as the Policy) effected by me with Allied Dunbar and all monies payable or to become payable there under are held by me upon trust for my three children [Rachel] [Michael] [Charley] in equal shares for as long as they or one of them shall remain in full time education WHEREAFTER this declaration shall cease and have no effect and the net proceeds of the policy shall revert to me and shall be held by me absolutely".

5. There were entirely justifiable concerns that the 2005 Declaration did not carry into effect the intention of the parties. A trust for the benefit of the Children during the currency of a policy which paid out nothing during its term, but which trust terminated as soon as any money became payable under it would not appear to have been what the parties intended by the formal undertaking given by the Settlor.
6. These concerns appear to have lead to the execution of a further declaration of trust on 18 August 2006 ("the 2006 Declaration"). By this deed the Settlor

i) Assigned the policy to trustees:

ii) Appointed Tracey Patricia Tatsuzawa (who was to become his second wife) ("Tracey Collins") and Gillian Mary Burgess ("Gillian Burgess") as trustees: and

iii) Declared that the trustees should hold the policy

"for the benefit of my three children [Rachel] [Michael] and [Charley] in equal shares until the expiration of the term of the said policy".

The 2006 Declaration then conferred various powers on Tracey Collins and Gillian Burgess (not all of which appear to have any relevance to the actual trust declared).

7. The 2006 Declaration is a fairly remarkable document. As Zurich (the successor to Allied Dunbar) was to observe in a letter dated 6 January 2014:-

"…in our very considerable experience of dealing with similar trusts, we cannot recall another situation where a legally trained person, rather than a lay person, has attempted to declare a second trust where the first trust appeared on the face of it still to be valid. At the very least we would have expected the later trust deed to refer to the first trust deed, to explain why the second trust deed was being entered into and to confirm that it was intended to replace and/or bring the first trust to an end. Unfortunately the second trust did none of these".

8. Since in this application I am called upon to approve on behalf of Charley a variation of whatever applicable trust affects the policy proceeds I do not have to determine exactly what the effect of the 2005 Declaration and the 2006 Declaration is: I have only to be satisfied on behalf of Charley (who will not attain 18 until 21 September 2016) that the proposed Arrangement is more beneficial to her than the present position under the 2005 Declaration and the 2006 Declaration. The context in which that analysis falls to be undertaken is that the Settlor died on 19 July 2013, at which point the proceeds of the policy (£500,000) became payable.
9. For that purpose a sufficient summary (without intending a final determination) is as follows:-

a) The 2005 Declaration was an effective declaration of a trust trust in relation to the Settlor's beneficial interest in the policy:

b) Under the trust declared in the 2005 Declaration the Children are entitled in equal shares to the benefit of the policy for so long as any of them remains in full time education:

c) Since Charley remains in full time education each of the Children is entitled to a share of the income arising from any investment of the policy proceeds, but not to any capital:

d) When Charley ceases to be in full time education that interest of the Children will come to an end, and the proceeds of the policy would (subject to any further disposition and to any attempt to rectify the 2005 Declaration) form part of the Settlor's estate:

e) The 2006 Declaration constituted an effective assignment of the legal title to the policy to Tracey Collins and Gillian Burgess to hold as trustees:

f) Since the Settlor had already settled the benefit of the policy he could not declare fresh trusts save in relation to his reversionary interest arising upon exhaustion of the trust set out in the 2005 Declaration (i.e. the entitlement of his estate to the policy proceeds when Charley ceased full time education): the 2006 Declaration is effective to that extent.

g) What the Settlor meant by disposing of that interest by saying that it should be held for the benefit of the Children in equal shares "until the expiry of the term of the said policy" is obscure, but may well not have been intended as a further limitation but rather as an indication that exhaustive trusts had now been declared.

10. Out of this confusion and out of the terms of the periodical payments order have arisen disputes as to who is currently entitled to the income and capital of the policy proceeds and whether there is a claim under the Inheritance (Provision for Family and Dependants) Act 1975 in respect of the ongoing maintenance needs of Charley. Sensibly the parties have mediated this dispute and have reached Heads of Terms on 15 February 2015. The Heads of Terms did not themselves constitute a binding agreement and were intended to be a basis upon which the legal representatives could draw up appropriate documentation for final agreement by the parties.
11. What was intended was a composite settlement relating both to the trust fund deriving from the policy proceeds and to the 1975 Act claim. It was recorded as the intention of Tracey Collins, Valerie Collins and Gillian Burgess that the 2005 Declaration should be treated as effective but that it should be altered to reflect the true intention of the Settlor that one third of the fund should be given absolutely to each of the Children. The Heads of Terms provided for the immediate payment of one third to each of Rachel and Michael, but for the remaining one third to be held on trust to be used for Charley's maintenance and education until she reached the age of 23 or graduated from university, which ever was the earlier.
12. That intention could have been achieved by an application for the approval of a compromise of the contentious issues (see Chapman v Chapman [1954] AC 429): but in fact by an Order of the Family Division made on 9 July 2015 Tracey Collins undertook to commence proceedings under the Variation of Trusts Act 1958 to vary the 2005 Declaration. That is what was done and was the application that came before me.
13. The proposed Arrangement contained the fresh assignment of the policy by the deceased Settlor, an appointment of Valerie Collins and Gillian Burgess as trustees, and a declaration that they would hold the policy and any monies representing or arising under it:-

"Upon trust for the benefit of my three children [Rachel] [Michael] and [Charley] in equal shares, the share of each child to be subject to the said trust until that child reaches the age of 23 and thereafter that share to be held for that child absolutely and paid over in the event the policy monies become payable by the Company…"

14. I was not content to approve the Arrangement in that form. First, there is no need to provide for an assignment of the policy. The policy no longer exists. What now exists is a fund representing the proceeds of the policy. Its trustees are Tracey Collins and Gillian Burgess. What is needed (to fulfil the intention) is for Tracey Collins to retire and for Valerie Collins to be appointed in her place. Those new trustees can give a valid receipt to Zurich for the policy proceeds. Second, as drawn it did not seem to me to vest Charley's share in her upon attaining the age of 23 but rather to give her an absolute right to call for the share as soon as she attained 18: compare Re Smith [1928] 1 Ch 915 at 918. Third, if it was desired to make her entitlement to capital contingent upon attaining 23 (with powers to apply income or capital for her maintenance education or advancement in the interim) it seemed to me that insufficient consideration had been given to the taxation consequences of achieving that outcome.
15. In the light of observations that I made at the hearing it has now been agreed that Charley's interest will vest at 18. (That does not of course mean the Charley is compelled to call for the transfer of the invested funds into her name: like many a wise young person she may feel it more prudent to leave it in the names of her erstwhile trustees as a protection against "gold diggers").
16. I am in no doubt that this variation is for the benefit of Charley under s. 1(1) of the Variation of Trust Act 1958 for it secures for her an absolute interest in a fund in which it appears that at present she might well have only a terminable interest in income. This is a clear financial advantage. There is no evidence to suggest that she will deal imprudently with her share. In any event she has an interest under another discretionary fund in relation to which the trustees are likely to take into account in the exercise of their powers the way that Charley has dealt with the funds to which she is absolutely entitled.
17. I still cannot approve the Arrangement in the form in which it is drafted. In my view:

a) As regards the Trusteeship all that is required is a recital in the order containing an undertaking by Tracey Collins to retire as a trustee of the fund and to concur with Gillian Burgess in the appointment of Valerie Collins as a replacement trustee: and

b) As regards the alteration in the terms of the trust I think (subject to the views of Counsel) that all that is required is an Arrangement which says that

"As from the date of the Order (i) the Declaration of Trust dated 30 September 2005 shall have effect as if the words from "for so long as" until "me absolutely" were deleted and (ii) the Declaration of Trust dated 18 August 2006 shall have effect as if in clause 2 the words "equal shares until the expiry of the said term of the said policy" were replaced with the words "in accordance with the Declaration of Trust dated 30 September 2005 as varied by Order of the Court"…"

So amended the 2005 Declaration would declare that the policy and its proceeds were held upon trust for the Children in equal shares.

18. The Order ought also to contain an undertaking by Tracey Collins and Gillian Burgess to submit the order for stamping.