Couple allowed to tear up badly drafted trust

A couple have been granted permission to tear up a badly drafted trust, after an error left the wife unable to benefit from it.

The husband had set up the trust several years ago, with the intention of it providing for his wife and children in the event of his death. The man’s bank was the trustee. He wrote a letter to the bank stating his wishes that the trust was to benefit his wife and children in a tax efficient manner in the future.

The problem arose when the wife made a payment into the trust. The payment meant that, according to law, she became a settlor and could therefore no longer be one of the beneficiaries.

This error was recognised and in an attempt to rectify it, the couple realised there was also a major problem with the terms of the trust. It stated that any benefit from the trust could be paid to the beneficiaries, but not to the husband or his wife.

This was the opposite of what the husband had wanted. The trust had been written with both him and his wife as the settlors, whereas he wanted his wife to be one of the beneficiaries.

The couple took the case to the High Court, and requested permission to amend the trust in line with their wishes.

The court stated that in cases such as this, it had to be satisfied that it was just and appropriate to grant permission to rescind the settlement. It would only do so if there was evidence that the mistake was so important that it severely affected the terms of the trust.

In this case the court granted permission, citing the letter written by the husband as a fair indication that errors had been made in the drafting of the trust.

Please contact Nic Pestell if you would like more information about the issues raised in this article or any matter relating to trusts.