Drafting Trusts and Will Trusts 11th Edi

White Rabbit - Alice, it's time to come home
DRAFTING TRUSTS
and
WILL TRUSTS
A Modern Approach
Eleventh Edition
by
JAMES KESSLER, QC
and
LEON SARTIN
KESSLER (11th) PRELIMS1.indd iii 07/11/2012 16:40

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KESSLER (11th) PRELIMS1.indd iv 07/11/2012 16:40

PART 1
TRUST DRAFTING
KESSLER (11th) text1.indd 1 07/11/2012 16:42

CHAPTER 1
THE RAID ON TRUSTS
Policy of Finance Act 2006
The FA 2006 made revolutionary changes to the IHT treatment of trusts. 1.1
Until 2006, the basic principle of tax policy had been that the tax system
should not discriminate against trusts:
The government recognises the important role trusts play in society and has
said that as far as possible it wants a tax system for trusts that does not provide
artificial incentives to set up a trust, but equally avoids artificial obstacles to
the use of trusts where their use would bring significant non-tax benefits.1
In 2006 this policy was reversed. The policy now is to impose additional
charges on trusts, other than very limited, privileged trusts, with the result
that:
(1) In most cases trusts will not be created. In particular a lifetime

gift to another individual is a PET: a gift to a trust is generally
chargeable.
(2) In most cases, where privileged trusts have been created, they will
be wound up relatively quickly:
(a) IPDI trusts will generally be wound up on the death of the
life tenant. In particular, a gift to another individual may
qualify for the spouse/CP exemption: the termination of an
IPDI will not usually do so unless the trust then comes to an
end.
(b) Bereaved Minors trusts and Age 18-to-25 trusts will be
wound up when the beneficiaries reach 18 or 25.
1
HMRC, “Modernising the Tax System for Trusts” (17 December 2004).

4 THE R AID ON TRUSTS
Misconceptions
1.2 More striking than the revolutionary nature of these changes was the
dishonesty used in their presentation. Fundamental misconceptions (a
less charitable commentator would say, lies) were propounded by those
pushing through the new law, including the following:
(1) The changes “aligned” the formerly “privileged” tax treatment of

IP and A&M trusts with the “normal” “mainstream” tax regime
for discretionary trusts.2 In fact, as any practitioner knew, substan-
tial discretionary trusts, i.e. those paying any substantial IHT, were
highly exceptional.3
(2) The changes would only raise £15m per year.
(3) Only a very small number of very rich people, quantified as
20,000, would be affected.
(4) The new rules had been supported by professional bodies in prior
consultation.
(5) The new rules offer a “modicum of simplification”.4
To anyone knowledgeable in practice in this area, these statements were

absurd and scarcely deserve refutation. But the formal evidence of refuta-
tion was in due course assembled, with sufficient success to lead the Select
Committee on Treasury to conclude:
With respect to the new rules on the tax treatment of accumulation and main-
tenance and interest in possession trusts, we are concerned that estimates of the
expected numbers of affected trusts vary so widely between Government and
practitioners. If the Government’s estimate, that the new rules will affect “only
a very small number of very wealthy people” is correct, then the Government
2
HC Official Report, Standing Committee Debates, F(No.2) Bill 2006, 13 June 2006, col. 569,
570 and 633 (Dawn Primarolo).
3
There was a good reason for this. The discretionary trust regime was designed in 1982 to impose
on discretionary trusts a burden roughly equal to the burden of capital transfer tax on non- settled
property. It achieved that. In 1986, CTT was then replaced by the much lighter IHT regime,
under which tax was no longer charged on lifetime gifts. There is no obvious solution as to how
to deal with discretionary trusts under an IHT regime. The solution adopted was to retain the
old CTT rules, which then imposed a burden on discretionary trusts rather greater than that
which applied to non- settled property, but allowing the alternative route of IP trusts (and A&M
trusts) which were, broadly, treated in the same way as non- settled property. Thus the charges
on discretionary trusts had something of the nature of anti- avoidance provisions. Although the
tax charge could be unduly high, that did not matter at all because nobody needed to pay it, and
very few actually did.
4
HC Official Report, Standing Committee Debate, F(No.2) Bill 2006, 13 June 2006, col. 605
(Dawn Primarolo). Further consequential amendments in ss.52 and 53 F(No.1)A 2010 have in
fact rendered the IHT treatment of trusts incomprehensible even to trust lawyers.

POLICY ISSUES 5
needs to provide much more detailed information about its estimates, in order
to allay taxpayer and industry concerns. We are concerned that a legitimate
measure designed to reduce tax avoidance may penalise trusts established to
protect family members and consider that the issue merits further considera-
tion. We recommend that the Government provide detailed information about
how it has arrived at its estimate that the new rules on the tax treatment of
certain trusts will affect only “a minority of a minority” of 100,000 discre-
tionary trusts. This information should be provided prior to consideration in
Committee of the House of Commons of Clause 57 of, and Schedule 20 to,
the Finance Bill.5
No such evidence was ever produced (for the good reason that it did not
exist).
Policy issues
Trusts offer important protection for beneficiaries as the Courts have often 1.3
accepted:
Speaking in general terms, it is most important that young children should be

reasonably advanced in a career and settled in life before they are in receipt of
an income sufficient to make them independent of the need to work.6
Research by the Financial Services Authority shows (if proof was needed)
that 18-year-olds are much less financially capable than 25-year-olds.7
Of course it is not just young persons who may be at risk:
People with mania sometimes believe they are rich and go on spending sprees
and people with depression commonly spend money in an effort to make
themselves feel better. Conversely, people with depressive symptoms may
withdraw and ignore official letters, appointments and bills often leading to
mounting debt.8
5
Select Committee on Treasury, Fourth Report of Session 2005- 6, HC Paper 994, para.109, acces-
sible www.publications.parliament.uk/pa/cm200506/cmselect/cmtreasy/994/99402.htm.
6
Re Holt [1969] 100 at p.122. Another example: Re Gates [2003] 3 ITELR 113, accessible www.
jerseylaw.je: “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 qualifica-
tions and from leading settled and industrious lives to the benefit of themselves and to the
community.”
7
The report, “Levels of Financial Capability in the UK” concluded that 18-year- olds have a factor
score of just 27 out of 100, while those aged 20 to 29 have a higher factor score of 40. See www.fsa.
gov.uk. Dawn Primarolo’s response was “I, for one, have more faith in our young people”. During
this soi disant debate, members of the Standing Committee passed the time reading “Private Eye”:
HC Official Report, Standing Committee Debate, F(No.2) Bill 2006, 13 June 2006, col. 710.
8
Quote from website of “Rethink” (the Schizophrenia charity). Persons with mania or depression
will often not qualify as “disabled persons” in the IHT sense.

6 THE R AID ON TRUSTS
Until now the financial protection which trusts can confer has been avail-
able to everyone; it was one of the great benefits of living in a common
law jurisdiction. The attack on trusts is a reform which in the long term
(if it remains) has profound social implications. But the dishonest manner
in which the changes were introduced effectively prevented any serious
debate on the policy issues from taking place.
Does it now matter? Readers may think it pointless to cry “foul” in a
game which has no referee, and whose result has now long been declared.
But the story does need to be recorded, for several reasons.
The UK tax system is notorious for its instability9 and tax law which is
not founded on honest debate and a modicum of consensus is not likely
to prove stable.
The relationship between the individual and HMRC has in the past
depended mainly on willing compliance. (A system based substantially or
entirely on forced compliance could be created, and indeed we are pres-
ently moving in that direction, but no-one has ever openly advocated
that). HMRC rightly protest when they are cheated:
HMRC expects professionals such as accountants who act on behalf of tax-

payers to be entirely professional and honest. [The convicted defendant]
has abused the trust of his clients and has failed in his legal and professional
responsibilities to HMRC. He has cheated family, his friends, clients and all
honest taxpayers.10
But honesty is a two-way street. Taxpayers should also expect HMRC to

be “entirely professional and honest”. In this matter HMRC abused the
trust of the public (which generally assumed that HMRC press releases
are reliable). Settlors and beneficiaries of A&M trusts have been cheated.
They entered into arrangements which have never been regarded as
tax avoidance and found themselves being penalised for having done
so. The rank unfairness of some of the 2006 rules, combined with its
dishonest presentation, corrodes goodwill upon which HMRC also
needs to rely.
Most importantly of all, the needs of beneficiaries of trusts, especially
those most vulnerable, require “a tax system for trusts that avoids artificial
obstacles to the use of trusts where their use would bring significant non-
tax benefits.”11
9
Noted in Steinmo, “Taxation and Democracy”, Yale University Press, 1993, p.44 but the instability
has markedly increased since then.
10
See Tax Bulletin 83 (2006).
11
See fn.1.

TRUSTS AFTER THE FA 2006 7
Trusts after the FA 2006
Wills trusts will still be used: see Chapter 17 (Types of Will Trusts). The 1.4
usual situations in which lifetime trusts will be used by UK domiciliaries
under the current law are as follows:
(1) If the value of the trust property falls within the nil rate band.
(2) If the trust property qualifies for 100% business or agricultural
property relief.
These are of course significant categories. In appropriate cases the best

IHT planning now may be for individuals to make a series of nil rate band
gifts every seven years.12
In all other cases, the 20% IHT charge will rule out lifetime gifts to
trusts. Individuals who wish to benefit their family should:
(1) Make absolute gifts, or gifts to bare trusts,13 which will be PETs.
(2) Make interest free (or if desired, index linked) loans.14
(3) In the case of companies not qualifying for 100% BPR, deferred
share arrangements should be considered (this topic is not discussed
in this book).
A sensible course is to do nothing for now and wait for the fiscal climate
to improve. Experience suggests that the pendulum swings to and fro,
just as old Labour’s capital transfer tax only lasted from 1974 to 1986. The
2006 IHT regime, founded on misconceptions and lies, is unlikely to last
longer. Sensible advice for a client not in old age would be to wait and see.15
12
Spouses and CPs may each make gifts to the same trust, as that trust will be treated as two separate
trusts for IHT purposes: s.44(2) IHTA 1984.
13
See Ch.22 (Bare trusts).
14
If desired:
(1) The loan (say, to a child) could be repayable only on the death of the borrower.
(2) The individual could give away the benefit of the loan to grandchildren.
15
The life expectancy of an individual aged 60 is 21 years (male) and 24 years (female). See www.
gad.gov.uk.

CHAPTER 2
FIRST PRINCIPLES
Duty to the client
2.1 The purpose of drafting a settlement or will is to carry out the wishes of
the settlor or testator. The professional adviser will do more than this:
their duty is to advise, ascertain and carry out their client’s wishes. This
is a matter of explanation and common sense. Suggestions of solicitor
or textbook writer are often brushed aside by those wary or suspicious
of them. It is easy to let clients do what they want; or what they think
they want. Their families will pay the resulting bills in due course,
probably without complaint; almost certainly without redress. But the
responsibility of the adviser is to help their client whose basic wish will
be to benefit their family in the most appropriate way. Empathy and an
ability to communicate are called for; a little persuasion or cajolery may
not be amiss.
A docile client may sign anything put in front of them. The professional
adviser does not serve that client well if they simply place before them the
firm’s standard draft—even if settled by counsel—for execution without
discussion and explanation.
Consultation with the client comes at two stages. First, the general
strategy; at this stage consideration can be given to the nature of the trust
property, the tax position, the class of beneficiaries and the choice of trus-
tees or executors. Later, when the draft is completed, it should itself be
explained to the client clause by clause. A modern style of drafting renders
this task much easier. The execution of a document which the client does
not understand is a recipe for disaster.1
Where the client is a trustee or a beneficiary—especially if they are
both—the solicitor has the difficult duty of explaining to the settlor the
nature of their rights and duties under the trust. Legal and equitable own-
ership are subtle concepts. The client must not be left with the impres-
1
Is this so obvious that it does not need saying? Apparently not. For an example of such a disaster
see Wolff v Wolff [2004] STC 1633.

DOES DRAFTING MATTER? 9
sion that the trust fund is simply “their fund”. The trustee acting on that
assumption will inevitably act in breach of trust; disabused of their illu-
sions the client may blame their advisers; alternatively the trust deed may
be dismissed as a sham.2
Elderly or ill client
In the case of an aged testator or a testator who has lately suffered a serious 2.2
illness, there is one golden rule which should always be observed, however
straightforward matters may appear, and however difficult or tactless it may
be to suggest that precautions be taken: the making of a will by such a testa-
tor ought to be witnessed or approved by a medical practitioner who satisfies
himself of the capacity and understanding of the testator, and records and
preserves his examination and fi ndings.
There are other precautions which should be taken. If the testator has made
an earlier will this should be considered by the legal and medical advisers of
the testator and, if appropriate, discussed with the testator. The instructions
of the testator should be taken in the absence of anyone who may stand to
benefit, or who may have influence over the testator.
These are not counsels of perfection. If proper precautions are not taken
injustice may result or be imagined, and great expense and misery may be
unnecessarily caused.3
The same applies of course to a lifetime settlement made by such a client.
Does drafting matter?
Lord Reid said that the courts do not penalise the client for their law- 2.3
yer’s slovenly drafting.4 It would be more accurate to say that the courts
try not to penalise the client for bad drafting. If the meaning is clear, the
court will “adopt methods of construction appropriate for documents inter
rusticos”. For instance when a drafter uses the word “assent” when they
mean “convey” or says “Bishop of Westminster” instead of “archbishop”
the intended meaning will be understood.5 But slovenly drafting leads to
2
James Kessler QC, “What is (and what is not) a Sham” (1999) OTPR, vol. 9, p.125 accessible
www.kessler.co.uk.
3
Re Simpson (1977) 121 Sol. Jo. 224 and often approved; see eg Key v Key [2010] EWHC 408 (Ch)
at [6]. See Ch. 4 of the Mental Capacity Act Code of Practice, accessible www.justice.gov.uk, and
Assessment of Mental Capacity (2nd edn) published by the BMJ and written jointly by the BMA
and Law Society.
4
Re Gulbenkian [1970] AC 508 at 517.
5
The examples are from Re Stirrup [1961] 1 WLR 449 and Re Hetherington [1989] 2 All ER 129.
Many illuminating and amusing examples can be found in Lewison, Interpretation of Contracts (5th
edn, 2011), Ch.9.

10 FIRST PRINCIPLES
ambiguity and sometimes invalidity. To ascertain the meaning of a badly

drafted document can be a matter of great difficulty. Some apparently
trivial drafting errors have disastrous tax consequences.6 Drafting does
matter.
Flexibility
2.4 A trust needs to be flexible. This means that trustees require overrid-
ing powers to enable them to rewrite the terms of the trust as appropri-
ate. Beneficiaries’ circumstances change in ways that are not possible to
foresee. Trustees need to adapt to tax changes which are wholly unpre-
dictable. “The major distinguishing feature of the British tax system is its
instability.” 7
Simplicity
2.5 This book strives for simplicity of style and simplicity of concept. Simplicity
of style is self-explanatory: a preference for the shorter formula over the
longer; the use of aids to the reader such as punctuation and clause head-
ings; and the rejection of material which is archaic or otiose.
Simplicity of concept calls for the broad structure of a trust to be simple
and comprehensible. Provisions should be set out in a logical sequence.
Vastly complicated settlements should not be employed where simpler
provisions would be satisfactory.
Dense and obscure drafting carries a heavier price than may be real-
ised. The more complex a draft, the more professional time must be spent
studying it in order to ascertain its meaning, and the greater the chance of
errors escaping observation.
6
Although the courts may not penalise the client for their lawyer’s slovenly drafting, HMRC
(quite rightly) have no such scruple. A classic example is the Vandervell litigation [1971] AC
912. A modern example would be the inclusion of a power which might destroy an interest in
possession.
7
Steinmo, Taxation and Democracy, Yale University Press, 1993, p.44. This was written in the light
of the budgets of 1986, 1987, 1988, 1989 and 1992 which all contained fundamental changes;
this under the administration of a single stable Conservative administration! Labour brought in
CGT taper relief in 1998, substantially amended in the Finance Acts 2000, 2001 and 2002 and
then abolished in 2008. It also revolutionised IHT with the 2004 pre- owned asset rules (amended
2006) which should be regarded as an erratic ersatz IHT, and the new regime for trusts in the
FA 2006; both of these should also be regarded as unstable (indeed absurd). The Conservative/
Liberal-Democrat coalition has increased the CGT rate (set at 18% in 2008) mid-2010 to 28%.
The only certainty is one of further significant change.

SOURCES FOR DRAFTING 11
Sources for drafting
The aim of the drafter is to keep so far as possible to familiar paths; to 2.6
be unoriginal. They are happy to use well-worn phrases of established
meaning and fearful to use novel forms. To this end the drafter may draw
on many sources. Of course such sources should be used as a guide and not
a crib. The wide variety of forms and styles employed in statute and pub-
lished precedents force the drafter to some form of selection. Innovation
is constantly required to meet changes in tax and trust law, circumstances
of beneficiaries and wishes of settlors.
(1) Statute
Statute (and statutory instrument) should be the drafter’s starting point: 2.7
wording which the parliamentary drafter thought adequate can rarely be
criticised as defective. This applies not only to the precedents thoughtfully
set out by the parliamentary drafter for the benefit of the profession,8 but to
the vast body of statutory material. Many different styles of drafting are to
be found in statutory precedent. This is hardly surprising when one bears
in mind that many different hands may have been at work even in a single
Act. English property legislation offers clearer sources of precedent than
any precedent book. The precedents in this book have drawn whenever
possible on statutory precedent.9 Reference may also usefully be made to
foreign trust laws.
(2) Law reports
In the law reports an immense number of precedents are discussed and 2.8
analysed, and the adoption of a clause or formula which has the benefit of
judicial consideration and approval may be attractive. Conversely, where
the court has disapproved of a form, the drafter should take careful note.
(3) Company law
Precedents from a company law context may assist the trust drafter. This 2.9
book makes occasional use of the Model Articles in The Companies
(Model Articles) Regulations 2008, the Companies Act 2006 and the
Insolvency Act 1986.
8
e.g. Sch.1 SLA 1925; Schs 3 and 4 LPA 1925.
9
This book specifies the statutory provisions which are used as the basis of its precedents. Also
noted in footnotes are any other provisions which may also have served as precedents for the
clause under discussion. This may serve as a starting point for research for the drafter creating
a specific draft, or for a practitioner construing a particular clause in a document before him. It
also illustrates the endless variety of formulae which may properly be used to achieve the same
end and the different drafting styles used.

12 FIRST PRINCIPLES
(4) Legal literature and precedent books
2.10 There is a large body of published precedents of varying age and author-
ity. (For a selection, see the bibliography in Appendix 2.) The authors of
these works have naturally drawn from similar sources and each other. The
forms proposed have a great deal in common; a review of any indenture
from an earlier century will reveal phrases or entire clauses still familiar
today. At the same time, copyright considerations may have led to an
unnatural multiplicity in published precedents.
Formal qualifications for the drafter
2.11 The position is now governed by the Legal Services Act 2007. Only
authorised or exempt persons can carry out “reserved legal activities”.10
Any other person who does so commits an offence.11 Authorisation may
be given by the Law Society, the Bar Council and other regulators.
“Reserved legal activities” includes “preparing any instrument relat-
ing to real or personal estate for the purposes of the law of England and
Wales” (known as “reserved instrument activities”). The restriction does
not apply to:
(1) a will or other testamentary instrument;

(2) an agreement not intended to be executed as a deed, other than a
contract for the sale or other disposition of land;
(3) a letter or power of attorney; or
(4) a transfer of stock containing no trust or limitation of the transfer.12
The Legal Services Board has recommended that will-writing is added to

the list of reserved activities.13 It is therefore likely that the restriction will
apply to wills and other testamentary instruments in the near future.
It is suggested that the words “for the purposes of the law of England
and Wales” mean that the English offence applies only to a document
governed by English law. Section 212 Legal Services Act 2007 provides
that the Act extends to England and Wales only, so it is suggested that the
10
Section 13 Legal Services Act 2007.
11
Section 14 Legal Services Act 2007. It is also an offence to carry out a reserved legal activity
through a person who is not entitled: s.16 LSA 2007. It is also an offence to pretend to be entitled,
or to use any name, title or description with the intention of implying falsely that that person is
so entitled: s.17 LSA 2007.
12
Paragraph 5, Sch.2 Legal Services Act 2007.
13
The Legal Services Board’s Consultation Document, Enhancing consumer protection, reducing regula-
tory restrictions: will- writing, probate and estate administration activities, 23 April 2012, is accessible at
www.legalservicesboard.org.uk/what_we_do/consultations/closed/index.htm.

FORMAL QUALIFICATIONS FOR THE DRAFTER 13
restriction applies only to documents which relate to property in England

or Wales.
Scotland, Northern Ireland, and many other jurisdictions have similar
legislation: in particular the drafting of Scots/Northern Ireland law docu-
ments relating to property in those jurisdictions is restricted to lawyers
locally qualified.14
Is a deed of appointment (or appointment of new trustees) a document
“relating to real or personal estate” and if so, what (and where) is the
property to which it relates? At first sight an appointment relates to the
trust assets. But a trust fund may have assets all over the world. A better
analysis would be that the document relates to the equitable interests of
the beneficiaries. An equitable interest is probably situate where the trus-
tees are resident.15 So an appointment governed by English law must be
drafted by an authorised person if the trustees are resident in England.
An English law trust deed with English trustees must likewise be
drafted by an authorised person.
The transfer of property (except stock) to trustees (on the creation of a
trust or on the appointment of new trustees) relates to the property trans-
ferred so an English law transfer of English property (except stock) must
be drafted by an authorised person.
Thus an offshore trust company may prepare a trust, with non UK law,
if the initial trust property is non UK situate property. The trust company
could also draft a transfer of shares or securities to the trustees; it should
not prepare a transfer of land to the trustees if the land is situated in the
United Kingdom. It is a criminal offence for a firm of accountants or a
trust company to draft an English law trust relating to English property.
The offence applies where drafting work is done by an employee (e.g.
a solicitor) if the employer (e.g. accountants or a trust company) is not
entitled to carry on reserved instrument activities.16 If the employee is
not entitled to carry on such activities, the employer (e.g. a solicitors’
firm) will commit an offence, even if the employer is so entitled.17 This
offence carries a maximum penalty of an unlimited fine and/or two years’
imprisonment.
14
Section 32 Solicitors (Scotland) Act 1980; art.23 Solicitors (Northern Ireland) Order 1976; s.10
Legal Practitioners Law (2003 Revision) (Cayman Islands).
15
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), para 77.26
(Equitable interest under a substantive trust), accessible www.foreigndomiciliaries.co.uk.
16
See s.15 Legal Services Act 2007. Both the employer and employee are regarded as carrying on
the activity and so both must be entitled to do so: s.15(2), (3). However, an employer will not
be treated as carrying out a reserved legal activity if the service is not provided to the public or a
section of the public in the course of or as an aspect of the employer’s business. The effect of this
is, for example, that where a body employs lawyers to provide in-house legal services to that body
or to certain persons connected to the body, but not to the public or a section of the public, the
body in question will not need to be an authorised person: s.15(4), (5). This does not alter the
fact that any individual lawyers which the body employs to provide reserved activities will need
to be authorised persons.
17
Section 16 Legal Services Act 2007. There is a limited exception if the fi rm has taken all reason-
able precautions and exercised all due diligence to avoid committing the offence.

14 FIRST PRINCIPLES
Interesting questions arise where for the drafting the law is broken.
Suppose a person who is not authorised drafts a trust. Could it sue for its
fees? Obviously not. Suppose the document was negligently drafted and
the firm was sued for negligence. Would the firm be covered by its profes-
sional indemnity insurance? That would depend on the terms of the insur-
ance cover. What would be the attitude of the firm’s regulatory body?
Money laundering18
2.12 The following is not a full discussion of the law, which goes beyond
the scope of a book on trust drafting, but a summary in the nature of a
checklist.
• Does the drafter suspect that the trust fund represents proceeds of
criminal conduct? If so, drafting the trust may be an offence.
• The drafter must comply with the identification and record keeping
procedures required by the Money Laundering Regulations 2007.
These regulations apply regardless of whether the drafter has any
suspicion of criminal conduct. Failure to do so may be an offence.
Civil claims against the drafter
2.13 A drafter may of course incur civil liabilities. In this work we need only
mention the main heads of liability:
(1) in contract or negligence, to the client;

(2) in negligence, to beneficiaries or trustees;
(3) for dishonestly assisting a breach of trust even though the funds
never pass into the drafter’s hands;
(4) as constructive trustee for breach of trust, if the trust funds do pass
through the drafter’s hands as trustee or nominee (i.e. funds paid to
a client account); and
(5) in due course, if the drafter becomes trustee, for actual breach of
trust.
18
On this topic see the Anti-money laundering practice note issued by the Law Society, accessible
www.lawsociety.org.uk/productsandservices/practicenotes/aml.page.

CHAPTER 3
STYLE
Introduction
The drafting style established in earlier centuries should be adapted to 3.1

contemporary usage. The need for this is unquestionable. The drafter’s
aim should be to satisfy their client’s wishes; and the general public wish
to see plain English.1
To subject old precedents to critical review is not to disparage them.
The old forms offer harmonious cadences which ravish the ear and intel-
lect of the conveyancer; but they make little concession to the natural
breaks and lucidities of the English tongue. There is nothing praiseworthy
in practising the errors of one’s forefathers.
This has for many years now been the establishment view. Lord
Nicholls, then Vice- Chancellor, was asked at the Law Society’s annual
conference in 1993 what single change he would most like to see in the
system of justice. He replied:
If I could make one change, I would have the White Book rules rewritten in
English, in a form that anyone can understand.2 I would have orders drafted
in a form that people can understand and recognise as being in English. That
would make an improvement in the administration of justice but also in the
impression that the consumer gets. Instead of thinking he’s going into some
strange world where people use language in documents and sometimes orally
that people never use, he would actually be able to understand what was going
on.
This comment drew spontaneous applause from the audience.

The modern drafting style adopted in this book, once revolutionary, is
1
This can hardly be doubted; but see the diatribe in The Times leader 30 November 1990: “The
Solicitors’ word processors spew forth an ever-increasing flood of garbage. A clearer case of a
profession ‘conspiring against the public’ is hard to imagine.” In response to this pressure, the Law
Society’s Client’s Charter (2003) (significantly) “backed by the Plain English Campaign”, pro-
vides: “A solicitor will make every effort to explain things clearly, keeping jargon to a minimum”.
2
This comment can now be seen as a precursor of some of the Woolf reforms.

16 STYLE
the present orthodoxy. The old controversy—whether mistakes are likely

to be introduced by the adoption of a modern drafting style—is over.3
Scarcely any law reform proposal nowadays fails to include “plain legal
English” as one plank of its reforms.4 The US Plain Writing Act 20105
shows how far the movement has reached in the United States.6 It is inter-
esting to speculate as to the reason for this perceptible change of mood
which may be dated to the early 1990s though its roots lie far earlier.7 It
is probably connected with the loss of respect for the professions generally
and the assumption that they “know better” than the layman; the com-
3
In this debate it was not always appreciated just how far the most “traditionalist” drafting style has
advanced. For instance the modern practice of using separate clauses is innovatory: nineteenth-
century documents contained no paragraph breaks and different sections were marked only by
the use of capitalised words.
4
Three examples will suffice:
1. The Report of the Pension Law Reform Committtee (the Goode Report), Cm. 2342 (1993),
pp.192–194:
“The skilled draftsman produces text which is almost wholly unintelligible . . . What concerns
us is not particular infelicities of drafting, which are unavoidable, but a sense that clarity is
not seen as important. Little thought seems to be given to the need of the user to be able to
understand, at least in a broad sense, what it is that Parliament is saying. This results in profes-
sionals having to spend much more time than should be necessary trying to understand what
the legislation is saying. . .of course the paramount consideration must always be to produce
the required legal effect; communication of that effect necessarily takes second place in the
order of priorities. But the two are not incompatible. In recent years government departments
had made substantial progress towards simplifying official forms and reducing the numbers
in use. This has been widely welcome. We strongly urge a similar approach towards statutory
and other rules affecting pension schemes.”
2. One of the objects of the Civil Procedure Rules was “to remove verbiage and adopt a
simpler and plainer style of drafting”: Woolf Report Access to Justice, Ch. 20.
3. The most extraordinarily ambitious project arising out of this trend is the current re-write
of UK tax legislation in plain English.
A striking reflection of this mood can be found in a Hansard debate of 26 June 1997 accessible
www.kessler.co.uk.
5
HR 946 (111th); see www.govtrack.us/congress/bill.xpd?bill=h111-946.
6
See too former President Clinton’s Memorandum on Plain Language accessible http://govinfo.
library.unt.edu/npr/library/direct/memos/memoeng.html.
7
Fierce dissatisfaction with legal drafting can be traced back at least to the Enlightenment:
“Lawyers . . . charge exorbitant fees for piling up heaps of turgid documents couched in
arcane terminology purposely incomprehensible to non-lawyers, rendering the public helpless
victims of their wiles, a conceited, grasping clique, who, instead of serving the common good,
cunningly exploit their supposed expertise to generate wealth and bogus status for themselves.”
Adriaen Koerbagh (1664) cited in Israel, Radical Enlightenment, OUP, 2001.
An early statutory example is s.56 Common Law Procedure Amendment (Ireland) Act 1853
(“Pleadings shall state all facts which constitute the Ground of the Defence or Reply in ordinary
Language, and without Repetition, and as concisely as is possible consistent with Clearness”).
The development of drafting styles can be traced to some extent in the drafting of Acts of
Parliament which occasionally contain precedents. For instance, the precedents in Schs 3 and 4
of the Conveyancing and Law of Property Act 1881 are not divided into clauses; the only punc-
tuation is a full stop at the end of the precedent. By the time of the LPA 1925, clauses are used,
and, though sparingly, punctuation: see Sch. 5. More recent important dates are: publication of
Mellinkoff, The Language of Law (1963); foundation of the Plain English Campaign (1979) and
Clarity (1983). For the history, see the bibliography in Appendix 2.

PUNCTUATION 17
mercial advantages offered by “plain English” in a competitive market8 ;

that lawyers now learn no Latin in their childhood (or learn it to a low
level and forget it); but ultimately it is because the arguments in favour of
“plain legal English” are convincing.
In some areas plain English drafting is required by law. The Unfair
Terms in Consumer Contracts Regulations 1999, only one example,
require consumer contracts to be in “plain, intelligible language”.
In the past, the style of drafting in the field of trusts and conveyancing
fell behind the style of drafting in other areas of law; but this has changed;
as witness the Law Society’s Standard Conditions of Sale, the Charity
Commissioners’ model charitable trust, or the STEP Standard Provisions.
There are still many who draft without punctuation, etc., but they are
somewhat behind the curve.
Lastly, style is not a subject to which one should devote too much time!
Many questions of style are matters of taste and discretion, and do not
admit a right-or-wrong answer. Even where there is a right- or-wrong
answer (such as to prefer witnesses to witnesseth) these are not issues of fun-
damental importance. Yet although literary style should not—legally—
matter, it is a fact that where style is poor, more serious errors are often
found.
Punctuation
Punctuation was traditionally omitted in legal documents. Many trust 3.2

drafters still use no punctuation. If it is used, a sense of guilt or unease or
tradition causes drafters (like children) to use it sparingly and in a manner
quite distinct from ordinary English composition.9
The traditional practice rests on a precedent both ancient and authorita-
tive. The Bible itself, in the original Hebrew, lacks punctuation and even
paragraph breaks are rare; though the absence of punctuation adds little
ease to its reading or interpretation.
Fortunately the old order has changed and punctuation has begun to
appear in trust drafting. The parliamentary drafter led the way. Precedents
in the Conveyancing Act 1881 have full stops at the end of them, though
8
Thus some insurance companies, banks and others boast in their advertising that their legal
documentation, including trust documentation, is framed in plain English.
9
Thus one sees underlining or absurd spaces to avoid the ordinary use of commas:
This Deed is made by John Adam Peter Jones and Adam West . . .
This is at least better than the older form:
where it is not even clear how many parties there are to the deed.

18 STYLE
no other punctuation. This seems to have been the fi rst concession to the
rules of grammar as understood by the non-legal world. Precedents in the
Law of Property Act 1925 use commas in addition, though sparingly. The
Statutory Will Forms 1925 use punctuation in the manner of ordinary
English prose. So do the Law Society’s Standard Conditions of Sale. That
is the approach adopted in this book.
Punctuation serves two functions: it will make a document easier to
read; and it may convey meaning, showing which of two possible read-
ings is correct. In the precedents in this book, punctuation is used only in
the first of these ways. So the precedents would have the same meaning
even if the punctuation were diligently abstracted by a drafter in time
honoured tradition. However, this self restraint is quite unnecessary: the
courts will have proper regard to punctuation in the construction of a
document. Thus Lord Shaw:
Punctuation is a rational part of English composition . . . I see no reason of

depriving legal documents of such significance as attaches to punctuation in
other writings.10
As Lord Shaw suggests, punctuation is an aid, and no more than an aid,

towards revealing the meaning of a text. Punctuation is the servant and not
the master of substance and meaning. Excessive reliance on punctuation to
convey meaning is also contrary to good prose style.11 For all these reserva-
tions, it remains plain that proper use of punctuation makes a document
easier to read and understand and this is sufficient justification for its use
in legal documents.
10
Houston v Burns [1918] AC 337 at 348. Scots lawyers never adopted the English custom of draft-
ing without punctuation. It is therefore significant that this was a Scottish case. Lords Finley
and Haldane (whose practice had been at the English Bar) agreed, Lord Finley discussing earlier
English case law, and drawing no distinction between English and Scots law on this point. So
the principle became established in English law. The same rule applies for Acts of Parliament:
Hanlon v Law Society [1981] AC 124 at 197–198; Marshall v Cottingham [1982] Ch 82 at 88 where
Megarry V.C. sets out, with customary wit, the view which he expressed 20 years earlier:
“Statutory Interpretation” (1959) 75 LQR 29. Likewise the EU Joint Practical Guide on the
drafting of legislation states at para. 1.4.2: “Drafting which . . . respects the rules of punctuation
makes it easier to understand the text properly”, accessible http://eur-lex.europa.eu/en/techleg/
index.htm.
11
Fowler’s Modern English Usage: “Ambiguities may sometimes be removed by punctuation, but an
attempt to correct a faulty sentence by inserting stops usually portrays itself as a slovenly and inef-
fective way of avoiding the trouble of re-writing. It may almost be said that what reads wrongly
when the stops are removed is radically bad; stops are not to alter meaning but merely to show
it up.” But Fowler does not mean to say that one should try to write without meaningful use of
punctuation. This is a feat difficult to achieve and quite contrary to English usage. One need only
contrast Don’t Stop! and Don’t! Stop!!

USE OF CAPITALS 19
Use of capitals
In lieu of punctuation and paragraph breaks, the traditional style capital- 3.3
ised certain expressions to aid the reader to fi nd their place. The few large
letters offered, in Dickens’ words: “a resting place in the immense desert of
law hand and parchment, to break the awful monotony and save the trav-
eller from despair”. The main expressions put in capitals were as follows:
the opening words: THIS SETTLEMENT

the names of parties;
the introduction to the body of the deed: NOW THIS DEED
WITNESSETH . . .
words of action: DECLARE, APPOINT
that the trustees hold . . . UPON TRUST . . .
the first words of the “parcels” clause: ALL THAT . . .
provisos: SUBJECT TO . . . PROVIDED THAT . . .
and finally: IN WITNESS . . .
Some drafters capitalise the fi rst word or two of every paragraph.

Now all this has lost its purpose with the introduction of paragraph
breaks and numbering. The old practice is still common, perhaps because
it is thought to give a pleasing legal feel to a document.12
One sometimes sees:
the Trustees hold . . . Upon Trust . . . .
Wavering between legal usage (fully capitalised) and ordinary usage

(uncapitalised) the drafter sought a compromise and capitalised the fi rst
letter only. The precedents set out in the 1925 property legislation do not
adopt an entirely consistent practice. They have virtually abandoned the
practice of full capitalisation.13 They waver inconsistently between conven-
tional usage and capitalisation of first letters. Thus in successive forms one
sees “ . . . supplemental to a legal charge . . .” and “ . . . Supplemental to
a Legal Charge . . ..” The drafter clearly gave little thought to the matter.
The initial letters of defined words should be capitalised. In other cases
12
The pleasure may not be shared by non-lawyers. “The mutual massaging of the whole profes-
sion’s ego. Give us capital letters and raise our status.” See Outrageous Fortune, an autobiography
by Terence Frisby, 1998; (recommended holiday reading for any lawyer.) Frisby is unconsciously
repeating criticism already made three centuries earlier: see fn.6.
13
A stray “WITNESSETH” is found in Sch.3, Form 1 LPA 1925.

20 STYLE
it is considered that ordinary English usage should be adopted, and this is

the practice adopted in this book.
Sentence length
3.4 It is better to use a number of short sentences in preference to a single

lengthy sentence. Short clauses help to produce a document which is
easy to understand. The lengthy clause easily hides ambiguity or error.
This has long been recognised.14 A good example of the problems of an
over-extended clause is to be found in the Finance Act 1984, Sch. 13,
para. 10(2). Here the drafter failed to understand their own creation and
omitted the word “not”! Parliament later inserted the word in the provi-
sion. That convenient remedy is not open to the trust drafter (except in
accordance with an express power to vary, or under the expensive and
embarrassing procedure of rectification).
One could give countless examples of ambiguity arising from over-long
clauses. But even when there is no ambiguity an over-loaded clause is best
avoided. Take a clause such as this:
The Trustees shall stand possessed of the trust fund on trust to sell call in or convert
into money such part of the trust fund as shall not consist of money with power to
postpone such sale calling in or conversion for so long as the trustees shall in their
absolute discretion think fit without being responsible for loss and shall at the like
discretion invest the monies produced thereby in the names or under the legal control
of the trustees in or upon any investments hereinafter authorised with power at such
discretion as aforesaid to vary or transpose any investment for or into others of any
nature hereby authorised.
In this standard but tortuous provision are four elements: a trust for sale;
a duty to invest trust money; a power to vary investments; and a power
to use nominees. They could more clearly be contained in separate
clauses. The drafter might then turn their mind to expressing the same
thoughts more concisely; their might further consider where the provi-
sions should most logically come; and even whether the provisions are
needed at all.
Another example:
The trustees shall stand possessed of the trust fund UPON TRUST to pay the income
thereof to X during her lifetime Provided that the Trustees may at any time or times
in their absolute discretion transfer the trust fund to X absolutely free and discharged
from the trusts hereof . . .
14
“I have never understood why some conveyancers should regard it as beneath their dignity to
employ sub-paragraphs in a clause so as to make their meaning plain”: Re Gulbenkian [1970] AC
508 at 526 (Lord Donovan).

PASSIVE VOICE 21
This should be dealt with in two clauses: one conferring X’s right to
income, and the other dealing with the trustees’ power to transfer capital.
As the EU Joint Practical Guide on the drafting of legislation states:
“Sentences should express just one idea”.15
Must every clause be a single sentence?
Normally each clause is a single sentence. This has the practical advantage 3.5
that cross referencing to the sentence concerned is easier. Nevertheless, it
should not be regarded as an absolute rule and the tradition of one sentence
clauses has often led to excessively long sentences. The Model Articles for
companies set a good example here. It is sometimes convenient to divide a
single clause into two paragraphs. This may be simpler than dividing the
material into subclauses. There is statutory authority for this practice.16
Indentation
The parliamentary drafter is quite prepared to use indentation: 3.6
(1) to break up text into smaller pieces; and

(2) to carry meaning.
The 1925 property legislation makes considerable use of indentation and

even introduces it when re-enacting older provisions where it was not
found.17 The courts take account of indentation to ascertain meaning.18
Passive voice
Plain English style guides agree that the active voice should be preferred to 3.7
the passive.19 The reason is that the passive can be used without specifying
15
See 4.4 (Meaning of words v meaning of document); see http://eur-lex.europa.eu/en/techleg/index.htm.
16
Examples are too numerous to compile a complete list; but see ss.29(1) and 105(1) SLA 1925
(which both contain three paragraphs); s.41 TA 1925; s.190(2) Insolvency Act 1986.
17
See e.g. s.31 TA 1925 re- enacting material from s.43(1) Conveyancing and Law of Property Act
1881. This process of introducing indentation and modern punctuation when re- enacting old
legislation offers the opportunity is still continuing: see e.g. Sch.13, para. 7 FA 1999, re- enacting
s.59(1) Stamp Act 1891. (Contrast again the Hebrew bible where the now familiar punctuation
was introduced into MSS as recently as the 10th Century.)
18
Macarthur v Greycoat Estates Mayfair 67 TC 598 at p.613.
19
The advice goes back to Orwell (“Never use the passive when you can use the active”).

22 STYLE
an agent, so it can be vague. However, this rarely causes difficulty.

Sometimes the passive is appropriate because there is no need to specify
the agent. The most that can be said is that “restraint” should be exercised
in the use of the passive voice.20
Gender-neutral drafting
3.8 In 2007 Jack Straw made the following statement in Parliament:
For many years the drafting of primary legislation has relied on section 6
Interpretation Act 1978, under which words referring to the masculine gender
include the feminine. In practice this means that male pronouns are used on
their own in contexts where a reference to women and men is intended, and
also that words such as chairman are used for offices capable of being held
by either gender. Many believe that this practice tends to reinforce historic
gender stereotypes and presents an obstacle to clearer understanding for those
unfamiliar with the convention.
I have worked with colleagues in Government to secure agreement that it
would be right, where practicable, to avoid this practice in future and, accord-
ingly, Parliamentary Counsel has been asked to adopt gender-neutral draft-
ing. . . so far as it is practicable, at no more than a reasonable cost to brevity
or intelligibility. . ..21
It is considered that the same approach should be applied to drafting

legal documents. This can be done by avoiding gender-specific terms or
by using both male and female pronouns and adjectives, i.e. his or her. . .22
Alternatively, where the drafter knows the identity of the person referred
to, they may select his/her, widow/widower as required:
The Trustees shall pay the income to Jane during her life and thereafter to her
widower during his life.
This book adopts that form where possible. It is not too much trouble:
every trust must be revised to some extent to the circumstances of the
case.
20
The view taken in Uniform Drafting Convention of Canada, www.ulcc.ca/en/home; and Williams,
Tradition and Change in Legal English, (2005), p.159.
21
HC Deb 8 March 2007, col. 146 Written Ministerial Statement. For the background to this state-
ment and a discussion of how far this has been achieved, see Williams, “The End of the ‘Masculine
Rule’? Gender-Neutral Legislative Drafting in the United Kingdom and Ireland” Statute Law
Review, (2008) Vol 29 p.139.
22
For a more detailed discussion of how to achieve gender-neutral legal drafting, see the Office of
the Parliamentary Counsel Drafting Guidance (October 2010) para 2.4 accessible www.cabinetoffi ce.
gov.uk/resource-library/drafting- guidance- offi ce- parliamentary- counsel
For a general introduction to this somewhat fraught topic, see Garner’s Dictionary of Legal Usage,
(3rd edn, 2011), entry under “Sexism”.

GENERAL COMMENT 23
General comment
The guiding principles are simplicity and clarity. Ordinary English usage 3.9
is the guideline. Double negatives and worse23 should be avoided.
Brevity is a merit, but not a central aim. Lord Reid deplored “the
modern drafting practice” of compressing to the point of obscurity
provisions which would not be difficult to understand if written out at
rather greater length.24 But that comment concerned statutory drafting:
the professional trust drafter is hardly ever guilty of causing obscurity by
excessive brevity.
Generally, rules of style should be regarded as no more than guidelines.
Fowler has discredited many silly schoolmasters’ rules of style (such as that
no sentence should begin with and or but).25 It would be a pity to replace
them with new ones (such as not to use the word “shall” or the passive
voice).
Numbers: words or figures?
The authors favour the recommendation of Garner, to spell out numbers 3.10
up to ten and to use numerals for numbers 11 and above. But numer-
als are used even for numbers below ten in the context of calculations,
before units of measurement, or if the numbers are frequent throughout
the text.26
The use of figures alone is certainly a defensible practice. This has long
been the case in court documents.27
To set out words and figures is an act of supererogation and in Garner’s
words “a noxious practice”.28
23
Parliament sets a poor example: s.89(2) Value Added Tax Act 1994 is a simple triple negative;
s.102A(4) FA 1986 (inserted by the FA 1999) is a quadruple negative.
24
Anisminic v Foreign Compensation Commission [1969] 2 AC 147 at p.171.
25
See David Crystal’s unputdownable history of the English language, The Stories of English (Allan
Lane, 2004) esp. Ch. 16 (Standard Rules).
26
Garner’s Dictionary of Legal Usage, (3rd edn, 2011), entry under numerals. This was the usage of
the parliamentary drafter, until the regrettable change in the TCGA 1992; now the word two has
become 2, etc. Perhaps this is an attempt to make the legislation appear shorter?
27
CPR. Pt 5, para.2.2(6) (All numbers including dates to be expressed in figures). In affidavits the
change from words to numerals was made in 1923: [1923] W.N. 288. In pleadings the use of
figures goes back to Sch.1, Ord. 19, r.4 Supreme Court of Judicature Act 1875.
28
There have been many cases where words and numbers failed to correspond. The mistake is easy
enough to make in all conscience. Such errors arise from time to time in practice. Thus a draft-
ing technique presumably intended to prevent ambiguity actually gives rise to new and quite
unnecessary difficulties. For the construction of documents where numbers and figures confl ict,
see Lewison, The Interpretation of Contracts (5th edn, 2011), para.9.11. The parliamentary drafter
has never used both words and figures.

24 STYLE
Style of clause numbering
3.11 The choice lies between:
(1) the style used in statutes and

(2) decimal numbering (so-called “legal numbering”).
The choice does not much matter. The latter though more cumbersome
is gaining ground, and has the support of International Standard ISO
2145:1978.29 This is used in the precedents in this book; though not quite
consistently, as cross-references within a clause are easier to arrange with
the other system and when one passes the level of sub-paragraphs, an (a)
or (b) seems easier than a number such as 3.2.2.2.1.
Dates
3.12 The form “1st February 1991” is recommended.30

The form “The first day of February 1991” is unwieldy and “The first day
of February one thousand nine hundred and ninety one” should certainly be
avoided.
Addresses
3.13 Parties to a deed are identified by name and address:

John Smith of 5 High Street, Topton, AB1 3XY31.
or
X Limited of [address] 32 . . .
Two individuals with the same address
Where two individuals share the same address one could set it out twice
in full, though this appears slightly clumsy. The traditional form was to
abbreviate using the word “aforesaid”, e.g.:
This Deed is made [date] between
John Smith of 21 High St, Topton, OX1 6LX and
Lucy Smith of 21 High St aforesaid
29
Accessible www.kessler.co.uk.
30
The form: “1/2/1991” is best avoided as it would be read as January 2nd in the USA.
31
It is sensible to use the conventional form of address with which the Post Office would be familiar
rather than the archaic “in the county of Derby”.
32
Alternatively, “whose registered office is at . . .”; but that is unnecessary. The address is, after all,
only for identification.

GENERAL COMMENT 25
This should be modernised: the following sets out formulae to suit all
occasions. Where the two individuals are joint parties to a deed one can
simply set out the single address:
John Smith and Jane Smith both of 21 High Street, Topton, OX1 6LX (“the Trustees”)
Where the two individuals are separate parties say:

This Deed is made [date] between
John Smith of 21 High St, Topton, OX1 6LX (“the Settlor”) of the one part and
Lucy Smith also of 21 High St, Topton 33 (“the Trustee”) of the other part.
In the case of husband and wife it is more elegant to state the relation-
ship and omit the address of the second party mentioned. An address is
included for purposes of identification and having stated the relationship
nothing more is needed; thus:
This Deed is made [date] between:
(1) John Smith of 21 High St, Topton, OX1 6LX (“the Settlor”) of the one part and
(2) the Settlor and Lucy Smith the wife of the Settlor (“the Trustees”) of the other
part.
Age
It is sufficient to say “the age of 25”, not “the age of twenty-five years”. 3.14
There is statutory authority for the omission of the word “years”.34 No one
will think it means months, lunar or solar.
Singular and plural
The singular includes the plural.35 So do not say “person or persons”,36 3.15
“by deed or deeds”, “Trustee or Trustees”,37 “beneficiary or beneficiaries”,
“other or others”.
And/provided that/but
There is nothing wrong with the word “and”. There is no harm in a 3.16
proviso (a clause beginning “provided that . . .”) if used in moderation;
but a separate sentence or clause would usually be clearer.
33
Give the fi rst part of the address only; alternatively one could say: of the same address.
34
Section 71 IHTA 1984 (“a specified age not exceeding eighteen”); s.163 TCGA 1992 (“the age
of 50”).
35
Section 61 LPA 1925.
36
Or worse, “person or persons or corporation or corporations” since the word “person” includes
a corporation.
37
Unfortunately the TA 1925 does not set a good example and often says “trustees or trustee”, e.g.
s.36(1)(a) TA 1925.

26 STYLE
“And/or” generates strong feelings (“that bastard conjunction”38 ) and

should be avoided.39
Deemed/treated as
3.17 The proper use of “deem” is to assume something to be a fact which is

not, or may not be the case: to create a legal fiction. A piquant example is
the rule, now abolished, that the income of a married woman living with
her husband was:
deemed for income tax purposes to be his income and not to be her income.40
The expression “treated as” is a modern equivalent of “deemed to be”.41

Thankfully, deeming provisions are rarely if ever needed in trust draft-
ing and the word “deemed” is not used in this book.
“Deemed” is sometimes employed as a verbose equivalent of the simple
present tense. If the reader sees the word “deemed” in trust drafting they
will almost always find it misused this way. The sort of sloppy usage one
finds is:
Section 32 Trustee Act 1925 shall be deemed to apply as if the provisos had been
omitted.
“X” shall be deemed to mean . . .
These should read:

Section 32 Trustee Act 1925 shall apply as if . . .
“X” means . . .
The otiose “deemed” is used here merely to give a spurious legal feel to
the text and should be omitted.42 The parliamentary drafter adopts this
approach.
38
Bonitto v Fuerst Bros. [1944] AC 75 at 82 (Viscount Simon).
39
For a discussion see Dictionary of Modern Legal Usage, (3rd edn, 2011), entry under “and/or”.
40
Section 279 ICTA 1988 (repealed). The rule survives in other jurisdictions, such as Jersey.
41
e.g. s.8(2) PAA 2009. The drafter has taken the opportunity to replace “deemed to be” with
“treated as”.
42
Of course where the word “deemed” is misused the context should govern the meaning. Thus
the literal reading of “deemed” in s.2 FA 1894 accepted in Earl Cowley v IRC [1899] AC 19
was rejected in the striking judgment of Viscount Simonds in Public Trustee v IRC [1960] AC
at 415. The language deserves to be remembered even though Estate Duty is now obsolete:
“Observations so patently wrong (may I be forgiven for saying so) that they leave only a sense
of wonderment—unnecessary to the decision, for, as Lord Davey pointed out, the same result
could be reached by another route—by Lord Davey himself accepted and dissented from in the
same breath—fl atly contradicted in 1924 by Lord Haldane who in 1914 had adopted them—the
source of endless doubt and confusion to all who have been concerned in the examination or
administration of this branch of law. . .”

GENERAL COMMENT 27
Archaic and prolix expressions
Here are some archaic or prolix forms which can clutter legal documenta- 3.18
tion. It is not suggested that these forms should never be used: in normal
circumstances, however, they add nothing and are best avoided. The list
is not and cannot be comprehensive. 43444546
ARCHAIC OR PROLIX FORM SUGGESTED FORM

accretion add to
e.g. holds as an accretion to
as the case may be [omit]
as the trustees shall/may think fit as the trustees think fit
deemed [generally, omit] 43
desirous of desires to; wishes to44
even date on the date of this settlement
e.g. of even date herewith
hereby [omit]
hereof
e.g.clause 1 hereof clause 1 above
clause 10 hereof clause 10 below
the date hereof the date of this deed
the trustees hereof the trustees of this settlement
hereto
e.g. the first schedule hereto the first schedule below
irrevocably witnesses witnesses45
infant minor46
instrument document
issue descendant
it is hereby declared that [omit]
43
See 3.17 (Deemed/treated as).
44
The 1925 property legislation uses “is desirous of ” and “desires to” interchangeably and in about
equal measure. Modern Parliamentary drafting generally adopts the advice of Garner’s Dictionary
of Legal Usage, (3rd edn, 2011), see e.g. ss.36(1) and 39 TA 1925.
45
Se 10.28 (Testatum).
46
“Infant” has been archaic in English law since s.12 Family Law Reform Act 1969: “A person who
is not of full age may be described as a minor instead of an infant. . .”. This is the consistent usage
in the TLATA 1996. e.g. s.7(5) TLATA 1996, re- enacting s.28(4) LPA 1925, substitutes the word
“minor” for “infant”. The Children’s Act 1989 and other legislation outside property law context
(e.g. The Civil Procedures Rules 1998) prefer the term “child”. But child can simply mean the son
or daughter of a person rather than someone under the age of 18. In trust drafting “children” is
usually used in that sense in the defi nition of Beneficiaries, so “minor” is the best word to refer
to a person under 18.

28 STYLE
ARCHAIC OR PROLIX FORM SUGGESTED FORM

it shall be lawful for the trustees to the trustees may
the laws of England English law or the law of
England47
moiety half
moneys money
notwithstanding any rule of law or [omit]
equity to the contrary
notwithstanding that even though; whether or not
or other the . . . or
presents
e.g. these presents this deed
provided always that provided that; but
said [omit]
stand possessed hold
subject as aforesaid subject to that
testatrix testator48
the following, that is to say: the following:
the trustees shall have power to/the the trustees may
right to
upon the trusts and with and on the terms of . . .
subject to the powers and
conditions of
the trust fund and the income the trust fund
thereof49
on trust as to both capital and on trust
income
will or codicil will50
47484950
47
The plural form has scarcely been used by the Parliamentary Drafter since the 19th century.
William Twining delightfully construes the plural laws as an affi rmation of legal positivism:
Blackstone’s Tower: The English Law School, (1994) p.68. But we may leave that to the dons as it
would neither occur to, nor trouble, anyone else.
48
See 17.10 (Will trusts and lifetime trusts: drafting differences).
49
This form is quite common, following the example of the Statutory Will Forms, accessible www.
kessler.co.uk. But in Re Geering [1964] Ch 136, concerning a deferred gift of “the trust fund and
the income thereof ”, Cross J. held that (in the absence of a special context) no inference could be
drawn from these words. In particular, the form did not shed any light on the question of whether
the gift carried the intermediate income. So the words are plainly otiose.
50
The word “will” (subject to context) is taken to include a codicil. This was accepted without
argument in Re Meredith [1924] 2 Ch 552.

INCORPORATION BY REFERENCE 29
Clause headings
Clause headings are generally used in lengthy documents, and rightly 3.19
so, since they greatly assist the reader of a document. In lifetime trusts
they are standard. In wills they are less frequent; that only reflects the
sad truth that less attention is lavished on a will (or that wills are often
shorter). Nevertheless clause headings are still regarded with suspicion. It
is common to see a provision to the effect that:
Clause headings are for convenience of reference only and shall not affect the construction hereof.
This is the wrong approach. In a well-drafted document there will be

no confl ict between the clause heading and the clause. If there were, the
court would not construe a clause heading so as to override an express
provision in a clause. The clause heading would only be an aid to the
construction of a clause.51 A court should be encouraged to use that aid.
Statutes, which have long had clause headings or side notes, do not use
such a clause52 and experience shows no difficulty has arisen. Where the
clause is there, it is asking the judge to do something which is very dif-
ficult if not impossible: to disregard material on the same page as the sub-
stantive clause being interpreted.53 Is that really what the drafter is trying
to say with this clause? Who can unbite the apple of knowledge? It may be
that the clause originated when clause headings were an innovation and
before the judicial response to them had been ascertained. The clause has
continued since then by the tradition of paying no attention to standard
form clauses.
It is sometimes appropriate to give clause headings to sub-clauses.
Incorporation by reference
As a general rule it is better to set text out in full and not to incorporate 3.20
text by reference. Rather than say:
51
“The road north leads northwards even when the signpost has been turned round in the oppo-
site direction”, Trow v Ind Coope (West Midlands) Ltd [1967] 2 QB 899, at 929 (Salmon L.J.). R
v Schildkamp [1971] AC 1 at p.28: “A side-note is a very brief precis of the section and therefore
forms a most unsure guide to the construction. . .” (Lord Upjohn). See further Lewison, The
Interpretation of Contracts (5th edn, 2011).
52
There are sporadic exceptions, e.g. s.96(10) Value Added Tax Act 1994. But the normal statu-
tory practice has always been to omit this form ever since clause headings were fi rst used in the
1845 Consolidation Acts. Nor is it found in that admirable example of modern drafting, the Law
Society’s Standard Conditions of Sale.
53
In the Republic of Ireland, Judges have in practice had regard to clause headings despite a provi-
sion in their Interpretation Act which purports to prohibit that: see the Irish Law Commission
Report, Statutory Drafting and Interpretation, 2000, para.4.11ff accessible www.lawreform.ie.

30 STYLE
the Trustees shall have the powers of appropriation and other incidental powers conferred on per-
sonal representatives by section 41 of the Administration of Estates Act 1925 . . .
it is better to set out a power of appropriation in full. Not everyone is

familiar with the terms of section 41 of the Administration of Estates Act
1925.
To the general rule exceptions may be made of convenience or neces-
sity. The majority of trust deeds incorporate section 32 of the Trustee Act
1925 by reference with slight amendment. In this book this is unneces-
sary, but no criticism could be fairly made of this drafting technique.
Statute sometimes requires the incorporation by reference of section 31 of
the Trustee Act 1925 (maintenance and accumulation). On a convenient
short form of trustees’ powers using the technique of incorporation by
reference see 21.21 (Incorporating SSP2). Wills in this book make gifts of
personal chattels “as defi ned in section 55, Administration of Estates Act
1925”. This statutory defi nition corresponds to the ordinary meaning of
the expression.
Artificial rules of construction
3.21 Some drafters like to take advantage of artificial rules of construction.

There are two which are commonly used in trust drafting. They are best
avoided.
The class closing rule
3.22 The class closing rule is also known as the rule in Andrews v Partington.54
For instance: a gift is made to “such of my children as shall attain 21 abso-
lutely”. Once the first child has attained 21, the class closes so a child born
later will not take a share in the gift. The trust lawyer should understand
this. However, a document which does not spell out exactly what it means
is confusing for the less experienced reader; the drafter should avoid such
usage on principle.
The rule in Lassence v Tierney or Hancock v Watson
3.23 The form usually called Lassence v Tierney form (sometimes called Hancock
v Watson form) 55 gives beneficiaries shares of capital which first appear
to be absolute entitlements; and then (inconsistently) goes on to provide
54
(1791) 3 Bro. C.C.401.
55
Lassence v Tierney (1849) 1 Mac. & G. 551, 41 ER 1379; Hancock v Watson [1902] AC 14. For a
discussion of this form see Watson v Holland [1984] STC 373.

CROSS-REFERENCES 31
that the shares do not belong to the beneficiary absolutely, but are held on
trust. Thus:
(1) The Trust fund shall be held on trust for such of the Principal Beneficiaries as
shall attain the age of 25 and if more than one in equal shares.
(2) On the Principal Beneficiary attaining the age of 25 his share shall be held on
the following trusts. . .
This is unnecessary and confusing, at least to the reader who is not a trust
practitioner.
Cross-references
It is tempting when drafting one clause to refer to another; for instance: 3.24
subject to the overriding powers conferred by clause . . . hereof . . .
It is best to avoid cross-reference by paragraph number. Any amendment

to the draft will require consequential amendment to the clause references.
Errors easily slip in. Where there are internal cross-references it is helpful
to add in brackets a short explanation of the provision referred to, e.g.
“subject to clause 4 (overriding powers). . .”.
Obsolete forms
Drafters are constantly adding to their drafts, but rarely deleting. The 3.25
inclusion of additional material, it is thought, does no harm whereas (who
knows?) any omission might be unfortunate. In this way much material
is introduced where it serves no purpose. This book attempts to step back
from that process. Whenever common forms are omitted, an attempt is
made to give the basis and justification why such forms or expressions are
considered to be unnecessary or otiose. Few questions are so difficult to
prove as those to which the answer is obvious; sometimes the reasoning
must end in an appeal to self- evidence.
Coverture
The trustees shall pay the income to Mrs X during her life without power of anticipation during 3.26
coverture.56
56
“During coverture” means “during marriage”. Sometimes the same point is made in a general
clause (usually placed at the end of a Will or Trust) along these lines:
“In every case in which any interest whether absolute or limited and whether in possession or remainder or
in expectancy is given to or in trust for any female she shall not during any coverture have power to dispose
of or charge the same or any part thereof by way of anticipation.”

32 STYLE
This form prevented a married woman from disposing of her right to

income. These restraints have long been abolished, and do not now take
effect.57
“For her separate use”

3.27 The trustees shall pay the income to Mrs X during her life for her separate use.
This form protected a married woman’s property from her husband. It

has been unnecessary since 1882. The concept of “separate” property was
abolished in 1935.58
Entails
3.28 Entails have been formally abolished by the Trusts of Land and
Appointment of Trustees Act 1996, though they had been effectively
obsolete for many years.
Trusts for sale
3.29 The trust for sale was required before 1997 to prevent trusts falling within
the scope of the Settled Land Act 1925. The position now is that no new
trust can be a settlement for the purposes of the SLA 1925.59 Accordingly
it is not necessary to use a trust for sale of land. It has never been neces-
sary to use a trust for sale of personal property. These clauses can now be
regarded as completely obsolete.
57
The Married Women (Restraint Upon Anticipation) Act 1949. This law reform led to a blim-
pian diatribe in Key and Elphinstone (14th edn) concluding with an (with hindsight) unfortunate
recommendation for the use of protective trusts.
58
Married Women’s Property Act 1882; see now Law Reform (Married Women and Tortfeasors)
Act 1935.
59
Section 2 TLATA 1996. For a discussion of the old forms, see the 2nd edn of this work (1995) at
6.041 accessible www.kessler.co.uk.

CHAPTER 4
PRINCIPLES OF INTERPRETING TRUST

DOCUMENTS
Introduction
This subject is difficult and it is helpful at the start to say why. The prob- 4.1
lems lie partly in the topic and partly in the case law.
Many of the principles of interpretation1 can only be expressed at a
high level of generality which makes their application doubtful and their
usefulness to the practitioner questionable. There is no single principle
of interpretation, and anything which purports to be a short statement of
principle immediately needs explanation and qualification. Interpretation
issues which arise in practice are generally complex and cases cannot be
briefly summarised or neatly categorised. The principles upon which
cases are decided are often assumed or not clearly expressed. Cases are not
consistent: different judges have applied different principles, or the same
principles in different ways; or any principle available as an ad hoc ration-
alisation to justify a fair result on the facts of the case. When judges wish
to change the law, precedent and the declaratory theory of law encour-
age them to deny that they are doing so. The total case law relating to
interpretation of documents or statutes is so vast that no-one can draw it
all together into a coherent body of law. The only thing worse than too
little data is too much data. Even now some important aspects are hotly
debated.
In short, as Voltaire observed, language is difficult to put into words.
Nevertheless it is worth persevering.ew
1
The terms “construction” and “interpretation” are synonymous (but “interpretation” is clearer,
not legalese and so perhaps preferable). Occasionally writers attempt to desynonymize the two
terms, in order to tease out some distinction or other, but none of these suggestions have been
generally accepted.

34 PRINCIPLES OF INTERPRETING TRUST DOCUMENTS
General principle
4.2 The starting point is Lord Hoffmann’s much cited speech in Investors
Compensation Scheme v West Bromwich Building Society.2
Lord Hoffmann posits:
I think I should preface my explanation of my reasons with some general

remarks about the principles by which contractual documents are nowadays
construed. I do not think that the fundamental change3 which has overtaken
this branch of the law . . . is always sufficiently appreciated. The result has
been, subject to one important exception, to assimilate the way in which such
documents are interpreted by judges to the common sense principles by which
any serious utterance would be interpreted in ordinary life. Almost all the old
intellectual baggage of “legal” interpretation has been discarded.
(1) Interpretation is the ascertainment of the meaning which the document
would convey to a reasonable person having all the background knowledge
which would reasonably have been available to the parties in the situation in
which they were at the time of the contract. 4
Factual background/previous negotiations/declarations of intent
4.3 Lord Hoffmann continues:
2
[1998] 1 WLR 896 at pp.912–3 and often affi rmed subsequently, e.g. BCCI v Ali [2002] 1 AC
251 at [8] and Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [14]. There are similar
trends in Canada: see Kessler and Hunter, Drafting Trusts & Will Trusts in Canada (3rd edn, 2011),
Ch.3.
3
It is not possible to identify a precise date or single author of this “fundamental change.” Of the
two cases which Lord Hoffmann cites Prenn v Simmonds [1971] 1 WLR 1381 at 1384–1386 does
contain a strongly worded passage (“The time has long passed when agreements . . . were isolated
from the matrix of facts in which they were set and interpreted purely on internal linguistic
considerations.”) But like many (perhaps most?) important changes, its roots can be traced much
earlier:
“It is difficult to measure what success the courts have achieved in attempting to give effect to
the intentions of testators. One Chancery judge is reputed to have said ‘I shudder to think that
in the hereafter I shall have to meet those testators whose wishes on earth have been frustrated
by my judgments.’ [Attributed to Eve J., (1941) 60 Law Notes 26.] This dictum seems to have
been in the mind of Lord Atkin when, in a case which did much to free the courts from some
rather technical rules of construction, he said ‘I anticipate with satisfaction that henceforth the
group of ghosts of dissatisfied testators who, according to a late Chancery judge, wait on the
other bank of the Styx to receive the judicial personages who have misconstrued their wills,
may be considerably diminished’.”
See Megarry’s wonderful Miscellany at Law, 1955, p.162, citing Perrin v Morgan [1943] AC 399 at
415.
Pepper v Hart [1993] AC 593 can be understood as reflecting the trend to search slightly harder
for intention at the cost of convenience (though subsequent experience has shown the cost/benefit
ratio to be so high that the Courts have stepped back somewhat).
4
[1998] 1 WLR 912 (emphasis added).

FACTUAL BACKGROUND/PREVIOUS NEGOTIATIONS 35
(2) The background was famously referred to by Lord Wilberforce as the

“matrix of fact”, but this phrase is, if anything, an understated description of
what the background may include. Subject to the requirement that it should
have been reasonably available to the parties and to the exception to be men-
tioned next, it includes absolutely anything which would have affected the
way in which the language of the document would have been understood by
a reasonable man.
(3) The law excludes from the admissible background
[a] the previous negotiations of the parties and
[b] their declarations of subjective intent.
They are admissible only in an action for rectification. The law makes this dis-
tinction for reasons of practical policy and, in this respect only, legal interpre-
tation differs from the way we would interpret utterances in ordinary life.5 . . .
We have here one rule of inclusion: the Court must consider what Lord
Hoffmann terms “background”; Lord Hoffmann subsequently made
clear that the admissible background material is confi ned to “anything
which a reasonable man would have regarded as relevant”: BCCI v Ali
[2002] 1 AC 251 at [39] and two exclusions—the Court will not con-
sider previous negotiations or declarations of subjective intent. There are
(as Lord Hoffmann suggests) a number of tensions in these principles.
Some commentators advocate extending admissibility to include previous
negotiations but for the time being this rule stands fi rm.6 Others wish
to restrict admissibility of evidence relating to background.7 In constru-
ing wills and trusts, the tax background should certainly be taken into
account.8
Separate from the question of what background the Court must “con-
sider” is the question of what effect this considering should have on inter-
pretation.9 This takes us back to the problem of meaning.
5
Literary criticism (or at least one school of it) adopts the same approach. See Wimsatt and
Beardsley’s essay, “The Intentional Fallacy” (reprinted in The Verbal Icon, Noonday Press, 1954):
“The intention of the author is neither available nor desirable as a standard for judging the
success of a work of literary art . . . Critical enquiries are not settled by consulting the oracle
[the author].”
But interpretation of legal and literary documents is in this respect quite unlike the interpretation
of less formal communications, which is what Lord Hoffmann means by “utterances in ordinary
life”.
6
See Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.
7
See 4.6 (Basis of inadmissibility rules).
8
e.g. IR 12 is taken into account in construing pension schemes; the authorities are discussed in
Rowley, “The Interpretation of Scheme Deeds”, [2003] TLI 129 at 134; likewise BCCI v Ali
[2002] 1 AC 251 at [39].
9
The questions overlap of course because it can only be right to consider background which may
have an effect on the construction of a document.

Meaning of words v meaning of document
4.4 Continuing Lord Hoffmann’s speech in Investors Compensation Scheme:
(4) The meaning which a document (or any other utterance) would convey
to a reasonable man is not the same thing as the meaning of its words. The
meaning of words is a matter of dictionaries10 and grammars; the meaning of
the document is what the parties using those words against the relevant back-
ground would reasonably have been understood to mean. The background
may not merely enable the reasonable man to choose between the possible
meanings of words which are ambiguous but even (as occasionally happens in
ordinary life) to conclude that the parties must, for whatever reason, have used
the wrong words or syntax . . .
(5) The ‘rule’ that words should be given their ‘natural and ordinary
meaning’ reflects the common sense proposition that we do not easily accept
that people have made linguistic mistakes, particularly in formal documents.
On the other hand, if one would nevertheless conclude from the background
that something must have gone wrong with the language, the law does not
require judges to attribute to the parties an intention which they plainly could
not have had.
. . . Leggatt LJ said that the judge’s construction was not an “available
meaning” of the words. If this means that judges cannot, short of rectifica-
tion, decide that the parties must have made mistakes of meaning or syntax, I
respectfully think he was wrong.
Lord Hoffmann draws a distinction between:
(1) the meaning of words11 and

(2) the meaning which a document conveys.12
10
Lawyers are not the only ones who may misuse dictionaries. Cf the defi nition of “Dictionary”
in Bierce’s Enlarged Devil’s Dictionary: “A malevolent literary device for cramping the growth of
a language and making it hard and inelastic.”
11
Of course this begs the question of how one ascertains the meaning of words (isolated from
background or context). The conceptual problem is not clarified but rather made even more
obscure, by adding the epithet “natural”, and seeking a “natural” meaning. Lord Hoffmann
again:
“I think that in some cases the notion of words having a natural meaning is not a very
helpful one. Because the meaning of words is so sensitive to syntax and context, the
natural meaning of words in one sentence may be quite unnatural in another. Thus a state-
ment that words have a particular natural meaning may mean no more than that in many
contexts they will have that meaning. In other contexts their meaning will be different but
no less natural.”
Charter Reinsurance Co. Ltd v Fagan [1997] AC 313 at p.391.
One sees how philosophers are drawn to the (non-intuitive) view that a word out of context
has no meaning. If an exaggeration, this is at least a healthy reaction against over- emphasis on
dictionary meaning.
12
Of course this begs the question of how one ascertains “the meaning which a document conveys”.

M EANING OF WORDS V MEANING OF DOCUMENT 37
It is obvious that a confl ict may exist. It may arise in three different
circumstances:
(1) The confl ict may arise having regard only to the words of the
document (“document context”). No-one has ever doubted that
words must be construed with regard to document context13 and
in this sense the meaning of a document overrides the meaning of
words in it.
(2) The confl ict may arise having regard to background knowledge
not stated in the document but which would be known to the
parties and known to any reasonably well-informed reader (includ-
ing a judge) without need for evidence. We refer to this as “intui-
tive context”. In extreme cases no-one has ever doubted that words
must be construed with regard to intuitive context, and in this
sense too the meaning of a document (if one can find it) may over-
ride the meaning of its words. Even the most ardent literalist would
agree that, say, a gift expressed to be to the “National Society for
the Promotion of Cruelty to Children” should take effect as a gift
to the National Society for the Prevention of Cruelty to Children.
Why is this? Because we know the background facts that the
NSPCC exists and testators commonly make gifts to it; a National
Society for the promotion of cruelty to children does not exist and
no-one would make a gift to it. But as soon as that is conceded, the
extreme position that interpretation should only have regard to the
plain meaning of words is lost. Lord Hoffmann is only expressing
with more enthusiasm a principle which has for some time been
observed by lawyers14 and others.15
It is in this particular area of confl ict that the distinction is
drawn between a literal (or semantic) as opposed to a less literal (or
13
See e.g. Lord Hardwicke, Milner v Milner (1748) Ves. Sen. 1 p.105, citing Roman law.
14
For example, see Re Doland [1970] Ch 267 at p.272:
“The point may be reached at which apparent caprice does become a warning signal that
something may have gone awry with the testator’s true expression of his intention. An error
in drafting is sometimes clearly apparent from a grammatical defect, when for instance some
word or words have been obviously omitted by accident. Or it may be manifest from the
context that a testator has at a particular point used a mistaken word or a wrong name. In such
cases if the court is clear about the true intention, it will, as an exercise of interpretation, give
effect to that intention and for that purpose will remould the testator’s language. Similarly, if
the consequence of the language used by a testator, read in its primary and natural sense, is to
produce a disposition or a series of dispositions which is so capricious as to be really irrational,
the court may, in my judgment, be justified in concluding that the testator has failed to express
himself adequately, and in such a case if, but only if, it can discern the true intention of the
testator, it will give effect to it.”
15
e.g. Lewis, Studies in Words (1960), Ch. 1, Pt. IV distinguishes “word’s meaning” and “speaker’s
(or writer’s) meaning”. Wittgenstein Tractatus Logico-philosophicus 5.4732: “we cannot give a sign
a wrong sense”. The battle between words and documents extends to biblical interpretation; see
Barr, The Semantics of Biblical Language (1961).

purposive)16 approach. The difference between the two is a matter

of degree.
(3) The confl ict may arise only when one has regard to evidence of
background that would be known to the parties but not known to
a judge (or others) unless additional evidence was provided. Lord
Hoffmann’s position (that this kind of background should be used
to a greater degree than before in deciding issues of interpretation)
is controversial.17 This problem does not often arise in the interpre-
tation of trusts.
The hard question in cases (1) and (2) and (if the evidence is admitted) in
case (3) is not whether either kind of context can overturn the meaning of
words but how easily or in what circumstances. In other words, how does
one ascertain the meaning of a document?
The objective principle
4.5 The old style of legal interpretation had an answer to this problem. It drew
a sharp distinction between:
(1) subjective intention, i.e. the intention18 in the mind(s) of the

author(s), the psychological data; and
(2) objective meaning, the objective19 meaning of the words used.
Having drawn this distinction, the solution to the problem of interpreta-

tion was seen to lie in ignoring the subjective intention in favour of the
objective meaning. This is here called “the objective principle”.20
There are three ways that this principle has been expressed:
16
Hawkins on the Construction of Wills (5th edn, 2000) uses the term “intentionalist”.
17
See 4.6 (Basis of inadmissibility rules).
18
This begs the question of what we mean by “intention”, but although there is much that could be
said on the topic, “intention” is sufficiently clear to use for the purposes of this chapter without
further analysis.
19
“Objective meaning” is objective in the sense that it is independent of the mind of the individual
author(s). It is nevertheless often subjective in the sense that it will often depend on the mind of
the reader, for the same text may convey different meanings to different minds. (It is considered
that meaning of a text may properly be called objective if all readers of the text in context would
agree on the meaning even though the meaning is of course dependent on the minds of the readers
as a community.)
20
This expression is capable of various meanings and should not be used undefi ned. It has not been
used in the law reports. The objective principle of interpretation is distinct from the objective
principle of contract formation. Among other differences, the principle of interpretation extends
beyond contracts and applies to trusts and other legal documents.

THE OBJECTIVE PRINCIPLE 39
(1) The court seeks to find the intention of the parties but the expres-
sion “intention” actually means “the meaning of the document”.
(2) The court seeks to find the intention of the parties but the meaning
of the document is deemed to be the intention.
(3) The court seeks to fi nd the meaning of the words and intention of
the parties is irrelevant.
Identification of “intention” with “meaning”
Lewison enthusiastically supports the first view:
Nowadays the “intention of the parties” is equated with the meaning of the
contract . . . In other words “intention” is equivalent to “meaning”.21
Lewison cites IRC v Raphael:22
The fact is that the narrative [recitals] and operative parts of a deed perform
quite different functions, and “intention” in reference to the narrative and the
same word in reference to the operative parts respectively bear quite differ-
ent significations. As appearing in the narrative part it means “purpose”. In
considering the intention of the operative part the word means significance or
import—“the way in which anything is to be understood”.
This linguistic usage is to be utterly rejected for the following reasons:
(1) That is not the way the word “intention” is normally used.
(2) This usage is a sleight of hand giving the comforting impression
that the reader or judge is seeking to fi nd the true subjective inten-
tion; which is at best only partly the case.
(3) This usage makes a discussion of the subjective/objective aspects of
construction impossible.
In short, this usage highjacks the meaning of “intention” in an Orwellian

manner: contrast use of the word “democratic” in the German Democratic
Republic or “trust” in National Health Trust.
21
Lewison, Interpretation of Contracts (5th edn, 2011) para.2.05. Some non-lawyers adopt the same
approach: see Fish, Doing What Comes Naturally (1989) p.116 (a surprisingly readable Derridian
text).
22
[1935] AC 96 at p.135.

Deemed intention
4.5.1 The second and more usual analysis is not to define (or misdefine) the
word “intention” to mean “meaning” but to use the language of presump-
tion or deeming:
The question is not so much what was the intention, as what, in the contempla-
tion of the law, must be presumed to have been the intention.23
This view is taken in Norton on Deeds 24 :
. . . the question to be answered always is, “What is the meaning of what the
parties have said?” not “What did the parties mean to say?” . . . it being a
presumption juris et de jure . . . that the parties intended to say that which they
have said.
This is distinct from the fi rst approach, since it recognises that a distinction
exists between the intention and that which is merely deemed (presumed)
to be the intention; this is stressed because many cases and textbooks adopt
both approaches in the same paragraph. The two are incompatible. The
second approach is better than the fi rst, but it is still to be rejected. The
deeming is a fiction; all fictions are lies, and while they may have their
purposes, the fiction is not needed here.
Intention irrelevant
4.5.2 The third and honest analysis of the objective principle is to forego the
word “intention” altogether. Here are some examples from 19th-century
case law:
The question in this and other cases of construction of written instruments,

is, not what was the intention of the parties; but what is the meaning of the
words they have used.25
In expounding a will, the court is to ascertain, not what the testator actually
intended, as contradistinguished from what his words express, but what is
the meaning of the words he has used. I consider it doubtful what the testator
actually meant should be done. But I have no doubt as to the meaning of the
words used by him.26
Oliver Wendell Holmes, writing off the record, put the point more bluntly:
23
Miller v Farmer (1815) 1 Merrivale 55 at 80 (Lord Eldon).
24
(2nd edn, 1928), p.50 approved Schuler v Wickman Machine Tool Sales [1974] AC 235.
25
Rickman v Carstairs (1833) 5 B. & Ad. 663 (Lord Denman).
26
Doe v Gwillim (1833) 5 B. & Ad. 122 at 129 (Lord Wensleydale).

BASIS OF INADMISSIBILITY RULES 41
We don’t care a damn for the meaning of the writer, the only question is the
meaning of the words.27
Basis of inadmissibility rules
The main reason for the inadmissibility rules is cost saving: the cost of 4.6
reviewing the additional evidence must be set against the number of occa-
sions where it turns out to be significant. This applies not only to litigation
but to every occasion where advice is given on construction.
Some say that the cost/benefit ratio is very high but where the balance
of advantage lies is at present actively debated. Those who believe that the
cost/benefit ratio is low (or can be reduced by case management) would
favour a relaxation of the inadmissibility rules. Those who think the cost/
benefit ratio is high will favour retention of strict inadmissibility rules.
Practitioners generally fall into the second category.
The second reason is that admissibility is unfair to assignees and other
third parties who may not be aware of this material. There is obviously
some strength in the second point, but it applies more to some classes of
documents than to others. There are commercial contracts where assign-
ment is unlikely or impossible so this problem should not arise. There are
also conversely contracts which are likely to affect persons who are not
parties and who will not in principle have access to the relevant back-
ground material. An example of the latter is leases, where assignment is
generally a possibility. In these cases rectification is a better solution than
admitting background information, as it is a discretionary remedy which
can be refused if necessary to protect third parties. Trusts fall in this
second category because although assignment of equitable interests may
be uncommon, the beneficiaries are in general unlikely to have access to
the relevant documents.
Different classes of background material raise different issues and
should be considered separately. Everyone agrees that the rule excluding
statements of intent is a sound rule.28 The rule excluding contractual prior
negotiations has been hotly contested 29 but the House of Lords have reaf-
firmed it, and the position is settled at least for now.30
27
Holmes–Pollock letters (9 December 1898).
28
This also applies to the interpretation of case law: “Once a judgment has been published, its
interpretation belongs to posterity and its author and those who agreed with him at the time
have no better claim to be able to declare its meaning than anyone else”; Deutsche Morgan Grenfell
v HMRC [2007] 1 AC 558 at [14].
29
Some references are discussed in the 9th edn of this work para.4.6 but the point is now of academic
interest only.
30
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101. The distinction between background
(admissible) and previous negotiations (inadmissible) is still troublesome since previous negotia-
tions may contain factual background.

But note the scope of this rule:
The rule excludes evidence of what was said or done during the course of
negotiating the agreement for the purpose of drawing inferences about what
the contract meant. It does not exclude the use of such evidence for other pur-
poses: for example, to establish that a fact which may be relevant as background
was known to the parties, or to support a claim for rectification or estoppel.
These are not exceptions to the rule. They operate outside it.31
Older cases have held that the opinion of counsel relating to the draft
documentation, and contemporary correspondence of the testator, are not
admissible for the construction of trusts and wills.32 It is considered that
these cases are based on sound principle, and obtain further support from
the approach in Chartbrook, so they should continue to be followed.
Fallacious basis for inadmissibility rules
The pragmatic basis of the inadmissibility rule is somewhat uncomfort-

able, so sometimes more principled justifications are given, but none of
them stand up to much investigation. The inadmissibility rules are some-
times said to be founded on the objective principle.33 This reasoning is not
just fallacious but pernicious. The debate on the merits for the rules cannot
be carried out (and so a well grounded rule of law cannot be achieved)
if the inadmissibility rules are said to be a necessary consequence of an
“objective principle” which is not open for debate. That suppresses the
policy debate. There are important normative choices here which require
an open and contextual examination.34
For the use of earlier agreements/trust documents to ascertain construction, see Newman
“Archaeology and construction: the use of predecessors to ascertain the meaning of a contract”
[2006] TLI 115.
Subsequent conduct raises similar problems: the traditional view is that it should not be relevant
to construction but some advocate that it should be. Ali v Lane [2007] EWCA Civ 1532 represents
a somewhat illogical compromise between the confl icting authorities and is not likely to be the
last word on the issue, in the absence of any consensus on what the law ought to be.
31
Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 at [42].
32
Rabin v Gerson Berger Association [1986] 1 WLR 526 and Re Atkinson [1978] 1 WLR 586. The
position for Wills has been altered by s.21 Administration of Justice Act 1982.
33
“The exclusion of the parties’ subjective declarations of intent from the admissible material
is a reflection of the principle that a contract must be interpreted objectively.” Lewison, The
Interpretation of Contracts (5th edn, 2011), para.1.05.
34
In Prenn v Simmonds [1971] 1 WLR 1381 at p.1384, Lord Wilberforce offers a different reason in
support of the admissibility rules:
“. . . such evidence is unhelpful. By the nature of things, where negotiations are difficult, the
parties’ positions, with each passing letter, are changing and until the fi nal agreement, though
converging, still divergent. It is only the fi nal document which records a consensus.”
Unfortunately this is not true: a consensus will usually be reached on some points well before the
fi nal agreement; otherwise the evidence would be equally unhelpful in rectification cases (which
is not the case). This was accepted in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101
at [34].

OBJECTIVE PRINCIPLE AND LITERAL CONSTRUCTION 43
Relationship between objective principle and literal

construction
The approach of seeking objective meaning (as opposed to subjective 4.7

intention) is often taken to be synonymous with a literal or semantic (as
opposed to a less literal or purposive) approach. But this does not follow at
all. It is true that a literal approach to construction is not consistent with
a search for the subjective intention of the author. However, a less literal
and more background-sensitive reading of the kind advocated by Lord
Hoffmann can properly be described as a search for the author’s subjective
meaning. Lord Hoffmann said:
It is of course true that the law is not concerned with the speaker’s subjec-
tive intentions. But the notion that the law’s concern is therefore with the
“meaning of his words” conceals an important ambiguity. The ambiguity lies
in a failure to distinguish between the meanings of words and the question of
what would be understood as the meaning of a person who uses words. The
meaning of words, as they would appear in the dictionary, and the effect of
their syntactical arrangement, as it would appear in a grammar, is part of the
material which we use to understand a speaker’s utterance. But it is only a part;
another part is our knowledge of the background against which the utterance
was made. It is that background which enables us, not only to choose the
intended meaning when a word has more than one dictionary meaning but
also, in the ways I have expressed, to understand a speaker’s meaning, often
without ambiguity, when he has used the wrong words.
When, therefore, lawyers say that they are concerned, not with subjective
meaning but with the meaning of the language which the speaker has used,
what they mean is that they are concerned with what he would objectively
have been understood to mean. This involves examining not only the words
and the grammar but the background as well. 35
This takes us back to Lord Hoffmann’s statement of general principle set

out at 4.2 (General principle). He refers to “meaning which a document
would convey to a reasonable person”. However, a reasonable person looks
for the subjective intention of the author where possible, so it comes to
the same thing. There is no practical difference between Lord Hoffmann’s
approach and an approach expressly looking for subjective intention. They
are two buses to the same destination. But the latter is to be preferred as
it more accurately expresses the destination. Lord Steyn makes this point:
In determining the meaning of the language of a commercial contract, and

unilateral contractual notices, the law therefore generally favours a commer-
cially sensible construction. The reason for this approach is that a commercial
construction is more likely to give effect to the intention of the parties. Words are
35
Mannai Investment Co v Eagle Star Life Assurance Society [1997] AC 749 at 775.

therefore interpreted in the way in which a reasonable commercial person

would construe them. And the standard of the reasonable commercial person
is hostile to technical interpretations and undue emphasis on niceties of
language.36
Arguments for and against the objective principle
4.8 We can and should distinguish between the objective principle37 and the
rules of inadmissibility of pre-contract negotiations and declarations of
intent. They are completely separate rules and we can have one without
the other. Having done so we can consider the merits of the objective
principle.
The case against the objective principle is obvious and hardly needs
to be stated. Those who sign legal documents have specific intentions in
their mind and in principle they want those intentions to be acted on if
possible and not any other.
The point is not theoretical. There is a good reason why a court should
acknowledge that it is seeking to find the subjective intention of the
parties. Disdain for subjective intention has pernicious consequences.
It leads away from subjective intention where such intention does exist
and can be found. Construction disassociated from the fetter of seeking
subjective intention easily becomes very distant from it. Lewison quotes
with approval the approach of Nourse L.J. (reversing the trial judge on the
construction of a rent review clause):
I think it very probable that, in accepting the landlord’s construction, the

learned judge has correctly assessed what the parties did indeed believe and
desire to be the effect of [the clause]. But a court of construction can only
hold that they intended it to have that effect if the intention appears from a
fair interpretation of the words which they have used against the factual back-
ground known to them at or before the date of the lease . . .38
Lewison defends this since:
In the case of a lease there are potential successors in title of each party. Hence
the court is right to insist that the intention must be made clear by the words
of the contract read in the light of the admissible background. 39
36
Mannai Investment Co v Eagle Star Life Assurance Society [1997] AC 749 at 771 (emphasis added).
37
By which is meant the principle that interpretation is the search for the objective meaning of the
document and not the search for the intention in the mind of the writer.
38
Philpots (Woking) Ltd v Surrey Conveyancers Ltd [1986] 1 EGLR 97. The decision of mainstream
law reports not to report this case reflects tacit disapproval.
39
Interpretation of Contracts (5th edn, 2011), para.2.05.

A RGUMENTS FOR AND AGAINST THE OBJECTIVE PRINCIPLE 45
But if a judge can ascertain from the lease and intuitive context the “very
probable” intention of the parties, so too can any other reasonably well
informed reader of the lease.
What then is the argument for the objective principle?
The objective principle is said to be a logical consequence of the
rule of inadmissibility of pre- contract negotiations and declarations of
intent.40 This reasoning is fallacious. There is a distinction between the
aim of interpretation and the materials the Court uses to achieve that
aim. It is consistent to say that the law does seek subjective intention
where possible but for good reason imposes certain restraints on how it
sets about its task (and so sometimes will fail to fi nd the subjective inten-
tion correctly).41
The objective principle is said to be a logical consequence of those
situations where a Court cannot fi nd a subjective intention because none
exists. There are circumstances where no subjective intention exists.
One case is where the issue to be decided never came to the mind of the
author. This can happen with wills and trusts, though it is more common
in wider ranging documents (typically statutes). A related case is where
one person adopts with minimal consideration a standard form drafted by
another; e.g. an employee may pay money to a pension scheme without
even seeing the trust deed. In this case the drafter may have subjective
intentions where the employee has none. A second case is in a multilateral
document where different parties may have agreed a form of words with
different subjective intentions. An extreme example of this is a statute,
where so many minds are involved (or half involved) that the concept “the
intention of Parliament” might be regarded as a metaphor or legal fiction
which may fall more distant from the subjective intentions of any of those
who took a part in the process of passing the statute.42 But even behind a
statute there are human minds with subjective intentions, and it is usually
reasonable to regard interpretation as the search for them.43 However,
40
“If actual intent were the criterion, no reason can be given against admitting proof that the
testator used every word in the language in a non-natural sense peculiar to himself. Short of
that, we can only fall back on the objectively reasonable meaning of what the testator has said.”
(Holmes–Pollock letters, 22 February 1899.)
“The exclusion of the parties’ subjective declarations of intent from the admissible material is a
reflection of the principle that a contract must be interpreted objectively.” Lewison, Interpretation
of Contracts (5th edn, 2011), para.1.05.
41
Contrast a trial which is generally and rightly regarded as a search for truth even though relevant
evidence is excluded (so sometimes the court will reach a wrong conclusion).
42
Cross on Statutory Interpretation (3rd edn, 1995) Ch.2. An example is the public benefit requirement
now in the Charities Act 2011. See AG v Charity Commission [2011] UKUT 42 at [18]: “. . .in the
context of private education, there were deeply held views, indeed entrenched positions, on each
side of the debate about the place of private education in the society of England and Wales in the
21st century. We see the resulting legislation as something of a compromise, capable of meaning
different things depending on the point of view of the reader. It is our function to decide what,
as a matter of proper statutory interpretation, the 2006 Act does mean. . .”
43
The justification for regarding white papers, Law Commission reports and even Hansard as rel-
evant background material is that it sheds light on those intentions.

although we cannot always fi nd a subjective intention, it does not follow

that we cannot or should not seek subjective intention at all.
Lewison says:
The primary reason for adopting an objective approach to the interpretation

of contracts is the promotion of certainty.44
If this were true it would be a powerful argument. Unfortunately, it is not

true. It is based on the wishful thinking of Hawkins:
The meaning of the words is, in theory at all events, a fi xed one; it is independ-
ent of the writer, and capable of being known by the interpreter, not, like the
writer’s intent, with a greater or less degree of probability, but with certainty.45
This is fantasy. How one ascertains objective meaning (as distinct from
seeking the subjective intention of the author) is more problematic (and
more subjective, i.e. dependant on the mind of the reader) than proponents
of the objective principle may realise.46
Admittedly, even when a subjective intention does exist, one cannot
always expect to ascertain it from the materials available to the Court. But
one can generally aim to find it, and in practice reach near it if one tries.
Moreover, in cases where a party had no specific subjective intention,
his or her general intention would be that the matter should be decided
in the manner most consistent with the documentation construed in its
context. In this case the search for objective meaning is the subjective
intention of the writer.
Relationship between objective principle and rectification
4.9 Rectification involves a search for the consensus of the parties. 47 The rejec-
tion (or reformulation) of the objective principle proposed in this chapter
does not make the remedy of rectification redundant. For instance, if by
accident a clause is omitted from a contract, correction of the error may be
outside the scope of interpretation and require rectification. Kramer notes
that in cases of mistaken drafting the Courts have two possible courses
44
Lewison, Interpretation of Contracts (5th edn, 2011), para.2.03.
45
On the Principles of Legal Interpretation (1860). The essay is reprinted in Thayer, A Preliminary
Treatise on Evidence. But Hawkins himself resiles from this position later in his essay.
46
Hence construction is often described by judges as “a matter of impression”.
47
The House of Lords have held the terms of the prior consensus were to be decided on the basis of
what a reasonable observer would have understood them to be and not what one or even both of
the parties believed them to be: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101. However
the full implications of this have yet to be worked out and the law on the point is not yet stable.

PRECEDENT NOT THE SOLUTION 47
available: one solution is construction and the other is rectification.48

Kramer states that “arguments from coherence and consistency of the law
would suggest that only one response (probably rectification) should be
used”. However there is no reason why the two approaches make the law
inconsistent or incoherent. Moreover this overlooks important classes of
documents where rectification is not available.49
Precedent not the solution
Precedent does not offer a solution to problems of construction. It has been 4.10
tried and failed as it was bound to:
I think it is the duty of a Judge to ascertain the construction of the instrument

before him, and not to refer to the construction put by another Judge upon an
instrument, perhaps similar, but not the same. The only result of referring to
authorities for that purpose is confusion and error, in this way, that if you look
at a similar instrument, and say that a certain construction was put upon it, and
that it differs only to such a slight degree from the document before you, that
you do not think the difference sufficient to alter the construction, you miss
the real point of the case, which is to ascertain the meaning of the instrument
before you. It may be quite true that in your opinion the difference between
the two instruments is not sufficient to alter the construction, but at the same
time the Judge who decided on that other instrument may have thought that
that very difference would be sufficient to alter the interpretation of that
instrument. You have in fact no guide whatever, and the result especially in
some cases of wills has been remarkable. There is, fi rst document A, and a
Judge formed an opinion as to its construction. Then came document B, and
some other Judge has said that it differs very little from document A—not suf-
ficiently to alter the construction—therefore he construes it in the same way.
Then comes document C, and the Judge there compares it with document B,
and says it differs very little, and therefore he shall construe it in the same way.
And so the construction has gone on until we fi nd a document which is in
totally different terms from the fi rst, and which no human being would think
of construing in the same manner, but which has by this process come to be
construed in the same manner.50
48
“Common Sense Principles of Contract Interpretation” [2003] OJLS p.173 at p.191. But of course
if construction is a solution it must have priority over rectification.
49
In wills, rectification has strict time limits: s.20 Administration of Justice Act 1982. A company’s
memorandum and articles of association cannot be rectified.
50
Aspden v Seddon (1875) LR 10 Ch App 394 at 398 ( Jessel MR), approved by the Court of Appeal
in Equity and Law Life Assurance v Bodfi eld (1987) 281 EG 1448. Likewise Pedlar v Road Block Gold
Mines of India Ltd [1905] 2 Ch 427 “I remember hearing Sir George Jessel say that he should not
regard himself as bound by the decision of a previous judge on the construction of the identical
document and the identical passage of the document which he had to construe.” (Warrington
J.). The authorities are discussed in Lewison, The Interpretation of Contracts (5th edn, 2011), paras
4.07 and 4.11.

We set this out at length (it deserves to be set out in stone) because it
has not always been observed by judges. The use of precedent is part of the
old legal baggage: it is inconsistent with the “common sense principles by
which any serious utterance would be interpreted in ordinary life.” The
point is summed up succinctly by Lord Hoffmann:
No case on the construction of one document is the authority on the construc-

tion of another, even if the words are very similar.51
Precedent may however be relevant if parties use a word or phrase in what

appears to have been a technical legal sense.52
Similar points apply to rules of construction53 such as
(1) ejusdem generis

(2) noscitur a sociis
(the Latin tags themselves redolent of a past age).

These rules are useful in their spheres indeed they arise out of “common
sense principles”: it is their rigid or insensitive application (or misappli-
cation) which Lord Hoffmann intended to reject. They mean us to use
them as signposts and are not to blame if, in our weakness, we mistake the
signpost for the destination.54
Conclusion
4.11 The modern approach to interpretation involves an extension of reliance

on (and admissibility of ) background fact; rejection of “old intellectual
baggage” of precedents and rules of construction; and recognition of less
literal readings. These are large steps away from the false god of objective
meaning and towards seeking the author’s subjective intention: they require
51
Deeny v Gooda Walker [1996] STC 299 at 306. This is also the position in Canada: Re Burke [1960]
O.R. 26 at 30, 20 DLR. (2d) 396 at 398 accessible www.kessler.co.uk.
52
BCCI v Ali [2002] 1 AC 251 at [51]; McKendrick, “The Interpretation of Contracts: Lord
Hoffmann’s Re- Statement” in Worthington, Commercial Law & Commercial Practice (2003) p.152.
53
Not discussed in this book; but see the bibliography in Appendix 2.
54
Harrison v Tucker [2003] EWHC 1168 (Ch); [2003] WTLR 883 makes this point and tacitly
recognises the change in emphasis in modern times:
“These rules of construction are set out in relatively unequivocal terms and sometimes give
the appearance of being almost absolute in nature. But it is important to remember that in
wills, as in other instruments, the quest must always be to ascertain the intention of the maker
of the document.”
Lord Hoffmann is more blunt in BCCI v Ali [2002] 1 AC 251 at [55]:
“Books like Jarman on Wills are monuments to the rules of construction and a melancholy
record of the occasions on which they have defeated the intentions of testators.”

PRINCIPLES OF CONSTRUCTION 49
the Court to try harder to put itself in the position of the author(s)55 and
the result is that the Court is more likely to find the subjective intention.
In summary, the correct answer to the objective meaning/subjective
intention debate lies between the two extremes. It is not the case (or it is
considerable oversimplification to say) that the aim of interpretation is to
find the subjective intention or the objective meaning. In interpretation,
the court should aspire to find the subjective intention, where possible,
doing as best it can from limited information available. In the exceptional
cases where there is (or appears to be) no subjective intention one should
try to construe the document sympathetically, as if there were one (and
of course one will not normally know that there is no subjective intention,
that too requires one to look into the mind of the author). That is exactly
what the modern law requires, and, surely, what the law ought to be.56
Are principles of construction of wills/trusts/contracts/

statements all the same?
The principles are in essence the same57 but one must make allowance for 4.12
the difference of context.
One difference between wills and trusts on one hand, and contracts
(and even more so, statutes) on the other, is that there are fewer occasions
where there is any practical necessity to abandon the search for subjec-
tive intention. “A Will is a soliloquy, while the language of a contract is
addressed to another”.58 Because a will or a trust is normally a unilateral
55
The metaphor often used is being in the shoes or armchair of the author(s); if that means anything
it means a search for subjective intentions.
56
Article 5.101 of the Principles of European Contract Law provides: “A contract is to be inter-
preted according to the common intention of the parties even if this differs from the literal
meaning of the words . . .”. The approach of this book therefore offers a reconciliation of the EU
and the common law approach to construction, which is another recommendation for it. The
modern Canadian position is the same: “the Court should attempt to ascertain, if possible, the
testator’s actual or subjective intent, as opposed to an objective intent presumed by law”. See
Kessler & Hunter, Drafting Trusts & Will Trusts in Canada (3rd edn, 2011), Ch.3. For the back-
ground of linguistics and philosophy of language see Adam Kramer’s “Common Sense Principles
of Contract Interpretation” [2003] OJLS 173.
57
Investors Compensation Scheme principles were applied by the Court of Appeal to the trust in Botnar
v IRC [1999] STC 711 and have subsequently been applied in many wills, trust and pension cases:
Rowley, “The Interpretation of Scheme Deeds and Rules: does it mean what it says?” [2003]
TLI 129 at p.134. This is confi rmed in RSPCA v Sharp [2011] 1 WLR 980 at [31]: “the court’s
approach to the interpretation of wills is, in practice, very similar to its approach to the interpre-
tation of contracts. Of course, in the case of a contract, there are at least two parties involved in
negotiating its terms, whereas a will is a unilateral document. However, it is clear from a number
of cases that the approach to interpretation of unilateral documents, such as a notice or a patent,
is effectively the same, as a matter of principle, as the court’s approach to the interpretation of a
bilateral or multilateral document such as a contract. . .”.
58
Skelton v Younghouse [1942] AC 571 at 579.

document,59 it is more often possible to find the subjective intention of the

author if one looks for it sympathetically. In a contract one must assume
that the parties are of one mind (which may not be the case) and seek a
common intention.
A second difference is that, in the past, Chancery judges construing
wills and trusts were generally inclined to a literal rather than a purposive
approach, and inclined to follow precedents, but both these approaches are
now rightly out of favour.
“Construction not restricted by technical rules”
4.13 One sometimes sees this form:

These powers shall not be restricted by any technical rules of interpretation. They shall operate
according to the widest generality of which they are capable.
The point that this clause is probably trying to make is to echo or seek to
apply Lord Hoffmann’s sentiment, that the interpretation of the document
should not be governed by the “old intellectual baggage of legal interpre-
tation”. Since this is what the Courts are now supposed to do, the clause
has no effect.60
Further, the wording that the clause employs in order to make its point
is not very happy. Which rules of interpretation are “technical”? For
example, suppose trustees have powers “of a beneficial owner”. It is never-
theless a clear inference that the powers are fiduciary.61 Can trustees argue62
that this is a “technical” rule of construction which should not restrict the
power when this form is used? The word “technical” used (as here) pejo-
ratively is hopelessly imprecise. A construction which gives a result one
does not like can usually be castigated as “technical”.63 “Technical” (in
this sense) is not a technical term! It is merely a term of abuse.
59
In the case of a trust, there will usually be two parties but the intention of the trustees is to carry
out the intention of the settlor, they generally have no independent intentions, except in relation
to a few provisions (e.g. trustee remuneration and exoneration clauses). Note that in the case of
a trust established by a nominal settlor the relevant intention may be that of the “instigator”: see
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 and Stein v Sybmorg Holdings Pty Ltd
(2006) 64 ATR 325; 2006 ATC 4741; [2006] NSWSC 1004. “Nominal” settlors are discussed
in 10.14 (Nominal settlor).
60
A further reason why the clause has no effect in practice is that a trust with such a clause almost
always confers very wide powers.
61
See 6.24 (“As if the trustees were the absolute/beneficial owner”).
62
Or is it the trustees’ argument which is the “technical” one?
63
Pepper v Hart [1993] AC 593, rejecting the rule preventing Courts referring to Hansard, described
it as “a technical rule of construction”. In Wilson v First Country Trust [2004] 1 AC 816 at [67]
(qualifying if not rejecting the Pepper v Hart approach) the same rule was “a cardinal constitu-
tional principle”! For another example of (mis)describing an otherwise unanswerable argument
as “technical”, in order to summarily reject it, see Marshall v Kerr [1995] 1 AC 148 at p.157.

“CONSTRUCTION NOT RESTRICTED BY TECHNICAL RULES” 51
So this form is not used in this book. Nor are we able to offer any better
wording. The difficulty the drafter faces here is he or she is attempting
to prescribe a principle of interpretation which acts at such a high level of
generality that it is impossible to reduce it to a formula which assists when
any hard, stubborn, practical issue of interpretation arises. For a more
modest form which achieves all that this form could hope to achieve see
21.61 (Ancillary powers).

CHAPTER 5
BENEFICIARIES
Too much money
5.1 It is generally agreed, among adults of mature age, that young people
should be settled in life before they receive an income sufficient to make
them independent of the need to work. “Many a child has been ruined by
being given too much.”1
No difficulty should arise here, no matter how large the trust fund.
There are many possible strategies. The terms of the trust may allow
trustees to pay out only as much income or capital as they think fit,
always with power to accumulate income rather than paying it to the
beneficiaries. The trustees may reduce the amount of income by investing
trust funds in investment products which yield little or no income (such
as an insurance bond, capital growth unit trust or OEIC) or (if tax con-
siderations permit) by acquiring a company themselves for this purpose
and arranging that trust income accrues to it. The trustees should have
appropriate powers2 to revoke a child’s interest and so to reduce the child’s
income or capital receipts to an appropriate amount.3
A related concern is that the beneficiaries should be encouraged to take
an active interest in their own affairs and should not be passive recipients
of trust income. The solution here may be to appoint the beneficiary a
1
Re Weston [1969] 1 Ch 223 at p.245 (Lord Denning in good form).
2
In desperate cases a power of advancement will suffice: see 11.11 (Power of advancement used to
create new trusts).
3
Another response to this problem is not to inform the beneficiary of their right to the income!
Instead the trustees apply the income for the benefit of the beneficiaries or retain and invest it.
There may be a duty of disclosure, but the duty is not accompanied by any sanction: see generally
Hawkesley v May [1956] 1 QB 304. This does not work in theory but it may work in practice. One
difficulty with concealment is that an adult beneficiary may need to complete a tax return which
must disclose the trust income (but the trustees may be able to arrange that there is no income).
In some circumstances concealment may be evidence of sham, on which see 2.1 (Duty to the
client). A solution may be to invite the beneficiary voluntarily to consent, or even covenant, to
allow surplus income to be retained by the trustees on their behalf or re- settled; (watch undue
influence).

PROFLIGACY 53
trustee, so that beneficiary is directly interested in the beneficiary’s finan-

cial affairs.
Profligacy
The financially irresponsible beneficiary, do what the beneficiary may, 5.2

cannot squander the trust fund of a well-drafted trust. This is one of the
great advantages of trusts.
Where a trust has minor beneficiaries—which is virtually all trusts—
it is wise to bear in mind that a child may turn out to be insufficiently
mature to handle capital; at the age of 18 or 25 or 40 or at all. Conceivably
the receipt of a large sum of money may be most unwelcome to that ben-
eficiary, e.g. on insolvency. If the beneficiary has a vested and indefeasible
interest, one cannot say that the beneficiary must wait until a specified
age before the trustees pay income or capital to that beneficiary. Such a
clause does not bind the beneficiary.4 How should the trust be drafted so
as to secure against a beneficiary’s profl igacy or insolvency? The following
methods do not give complete protection:
The trustees shall stand possessed of the trust fund upon trust for X on attain-
ing the age of 25.
This confers little protection. As soon as X attains the age of 18, X can sell
his contingent interest. Alternatively, if X became insolvent, the interest
would be transferred to his trustee in bankruptcy.
The trustees shall hold the trust fund upon trust for X if he attains the age of
40 absolutely.
This is little better. X may only become absolutely entitled to the trust
property at the age of 40; but, again, X could sell that contingent interest
at the age of 18. If X became insolvent, the interest would be transferred
to his trustee in bankruptcy.
The trustees shall stand possessed of the trust fund upon trust to pay the income
to X during his life with remainder to such of his children as shall attain the
age of 21. . . .
This gives X a life interest; he might sell that life interest for a capital
sum. Again, on his insolvency the interest would become transferred to
4
Saunders v Vautier (1841) 4 Beav 115. In order to defeat the somewhat undesirable consequence of
this rule, the trust in Harrison v Tucker [2003] WTLR 883 was (implausibly) construed to say that
the beneficiary did not have a vested interest.

54 BENEFICIARIES
his trustee in bankruptcy and the income would accrue for the benefit of
his creditors.
A protective trust?
5.3 The old fashioned solution is a protective trust.5 This is a particular form
of interest in possession trust. Trustees are directed to pay income to the
life tenant, but if the life tenant should sell the right to trust income or
become insolvent then the life interest ceases and the income becomes held
on discretionary trusts for the beneficiary and their family.
The laudable purpose of a protective trust is to prevent a prodigal
beneficiary selling an income interest for a lump sum which might be
dissipated, and to protect the trust fund from creditors of the beneficiary.
The terms of the protective trust may be written out in full in the trust
deed, but the usual form is to provide that:
The income of the Trust Fund shall be held on protective trusts for the benefit of X for his life.
This shorthand form incorporates by reference the standard provisions of

section 33 TA 1925.6
The standard form protective trust has significant disadvantages. There
may sometimes be doubts whether the life tenant’s interest has been
forfeit. More significantly, under the standard form, a discretionary trust
arises automatically if the beneficiary tries to dispose of the beneficiary’s
interest. A life tenant may have good reasons to dispose of that interest (for
instance IHT planning) but the “protection” makes this difficult. In the
1940s and 1950s protective trusts were created as a matter of routine; they
caused such difficulties that the Variation of Trusts Act 1958 was required
to allow the protection to be overridden, though at considerable trouble
and expense. The necessity for the 1958 Act reflects a failure of vision of
that generation of drafters; or a failure of the then state of trust law or
trust draftsmanship to provide them with appropriate tools for their work.
Special provisions govern the taxation of protective trusts but overall they
do not enjoy tax advantages of any value.7
5
Where the settlor was intended to be the principal beneficiary, this was not possible and the stand-
ard form was a discretionary trust during the life of the settlor, with gifts over to their children
and descendents.
6
If the drafter is minded to use protective trusts, it is advisable to provide that acts done with
consent of the trustees do not cause a forfeiture. Underhill and Hayton, The Law of Trusts and
Trustees (18th edn, 2010) para.11.69 also criticise the standard form and suggest amendments if a
protective trust is to be used.
7
Section 88 IHTA 1984. On the cessation of an estate-IP, the principal beneficiary is treated
for IHT purposes as if their interest continued. The trust thus faces a tax charge on their death
without the usual CGT uplift applicable to an estate-IP trust.

INSOLVENCY OF A BENEFICIARY 55
A better solution
What, then, is the answer to the problem of the profl igate beneficiary? 5.4
The best solution is also a simple one: the beneficiary’s interest should be
terminable at the trustees’ discretion. The interest of the beneficiary is then
transferable but unsaleable. No purchaser would pay a penny for it: it
could be terminated by the trustees the next day. If the beneficiary became
insolvent the interest could be terminated and the trust fund applied for
their benefit in the most appropriate way.8 Wherever a trust contains over-
riding powers in the form of this book, the beneficiary’s interest will be
terminable, and the problem is solved.
Insolvency of a beneficiary
Let us look ahead to the time when a beneficiary (who is, let us assume, 5.5
the life tenant of a trust but not the settlor) has become insolvent. A bank-
ruptcy order will shortly be made. The trustees have the usual overriding
powers. What steps can they take? The trustees have two problems. The
first is to prevent the property becoming available to the creditors. We
shall call this “the insolvency problem”. The second is to minimise the tax
costs. We shall call this “the tax problem”.
The trustees have available to them a number of solutions to the insol-
vency problem. The reader will not be surprised to find that these all have
different tax consequences; and the task for the trustees is to select the
most attractive of them. One must consider IHT, CGT and income tax.
Before or after the bankruptcy order is made
The trustees may use the overriding power to create a discretionary trust 5.6
for a class including the insolvent life tenant. Thereafter trust assets can be
used for the benefit of the insolvent beneficiary or for other beneficiaries
who are prepared to help the insolvent.9 Tax consequences:
8
For an example see Skyparks Group v Marks [2001] WTLR 607 ( judgment debt against beneficiary
with revocable life interest; no charging order against trust land).
9
Capital receipts from a trust may be after- acquired property: a beneficiary who is an undischarged
bankrupt must declare them and the trustee in bankruptcy may claim them: s.307 Insolvency Act
1986. This applies to a loan from trustees: Hardy v Butler [1997] NPIR 643. Income receipts may
fall within s.310 Insolvency Act 1986 (Income Payment Orders). In The Esteem Settlement [2001]
JLR 7 the trustee sought an order that trust funds be distributed to a bankrupt beneficiary in
reduction of a debt. The Jersey Court of Appeal held that a person cannot be forced to accept a
direct gift and that therefore a direct distribution could not be forced upon a beneficiary. A trustee
can make a distribution for the benefit of a beneficiary, contrary to their objections, when such
benefit was conferred by means of a payment to a third party. However, in the circumstances of
that case it was held that there would be no material benefit to the beneficiary in the (propor-
tionately) small reduction of their total debt.

56 BENEFICIARIES
(a) IHT. If the IP is an estate-IP for IHT purposes there will be a

chargeable transfer and the GWR rule may apply. This may or may
not rule out this option. That will depend on the value of the trust
property, and whether or not it qualifies for any relief.
(b) Income tax. The income may continue to be taxed effectively as
income of the insolvent life tenant, if the income is distributed
or applied for their benefit, though the trustees have the tiresome
administration of a discretionary trust and some additional tax
becomes payable on dividend income.
Before the bankruptcy order is made
5.7 If the beneficiary has an estate interest in possession, the trustees may
modify the life tenant’s interest so that it is held on protective trusts (subject
to the further exercise of the overriding powers). That will be tax neutral
(provided the existing interest is not replaced with a new IP; careful
drafting is required).10 Then on the making of the bankruptcy order, the
life tenant’s interest will cease, and the discretionary trusts of s.33(1)(ii)
Trustee Act 1925 take effect. Tax consequences:
(a) IHT. There is relief from the IHT charge which might otherwise
arise on the termination of the estate-IP.11 For this reason, this
route will sometimes be attractive.
(b) Income tax. The income may continue to be taxed effectively as
income of the insolvent life tenant, if the income is distributed
or applied for their benefit, though the trustees have the tiresome
administration of a discretionary trust and some additional tax
becomes payable on dividend income.
(c) CGT. There will be no tax free uplift on the death of the life
tenant, even though there will in principle be an IHT charge at
that time.12
It is easy to envisage the different circumstances in which any of these

routes would be best.
This route requires action before the bankruptcy order is made, but
10
If a new IP arises, there will be a chargeable transfer for IHT purposes and the settled property
will fall into the relevant property regime. The legislation assumes this is possible: see s.49C(2)
(b) IHTA (“property in which B or some other person was beneficially entitled to an interest in
possession”).
11
See fn.7.
12
The rule that the life tenant is treated as having an interest in possession in the fund applies for
IHT only. Here, as so often in the tax code, Parliament has failed to carry the implications of a
policy through the various taxes that apply. (Contrast instruments of variation, which apply for
IHT, in part for CGT, and not at all for income tax.) This is not the result of policy, but chance
and legislative neglect.

DIVORCE OF BENEFICIARIES 57
the trustees should have time to consider the position before the order is
made.
As far as the drafting is concerned, the important point which arises
from the discussion is that there will be no need to put any particular
provision in a draft in normal circumstances. The problems can be dealt
with when they arise.
Anti- creditor clauses
These raise problems similar to anti-alimony clauses: see 5.15 (Anti- 5.8
alimony forms).
Divorce13 of beneficiaries Divorce of beneficiaries
This is a common concern of settlors and a very real one: that a beneficiary, 5.9
perhaps the son-in-law or daughter-in-law of the settlor, might claim trust
property in the event of divorce. What steps can be taken to prevent that?
Where a beneficiary under a trust is party to a divorce, the court has
three possible courses:
(1) The court may deal with an equitable interest as property of the
spouse.
(2) The court may regard the trust as a fi nancial resource.
(3) The court may vary the terms of a marriage settlement.
(1) Dealing with beneficiary’s equitable interest
In the event of a divorce the court may divest the beneficiary of their 5.10
property, including an interest under a trust. In the precedents used in this
book, that interest will be of no value. The beneficiary’s interest will be
subject to an overriding power of appointment. A court order to transfer
any revocable interest is impractical: the trustees would exercise their
power to revoke the interest. In practice such an order would not be made.
(2) Interest under the trust as a financial resource
In making financial provision the court has regard to the “financial 5.11
resources” which the divorcing beneficiary “has or is likely to have in
13
The word “divorce” here includes dissolution of a civil partnership.

58 BENEFICIARIES
the foreseeable future”.14 Any interest under a trust may be a fi nancial

resource, even an interest under a discretionary trust, or an interest subject
to an overriding power.
In assessing this “resource”, the court will ask what the beneficiary may
reasonably expect to receive from the trust.15 Where the beneficiary has a
fi xed interest, this may be easy enough to determine. With flexible trusts
like those in this book the position is not so straightforward. A life interest
may be revoked; a beneficiary may only be the object of discretion, so that
he or she has only the hope that the trustees might exercise their powers
in their favour. In such cases the courts will “look at the reality”. Where
history shows that a beneficiary has had “immediate access” to funds in
a discretionary trust, the court may treat the beneficiary as if the funds
were their own16.
Once the court has assessed this “fi nancial resource” it can proceed to
make a financial provision order. The consequence of the trust is that a
beneficiary will face a greater lump sum order or greater maintenance
payments than would have been the case in the absence of the trust.
In theory the trustees might exercise their powers so that the benefici-
ary no longer receives anything from the trust. In practice the trustees
can hardly reduce the beneficiary to penury. The courts may commit the
divorcing beneficiary to prison for non-payment. This puts such pressure
on the trustees that there is little alternative but to fund the beneficiary’s
liabilities.17 This is known as “judicious encouragement”.18
14
Section 25(2)(a) Matrimonial Causes Act 1973.
15
Charman v Charman [2007] 1 FLR 1246; A v A & St. George Trustees Ltd [2007] 2 FLR 467.
16
In Whaley v Whaley [2012] 1 FLR 735, the judge valued the resources available to the parties
at £10.4m, £7m of which represented the assets of two trusts F and Y. The F trust was created
by H’s father and H was a beneficiary. The judge found that H was treated differently from the
other beneficiaries by receiving loans not capital but only because this was tax efficient. Y was
also created by the trustees of the F trust to move assets for tax reasons. H was not a beneficiary
but the judge found that its value should be taken into account because H could be added as a
beneficiary at any time and he had sought to alienate his assets by allowing assets from the F trust
to be transferred. The Court of Appeal held that the judge had asked the proper question whether
the trustees were likely to advance capital to H and had arrived at the “unassailable answer” that
the trustees of both trusts were likely to do whatever H asked, including making capital available
to him. In the circumstances, the trust assets were treated as part of his resources for the purposes
of section 25(2)(a) Matrimonial Causes Act 1973. See also RK v RK [2011] EWHC 3910 (Fam).
17
J v J; Browne v Browne [1989] 1 FLR 291 accessible www.kessler.co.uk. The Court of Appeal
described the trust in such loose layman’s language that the report is distressing for a trust lawyer
to read. For instance, we are told that the spouse was the “sole beneficiary” of the trust. In the 9th
edition of this book we noted: “The lesson to be drawn is that in a family law context courts not
only refuse to be bound by technicalities of trust law; they may not recognise their existence. . . .
Trust property belongs to all the beneficiaries and to regard it as belonging to one beneficiary is to
ignore and override the rights of the others”. The courts have now acknowledged this criticism:
Hashem v Shayif [2008] EWHC 2380 (Fam).
18
The court is not meant to put undue pressure on trustees to act in a way which would enhance
the means of the maintaining spouse. However, it can “ judicially encourage” them to provide
the maintaining spouse with the means to comply with the order: Thomas v Thomas [1995] 2
FLR 668 and Charman v Charman [2006] 1 WLR 1053; see also Re The Esteem Settlement [2004]
WTLR 1 ( Jersey). The trustees are expected to respond positively because the court will have
concluded that the trustees would, in the exercise of their duties, respond in a reasonable manner

Despite all these powers, the bargaining position of a beneficiary under

a trust is perhaps somewhat stronger than if the beneficiary had owned the
trust property absolutely. Is there anything the drafter can do to improve
the situation? The reader will not expect to find a simple drafting solution
and there is none. The courts are less concerned with the drafting than
with the actual use to which the settled funds have been put.
If divorce of a beneficiary is foreseen, the best solution may be not to
make trusts of any kind, but simply to make loans of money, or allow
rent-free use of assets (appropriately documented); but this is a course of
despair.19
(3) Variation of settlement on divorce
The court may vary certain settlements (here called “marriage settlements”) 5.12
for the benefit of a divorcing spouse or the children of the family. The court
may also reduce or extinguish the interest of a divorcing spouse under such
a settlement.20 This is different from treating the settlement as a financial
resource: here the court order does not only affect the property of the divorc-
ing beneficiary, it expropriates property of third parties (other beneficiaries).
The jurisdiction of the court to vary settlements was formerly of the
greatest importance, and attracted a substantial case law. Then in the
Matrimonial Causes Act 1973 the court acquired broader powers to order
financial provision, and the power to vary settlements ceased to be much
used. There is no need to vary a settlement if the spouses have enough
property of their own for the court to share out between the parties to the
marriage. The power to vary settlements remains important if the bulk of
the family wealth is settled, and nowadays such settlements have become
more common.
The courts cannot vary every settlement of which a divorcing spouse
is a beneficiary. The jurisdiction is limited to two classes of settlement.
Firstly:
any ante-nuptial or post-nuptial settlement (including such a settlement made
by will or codicil) made on the parties to the marriage other than one in the
form of a pension arrangement.21
to a reasonable request from that spouse: Whaley v Whaley [2012] 1 FLR 735 and RK v RK [2011]
EWHC 3910 (Fam). However, the trustees are entitled to take into account the effect on the other
beneficiaries before deciding what resources, if any, to release to the spouse. Although the court
can “encourage” trustees, it cannot compel them: see e.g. A v A & St George Trustees Ltd [2007]
2 FLR 467 at [95].
19
The courts may regard gifts and loans from a parent as a fi nancial resource; but plainly only very
limited weight can be given to that “resource”. The courts will not blackmail a parent in the way
that they blackmailed the trustees in Browne v Browne, above. See fn.16.
20
Sections 24(1) (c)–(d) Matrimonial Causes Act 1973. (The Family Law Act 1996 would have
modernised the wording (without any change of substance). It now seems unlikely that this part
of the Act will ever come into force.) A marriage settlement may also be varied under s.2(1)(f )
(g) Inheritance (Provision for Family and Dependants) Act 1975.
21
Pensions are excluded here because they are covered by other legislation.

60 BENEFICIARIES
5.13 There are three distinct (perhaps overlapping) requirements here: there
must be a “settlement”; the settlement must be “made on the parties to the
marriage” and it must be “ante-nuptial or post-nuptial”.
This terminology originates from s.5 Matrimonial Causes Act 1859.
At that time a settlement on marriage was a standard procedure taking a
standard form, and no-one would have had much difficulty in identify-
ing a marriage settlement. Now social conditions and drafting styles have
changed and that kind of marriage settlement is a matter of history. The
term has lost its original reference22 and the courts have had to do the best
they can to invent a new one.
Clearly any trust is a “settlement”, but the term has been construed
much wider; and includes just about any arrangement.23
Some test must be framed to decide if a settlement is a marriage settle-
ment. A measure of guidance can be drawn from the old case law; but the
cases need careful evaluation, as times have changed, and the text of the
statutory provision has also changed.
Often the test is said to be whether the settlement is “upon the husband
in the character of husband or upon the wife in the character of wife, or
upon both in the character of husband and wife”; whether it benefits them
“with reference to their married state”; or whether the settlement is made
“in respect of the marriage”.24 These formulae (which should be regarded
as three ways of expressing the same test) made sense in relation to the old
marriage settlements in which the parties to the marriage were described
as “the Husband” and “the Wife”. It is considered that this test is not now
of much practical use. How does one decide if a settlement in a modern
form is made on the husband in his own character or in the character of
husband? 25
Sometimes the test is said to be whether the settlement has a “nuptial
element” and this, it is considered, offers a more satisfactory approach. A
variety of factors will be relevant in determining whether a settlement has
the requisite nuptial element:
(1) The existence of a marriage or proposed marriage at the time the

settlement is made. A settlement made for the principal benefit
of a beneficiary who is neither married nor contemplating mar-
riage at the time of the settlement is not a marriage settlement.26
22
Contrast Frege’s distinction between sense and reference discussed in Appendix 2 (Annotated
Bibliography).
23
Brooks v Brooks [1996] AC 375.
24
Prinsep v Prinsep [1929] P. 225. The test goes back to Worsley v Worsley (1869) LR 1 P&D 648 and
has often been cited since.
25
Contrast the test for employment income, whether a person receives funds “in his capacity as
employee”: a test easy to state, but often impossible to apply. Occasionally this test may help; for
instance, it suggests that an employee benefit trust will not be a marriage settlement: it is made
on the beneficiaries as employees.
26
Hargreaves v Hargreaves [1926] P. 42 is an example. A settlement not made in contemplation of
marriage was held not to be a nuptial settlement, even though the beneficiary had powers of

Conversely “a settlement made on the parties to a marriage during

the marriage” is almost bound to be a marriage settlement.
(2) The terms of the settlement. The settlement must be “made on
the parties to the marriage”. This expression is not used by trust
lawyers today. In the past, a settlement “made on X” meant spe-
cifically one under which X had a life interest with very standard
provisions for X’s family thereafter. But now it seems that a set-
tlement is “made on the parties to the marriage” if it contains any
provisions which benefit either party; even a provision benefiting
the widow of a settlor will suffice.27 A discretionary settlement
may be caught.28 A settlement genuinely for the benefit of parties
to more than one marriage is not, it is considered, a marriage set-
tlement. Presumably a settlement for the children of the marriage,
from which the parents are wholly excluded, is not a marriage
settlement.
(3) The nature of the trust property. A settlement holding the family
home is almost bound to be a marriage settlement.29
Some general points can be made.

The substance matters more than the form. So the addition of potential
beneficiaries not intended to benefit at all (or only intended to benefit as
fall back beneficiaries if the husband and wife die childless) would not
preclude “marriage settlement” status. A declaration that the settlement is
not a marriage settlement will not carry any weight.30 A settlement with
a foreign governing law may be a marriage settlement.
It is arguable that the settlement must be a marriage settlement at the
time when the settlement is made: a settlement which is not a marriage
settlement cannot become a marriage settlement. But an arrangement
made subsequently, such as a subsequent appointment made for the benefit
of parties to a marriage, may constitute a separate arrangement and so a
marriage settlement.31
appointment in favour of a future spouse. (The fi nding of fact in this case, that the settlement was
not made in anticipation of marriage, was surprising: the settlement was made 28 April 1914, and
the marriage was agreed before 25 May! But that cannot affect the authority of the case.)
27
See FJWT-M v CNRT-M [2004] IEHC 114. “Broadly stated, the disposition must be one which
makes some form of continuing provision for both or either of the parties to a marriage, with or
without provision for their children”: Brooks v Brooks [1996] AC 375 at 391.
28
E v E [1990] 2 FLR 233. Here it was conceded that the settlement was a marriage settlement, and
the court held that the concession was “plainly right”.
29
In the case of the family home, the Family Law Act 1996, Pt IV also needs to be considered,
especially if the spouses are trustees.
30
In Prescott v Fellows [1958] P. 260 a document which described itself as “settlement on marriage”
was held not to be a marriage settlement.
31
In Hargreaves v Hargreaves [1926] P. 42 an appointment under a non-nuptial settlement created an
annuity which was a nuptial settlement. The annuity was regarded as a separate settlement. In HN
v AN [2005] EWHC 2908 (Fam) the purchase of the family home by a non-marriage settlement
constituted a separate marriage settlement.

62 BENEFICIARIES
The settlement must certainly be a marriage settlement at the time of

the court order. A marriage settlement can cease to be a marriage settle-
ment; a clear case is if spouses and issue are excluded.32
Special considerations apply to will trusts. The original legislation
referred simply to “ante-nuptial or post-nuptial settlements” without
reference to wills. It was held that will trusts were not within its scope.
Then the statute was amended in a curious way: it now says that “mar-
riage settlements” means an ante- or post-nuptial settlement (including
one made by will). The settlement made by will can only be varied if it is
a nuptial settlement; but marriage settlements in the old sense were never
made by will and settlements made by will were not nuptial settlements.
The present position could be that will trusts can be marriage settlements
if they contain the requisite “nuptial element”; but it is less likely that they
will do so. The better view is that there is no difference now between will
trusts and lifetime settlements.
The second type of settlement which the Courts can vary on divorce
is the civil partnership equivalent of a marriage settlement. In the legisla-
tion this is unhelpfully called “a relevant settlement”. The drafter had the
challenge of encapsulating the marriage settlement concept in this new
context, and came up with this:
“relevant settlement” means, in relation to a civil partnership, a settlement

made, during its subsistence or in anticipation of its formation, on the civil
partners including one made by will or codicil, but not including one in the
form of a pension arrangement.33
Divorce of beneficiaries: conclusions
5.14 What conclusions can be drawn from this discussion? The first is that it
may not much matter whether or not a settlement is a marriage settlement.
For even if the drafter succeeds in creating a non-marriage settlement,
so the court could not vary the settlement, the settlement may remain
a “financial resource”: see 5.11 (Interest under the trust as a financial
resource). Nevertheless a settlor will often not wish to create a marriage
settlement if it is possible to create a non-marriage settlement. The best
time to provide for one’s family is well before a marriage. Settlements
made when the marriage is contemplated, or made after the marriage,
for the benefit of the parties of the marriage, are the ones at risk. One
can avoid or reduce the risk of a settlement being varied by the court by
making it as “un-nuptial” as circumstances allow. For instance consider
a settlor with two married children. The settlor may create two separate
settlements for each family. Those might each be “a marriage settlement”.
32
C v C [2005] Fam 250 at [44].
33
Para.7, Sch.5 Civil Partnership Act 2004. “Pension arrangements” are excluded because of the
separate provisions for pension sharing orders.

FOREIGN DOMICILED BENEFICIARY 63
He or she may alternatively create a single trust for the benefit of their
whole family, and others whom he or she wishes to benefit. The settlement
could not so easily be described as a marriage settlement.
Anti-alimony forms
One sometimes sees (particularly in offshore trusts) a provision that trus- 5.15
tees’ powers are not exercisable in favour of a beneficiary if sums paid to
the beneficiary would substantially accrue to satisfy the claims of a divorc-
ing spouse. This form (“an anti-alimony form”) raises significant practical
difficulties and is not recommended.
If the form is used, how would it work in practice? The following
general comments are subject to the point that much in any particular case
would depend on the precise circumstances and especially the drafting. It
is assumed that H is regarded by the trustees as the principal beneficiary,
and W is not.
Suppose H has assets of £5m in his own estate, and a trust fund of
£5m. Plainly the court could order him to transfer his own £5m to W.
Could the trustees subsequently appoint the trust fund to H? Obviously,
yes. In other words, the court may regard H’s interest under the trust as a
financial resource and the anti-alimony form cannot prevent that.
Suppose now that H has no significant assets in his estate at all, but
£10m in the trust fund. Assuming that the court would order half of
whatever H receives from the fund to be transferred to W, the form read
literally may seem to say that nothing can ever be paid to H at all! In result
it could be a breach of trust to transfer funds to a beneficiary at a time
when access to funds is needed. Probably, the anti-alimony form would be
construed as imposing no more than the usual rules relating to fraud on
a power. In that case the apparently disastrous effect of the anti-alimony
form is avoided, but the form achieves nothing.
If the settlement is a marriage settlement, another approach for W is to
seek to vary the settlement by deleting the anti-alimony clause.
One may say of course that the anti-alimony form will help the nego-
tiating position of H in the divorce proceedings; but it may require the
trustees to seek the guidance of the court in order to be secure from pos-
sible claims later of breach of trust.
Similar points arise on anti-creditor clauses.
Foreign domiciled beneficiary
A United Kingdom domiciled settlor may wish to make a trust for persons 5.16
who are not domiciled here. Special consideration must then be given to
United Kingdom tax law and any restrictions imposed by the law of the

64 BENEFICIARIES
beneficiary’s home country. These questions are beyond the scope of this
book.34
Marriage under 18
5.17 A traditional form is:

In trust for [my children] who being male attain the age of 21 years or being female attain that
age or marry . . . 35
This is not a point of much importance; marriage under 21 is relatively

uncommon. However, clauses of this kind are not recommended.
Definition of “Beneficiaries”
5.18 Anyone interested in a trust may be called a “beneficiary”.36 However

the term “Beneficiaries” is used in a defi ned sense in the precedents in
this book. The term is used in this book in the overriding powers and in
discretionary trusts:
34
Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012) accessible www.foreign-
domiciliaries.co.uk.
35
Under the intestacy rules, an intestate’s estate is held in trust for [the children] who attain the age
of 18 years or marry under that age: s.47(1)(i) AEA 1925; s.31(2)(i) TA 1925. Sexual equality was
a general principle of the 1925 legislation; as in the abolition of male preference in the descent of
land.
36
The word “beneficiary” is not a term of art. In common legal usage it means:
1. a person with an equitable interest under a settlement; and
2. an object of trustees’ powers over income or capital; (see Leedale v Lewis 56 TC 501 at
p.539: “discretionary objects are clearly “beneficiaries”).
Views may differ on whether a person who the trustees may add to the class of objects is to be
described as a beneficiary in the general sense of the word or merely a potential beneficiary. The
distinction may be a wholly formal one in circumstances where there is no realistic prospect of a
beneficiary who is an object of trustees powers receiving anything; and every prospect of a person
later being added and receiving something.
In practice where it matters the word “beneficiary” is usually defi ned, e.g. s.22 TLATA 1996;
s.812(2)- (5) ITA 2007; Sch.5, para.9(10C) TCGA 1992. Without a defi nition there is ambiguity,
e.g. in the ill thought out Sch.5B, para.17 TCGA 1992.
Art.1 Trusts ( Jersey) Law provides a defi nition which reflects the normal meaning: “‘benefici-
ary’ means a person entitled to benefit under a trust or in whose favour a discretion to distribute
property held on trust may be exercised.” A potential beneficiary (i.e. a person whom the trustees
may add to the class of beneficiaries is not a “beneficiary” within that defi nition; West v Lazard
[1987- 88] JLR Notes-22A; [1993] JLR 165 at p.177–179. But this decision relies on a purposive
construction (the purpose of the legislation being to prevent mere busybodies from starting trust
proceedings). So only the context can decide whether the word “beneficiaries” is used to include
potential beneficiaries.

DEFINITION OF “BENEFICIARIES” 65
The Trustees may appoint that they hold the Trust Fund for the benefit of any
Beneficiaries on such terms as the Trustees think fit.
The Trustees may pay the income of the Trust Fund to such of the Beneficiaries as
they think fit.
Other terms are sometimes used in such clauses, such as:
Appointed Class
Appointable Class
Specified Class
Wider Class
Discretionary Class
Discretionary Beneficiaries37
However the term “Beneficiaries” seems quite apt.

The definition of the term “Beneficiaries” is an important issue in the 5.19
drafting of a trust. The definition should be set out in full in the definition
clause (not relegated to a schedule, forcing every reader to leaf through
many pages to find the meat).
The draft must try to reconcile two contradictory considerations. On
the one hand, it is desirable to compile a list of everyone who it might in
any circumstances be desired to benefit from the trust fund; not just the
persons expected to benefit. On the other hand, a wide class will enable
the trustees to benefit those whom the settlor would not normally wish
to benefit, and the settlor may be unhappy with that result even allowing
for the comfort of a statement of wishes. It can also make life difficult for
trustees who may feel obliged to consider the needs and interests of those
who may be remote from the settlor and their family, and who may not
even know that they are beneficiaries. This can be dealt with by draft-
ing techniques of fall-back beneficiaries, and powers to add beneficiaries
subject to safeguards.
The starting point is usually the family of the settlor. Before the intro-
duction of civil partnerships this book used the following form:
“The Beneficiaries” means:
(i) The descendants of the Settlor
(ii) The spouses, widows and widowers (whether or not remarried) of (i) above and
(iii) The widow (whether or not remarried) of the Settlor.38
37
This appears to be a novel coinage of the 1997 edn of the Encyclopaedia of Forms and Precedents, and
has a great deal to be said for it.
38
Some add: “and ‘Beneficiary’ has a corresponding meaning.” This only expresses an inference
which would be made in any event. The use of the word “Beneficiary” with a capital “B” is suf-
ficient indication that the word is used in its defi ned sense. Some restrict the class to beneficiaries

66 BENEFICIARIES
The expansion of this form to include civil partners is described at 5.30

(Spouses and civil partners of beneficiaries: drafting points). The above
form would still be appropriate where a settlor did not wish to make any
provision for CPs but it would be better to say expressly that references to
spouses do not include CPs, for the avoidance of doubt.
Children and descendants
5.20 There are of course a number of ways to describe children and descend-
ants. Statutory precedents include:
. . . children or more remote issue . . . 39
. . . children or remoter descendants . . .40
. . . the issue, whether children or remoter descendants . . .41
The terms “issue” and “descendants” are in this context synonymous.

The term “descendants” is preferred here as it is in common usage. It is
sufficient to say “the descendants of the Settlor”; the term “descendants”
connotes descendants of any degree.42
“Children of X and Y”
5.21 The clause used in this book would include all the children of the settlor,
including children of a re-marriage. It is not usually desired to restrict the
trust to children of an individual and their present spouse. If such a case
does arise the recommended form is:
The children of X born to Y.
or: The children of the marriage between X and Y.
or: The children of X who are also children of Y.
born before the end of the Trust Period. This is not necessary. All that matters is that the power
of appointment is properly restricted: see 9.5 (Remaining within the perpetuity period).
39
Section 33 TA 1925.
40
Section 33 Wills Act 1837, as amended by s.19 Administration of Justice Act 1982. This modern-
ised the 1837 wording (“children and other issue”).
41
Statutory Will Forms 1925, Form 9 accessible www.kessler.co.uk.
42
The form “children and descendants” was used in the precedents in earlier editions of this book
as the more readily understood. However, following the introduction of Civil Partnerships, this
usage would lead to references to “the spouses and civil partners of the children and descendants
of the settlor” which seems excessively clumsy.
It is plainly unnecessary to refer to “children or remoter descendants”. The word “remoter”
should only be used where it adds to the meaning. For instance “grandchildren and remoter
descendants of the Settlor” where the word “remoter” is apt as the children of the settlor are
excluded.

ILLEGITIMATE BENEFICIARIES 67
The form “the children of X and Y” is not suitable. This seemingly innocu-
ous form hides three ambiguities. It may mean:
(1) the children whose parents are both X and Y.

(2) the children whose parents include either X or Y.
(3) the children of X, and Y himself or herself (not Y’s children).43
Illegitimate beneficiaries44
Illegitimacy raises a question of principle and a technical point of draft- 5.22

ing. Should illegitimate descendants of the settlor be included as benefi-
ciaries under the trust? This is a matter for the settlor. If the drafter may
offer tentative advice, the preference should be to include the illegitimate
children, not to exclude them. This is an assessment of the spirit of the
times45 and a matter of practical advantage. Parents are under a legal
obligation to maintain their children legitimate or not. A family trust is a
natural source of funds for that purpose, and the exclusion of illegitimate
children from the trust may cause inconvenience. Trustees should not be
deterred by the fear that unknown illegitimate beneficiaries might later
emerge with claims against them; appropriate protection can be given by
the trust deed.46
If it is desired to include the illegitimate beneficiaries then nothing
need be done. The words “child”, “descendant” and so forth are under-
stood to include children and descendants born outside marriage.47
If it is desired to exclude illegitimate children then what form of words
should the drafter use to achieve that end? A traditional formula is as
follows:
43
The ambiguous form has often been used and has given rise to considerable litigation. Williams
on Wills (8th edn, 2002), p.720 cites no less than a dozen authorities. The ambiguity is exploited
in a parody reprinted in Megarry’s wonderful Miscellany at Law, (1955) pp.298–301 (Bequest of
“all my black and white horses”. Did this include the pied horses?) A traditional and somewhat
archaic form is “the children of X by Y”.
44
For a more detailed discussion see Kessler, “Drafting Trusts: Illegitimacy Issues”, accessible www.
kessler.co.uk.
45
By 2008, 45% of births in the UK were outside marriage: Social Trends Report 2010, accessible
www.statistics.gov.uk.
46
6.34 (Excluding claims by unknown beneficiaries).
47
Sections 1, 19 Family Law Reform Act 1987, re- enacting (and slightly extending) s.15 Family
Law Reform Act 1969.
Trusts made before 1 January 1970 are governed by the old rule that expressions such as “children”
do not include illegitimate children. The common law rule survived an attack by Lord Denning
in Sydall v Castings [1967] 1 QB 302 and has been followed in trust jurisdictions where no statutory
provision applies: Philean Trust v. Taylor [2003] JLR 61; RHB Trust Company v Butlin [1992–93]
CILR 219. The rule survived a Human Rights challenge in Upton v National Westminster Bank
[2005] EWCA Civ 1479.

68 BENEFICIARIES
In this settlement references to family relationships shall be construed as if the Family Law
Reform Acts 1969 and 1987 had not been enacted.
The Family Law Reform Acts reversed the common law rule, that ref-
erence to relationships did not in principle include the illegitimate. The
effect of this provision is thus to restore the former position. The form of
wording used has the advantage of seemliness; avoiding the word “ille-
gitimate” let alone any more offensive synonym. But the wording is unin-
telligible to the layman and indeed to a lawyer or accountant unfamiliar
with finer points of trust law. There is then scope for misunderstanding
and the form is not recommended.48
The obscurity may be a virtue in a case where a settlor wishes to
exclude their illegitimate children from the trust without openly admit-
ting their existence: an example of Talleyrand’s epigram that la parole a été
donnée à l’homme pour déguiser sa pensée49. But that is exceptional. This book
proposes a more explicit clause for general use:
(1) “Children” does not include illegitimate children.
(2) References (however expressed) to any relationship between two persons do not
include anything traced through an illegitimate relationship.50
A fair but complex set of rules takes effect to determine whether a

person is legitimate, but that need only be considered in the rare cases
where legitimacy matters.51 We have occasionally seen trusts taking a
middle way between excluding and including illegitimate beneficiaries:
(1) illegitimate beneficiaries are prima facie excluded from benefit; but
trustees are given power to add them in as beneficiaries; or
(2) illegitimate beneficiaries are included as a fall back if and only if
there are no legitimate ones.
These are rather complex solutions but they might appeal to some settlors.
48
A minor disadvantage with this form is the need to keep the statutory references up to date.
Sooner or later the 1987 Act will be repealed and replaced by new legislation and the form will
need amending. Fortunately it will not usually matter if out of date forms are used (for instance
a form referring to the 1969 Act which omits to refer to the 1987 Act): s.17 Interpretation Act
1978.
49
Franz Rosenzweig makes a similar point in language which could serve as an epigram for this
book: “Words are bridges over chasms. One usually walks across without looking down. If one
looks down one is liable to feel giddy. Words are also boards laid over a shaft, concealing it. To
be a philosopher [or a lawyer] is to look into abysses, climb down shafts.”
50
The drafting is loosely derived from Sch.1 Interpretation Act 1978.
51
They are well set out in Barlow, “Children and Issue: Some Lingering Growing Pains” (1993)
PCB 99 accessible www.kessler.co.uk. These rules could of course be amended in a particular case;
but it is suggested that in normal cases they should be regarded as satisfactory.

ASSISTED REPRODUCTION 69
Adopted beneficiaries
When a child is adopted by a couple or by one of a couple (whether or not 5.23

married and irrespective of the sex of the couple), that child is treated as the
legitimate child of the couple. A child adopted by a single person is treated
as a legitimate child of the adopter.52 The settlor would not normally wish
to provide otherwise. Complicated provisions apply to ascertain the age
and birth date of the adopted child for the purpose of the trust.53
Stepchildren
The term “children” does not include stepchildren (unless context shows 5.24
otherwise). This rule could be reversed by the drafter if the settlor so
desired. In practice most settlors wish to benefit their own children to the
exclusion of their stepchildren. Accordingly, unless the settlor so requests,
there should not be any general form to the effect that “children” include
“stepchildren” or that relationships include step-relationships.54 If, later,
it is in fact desired to benefit stepchildren, this could in principle be done
later using the power to add beneficiaries.
Assisted reproduction
If an embryo or egg is placed in a woman the position (simplifying slightly) 5.25

is as follows:
52
Section 67(2) Adoption and Children Act 2002. The Adoption of Children Act 1926 had no
effect either to confer property or inheritance rights on adopted children or indeed to remove
such rights from them. The Adoption Act 1950 did confer inheritance rights by providing
in principle that the expression “child” includes an adopted child, but this did not affect a
disposition made before 1950. In Re Erskine’s Trust, Gregg v Piggot [2012] EWHC 732 (Ch), it
was held that although two adopted nephews were not included in the phrase “statutory next of
kin” used in a 1948 trust (and as defi ned in the statute then in force), the court retrospectively
applied the non- discrimination art.14 in the European Convention on Human Rights 1950 to
construe the settlement in such a way as to eliminate discrimination against adopted children.
53
The rules could in theory give rise to difficulty, but problems in practice are rare. See again Barlow
“Children and Issue: Some Lingering Growing Pains” [1993] PCB 99 accessible www.kessler.co.uk.
54
The meaning of the word “stepchild” is not always clear. In IRC v Russell 36 TC 83 a child of the
wife of A was held to be A’s stepchild even though the child’s father was still living: that is surely
now part of the ordinary meaning. In Mander v O’Toole [1948] NZLR 909; [1948] DLR 445
accessible www.kessler.co.uk the child of the ex-wife of A ceased to be A’s stepchild after divorce;
that too is probably the natural meaning but views might differ. By s.246 Civil Partnership Act
2004, A’s stepchild for many statutory purposes includes a child of CP who is not A’s child. This
would not apply to the construction of trust documentation but in the course of time this may
come to be the natural meaning of the word “stepchild”. An express defi nition addressing all
these points would be desirable if the term is used in trust documentation.

70 BENEFICIARIES
(1) The woman who gives birth to a child is regarded as the mother.
(2) Where donor sperm (or an embryo created from it) is used and the
woman is married or in a civil partnership
(a) the husband is regarded as the father
(b) the female CP is regarded as a parent
unless it is shown that they did not consent to the mother’s
treatment.55
(3) Where donor sperm (or an embryo created from it) is used and the
woman is not married (and not in a civil partnership), but a man or
a woman was being treated together with her at a licensed centre
and they had notices of consent in place, then that man or woman
is regarded as the father or a parent.56
References to relationships in a trust are construed accordingly.57 While

these rules could be reversed by the drafter, it is not thought that a settlor
would usually wish to provide otherwise.
Children by surrogacy
5.26 There are two types of surrogacy. In host surrogacy, which dates from
1989, the surrogate mother carries an embryo derived from the egg and
sperm of an infertile couple. The surrogate has no genetic relationship
with the baby but acts as a host for the pregnancy. In traditional sur-
rogacy, the egg is derived from the surrogate mother while the sperm is
from the male partner of the infertile woman. In either case, s.54 Human
Fertilisation and Embryology Act 2008 (HFEA 2008) allows for fast track
adoption of a surrogate baby for couples who are married or in a civil part-
nership.58 Unmarried opposite-sex couples and same-sex couples not in a
civil partnership can also apply.59 However until a Court order is obtained,
the child is regarded as the child of the woman who gives birth and not
of the genetic mother. In some cases it might be appropriate to provide a
definition of “children” specifically to include children by surrogacy even
before a parental order is made. The drafting should copy the language
HFEA 2008.
55
Sections 35 and 42 Human Fertilisation and Embryology Act 2008.
56
Sections 36 and 43 Human Fertilisation and Embryology Act 2008. The requirements are set out
in ss.37 and 44. There are provisions about withdrawing consents. Notice cannot be given by two
persons who are within the prohibited degrees of relationship to each other.
57
Section 48 Human Fertilisation and Embryology Act 2008.
58
Section 54 Human Fertilisation and Embryology Act 2008.
59
The requirement is that they are living as partners in an “enduring family relationship” and are
not within prohibited degrees of relationship in relation to each other.

CIVIL PARTNERS 71
Provisions distinguishing male/female
The precedents in this book do not discriminate between male and female 5.27
beneficiaries. Where such forms are used, note s.9 Gender Recognition
Act 2004: where a full gender recognition certificate is issued to a person,
the person’s gender becomes the acquired gender. This could be reversed
by appropriate drafting. Since in practice discrimination between male/
female beneficiaries is rare in modern trust drafting, the potential problems
of deciding whether a person is male or female in the light of modern
science and the Gender Recognition Act 2004 will rarely if ever arise.
Spouses of beneficiaries
The class of beneficiaries should normally include the spouses of the set- 5.28
tlor’s descendants. This is done for two reasons. First, there is a practical
advantage. It may be desired to benefit a spouse: a beneficiary might die
and leave an impecunious widow. Secondly, there are possible tax advan-
tages. Spouses are taxed separately from each other. It will be desirable
to arrange that they receive an independent income so each can use their
personal relief and lower rates of tax.60 The trust is a convenient source of
income for this purpose. It may still be possible to salvage some of these
advantages where the spouse is not a beneficiary.61 On settlors who object
to including spouses of beneficiaries, see 14.6 (“Provisions after death of
the principal beneficiary”).
Civil partners
The word “spouse” in its strict sense does not include a civil partner. So in 5.29
the absence of specific words or a special context, a reference in a will or
trust to a spouse would not include a CP (though in more informal speech
that may not be the case).62
The terms of a trust or will are a matter for the settlor to decide, and the
60
Further, in the case of an interest in possession arising before 22 March 2006, inheritance tax
may be avoided or deferred by arranging for a beneficiary’s interest in possession to be followed
by a short term interest in possession for their spouse or civil partner: s.18 IHTA 1984. Note the
exemption is restricted if the beneficiary is UK domiciled (for IHT purposes) and the spouse is
not UK domiciled.
61
Either by appointing a beneficiary an interest for more than their life, which he or she may leave
by will to a surviving spouse or by exercise of power of advancement, see 12.12 (Example resolu-
tion of advancement used to alter terms of trust).
62
See 17.2 (spouses: terminology).

72 BENEFICIARIES
drafter should obtain and follow instructions. However, it is thought that

the better course (for IHT planning reasons), and the more commonly
desired course, would be to treat civil partners in the same way as spouses;
this is the form used in this book.
Spouses and civil partners of beneficiaries: drafting points
5.30 There are two ways to extend the class of beneficiaries to include civil
partners as well as spouses. The first is to include them expressly:
(a) The descendants of the Settlor.
(b) The spouses and civil partners of the descendants of the Settlor.
(c) The surviving spouses and surviving civil partners 63 of the descendants of
the Settlor (whether or not they have remarried or entered into another Civil
Partnership).
(d) The surviving spouse64 or surviving civil partner 65 of the Settlor (whether or
not he or she has remarried or entered into another civil partnership).
The alternative is to defi ne the expression “spouse” to include a civil

partner; and to define “widow/widower” of a person to include the
surviving civil partner; now that civil partnerships are becoming more
familiar, we think this shorter form is easier to understand.
The expression “Spouse” and “Surviving Spouse” should be defi ned
and the following is suggested:
“Spouse” includes a civil partner within the meaning of section 1 Civil Partnership
Act 2004 and a person is a “Surviving Spouse” whether or not they have remarried or
entered into another civil partnership.
This definition includes civil partnerships registered in the UK, and

“overseas relationships”—civil partnerships under foreign law—within
the meaning of s.212 Civil Partnership Act 2004. But if “civil partner” is
used without being defined, it would in principle carry that same meaning
in a document governed by English law.
An alternative form is:
63
The term “surviving civil partner” (meaning, the person who was civil partner of a person at the
time of that person’s death) is taken from the Civil Partnership Act 2004.
64
Until the Civil Partnership Act 2004, the form used in this book was “widow” or “widower”.
However the term “surviving spouse” (meaning, widow or widower) is more convenient in this
context. The term was fi rst used in the side note to s.48 Administration of Estates Act 1925, and
is now standard statutory usage.
65
The words “civil partner” are of course unnecessary here if the Settlor will not contemplate
entering into a civil partnership, and so some settlors may prefer to delete them; but they can do
no harm.

SETTLOR AND SPOUSE/CIVIL PARTNER AS BENEFICIARIES 73

...
(c) The former spouses and civil partners of the descendants of the Settlor (whether
or not they have remarried or entered into another civil partnership).
The alternative form is wider as it includes not only a widow66 (and
surviving civil partner) of a deceased beneficiary, but also the divorced
spouse (and ex- civil partner) of a living beneficiary. But under the form
used in this book such persons can in principle be added as beneficiaries.
The difference between the two forms is little more than one of style,
or at most, one of emphasis. The form now67 used in this book reflects
what is understood to be the more common preference or perception of
settlors.
An interesting question arises with the form used here. Suppose trus-
tees appoint a life interest to a spouse within limb (b) of the definition
(e.g. a spouse of a child of the settlor). Suppose the spouse subsequently
divorces and ceases to be a Beneficiary. Does the life interest automatically
terminate on the divorce? The answer is, no. Provided that the spouse is
a Beneficiary at the time the appointment is made, the life interest con-
tinues after a divorce.68
Settlor and spouse/civil partner as beneficiaries
It is usual to exclude the settlor, spouse and civil partner from benefit 5.31
under their trust:
(1) they will not be included in the class of beneficiaries (which is the
subject of this section); and
66
Is it possible that “former spouse” might be construed to refer to a divorced spouse but not a
widow or widower? Since a widow is someone who was formerly a spouse, it is considered that
the expression “former spouse” can only reasonably be taken to refer to widows and widowers as
well as divorcees. In the context any other interpretation would be perverse.
The alternative form is not wide enough to cover the situation where:
1. a beneficiary (“A”) marries a person (“B”);
2. the marriage comes to an end;
3. B marries a third person (“C”).
Even though B is a beneficiary, C is not. This may be tax-inefficient; but one has to stop some-
where. C will be very far from the benevolent intentions of the settlor. This unusual case may be
dealt with by the use of the power to add beneficiaries, if appropriate.
67
A change from the fourth edition.
68
At fi rst sight this seems doubtful: the ex- spouse has ceased to be a “Beneficiary”, so how can she
continue to receive income from the trust? The paradox resolves when one recalls that the term
“Beneficiary” here is used in a defi ned sense. It means objects of the power of appointment. Thus
it is quite consistent to say that (i) the ex- spouse is not a Beneficiary in the defi ned sense, being
no longer an object of the power of appointment; but at the same time (ii) the ex- spouse is a
beneficiary in the general sense of that word, having a beneficial life interest.

74 BENEFICIARIES
(2) a settlor exclusion clause will expressly exclude settlor, spouse and
CP from benefit.
If this is not done, then trust income may be taxed at the settlor’s rate and
the settlor may be subject to inheritance tax on the settled property as if
he or she had never given it away. 69
This is not necessary for a will trust; a testator cannot benefit under
their own will.
The income tax Settlement Provisions have six exceptions, the IHT
Gifts with Reservation rule, ten. In particular, it is possible to arrange
that trust property should revert to the settlor on the bankruptcy of a
beneficiary, or, in some cases, on the death of beneficiaries. It is not
thought worthwhile to take advantage of these in a standard draft.
But where a settlor wishes specifically to be able to recover the trust
property in the event that her children should die before her, that can
be done.
Meaning of “spouse”/“civil partner” of settlor
5.32 Statute gives a restricted definition to the terms “spouse”/“civil partner”

for the purposes of the Settlement Provisions rules which generally require
the spouse/CP to be excluded from benefit. Three categories of person are
stated not to be a spouse or civil partner for this purpose:
(1) The widow, widower or surviving CP of the settlor does not

count. This merely codifies the long established rule that the word
“spouse” in its natural sense does not include a widow.70
(2) A potential spouse71 or potential CP does not count as a spouse or
CP. This appears to be otiose: no one could contend that a poten-
tial spouse or CP should count as a “spouse” or civil partner.72
69
See Lyon’s PRs v HMRC [2007] STC (SCD) 675 and 13.1 (Why exclude settlor and spouse/civil
partner?).
70
Section 625(4) ITTOIA 2005. Different rules apply to non-resident trusts, but that is outside
the scope of this book. The House of Lords held that the term “spouse” did not include a widow
or widower: Vestey v IRC 31 TC 1, reversing IRC v Gaunt 24 TC 69. Gaunt, though obsolete,
deserves a mention in a footnote as an exemplar of judicial mentality. Reversing the decision of
the High Court, the Court of Appeal said the point was “clear” (Goddard LJ) “perfectly clear”
(Clausen LJ) and “obvious” (Scott LJ). Yet only six years later, the House of Lords held their view
to be wrong.
71
In the words of the statute, “a person to whom the settlor is not for the time being married but
may later marry”.
72
In HMRC’s view this reverses the decision in Tennant v IRC 24 TC 215: see CG Manual 34753.
This might be doubted but that is not a drafting issue.

TESTATOR’S SPOUSE/CIVIL PARTNER AS BENEFICIARY OF WILL 75
(3) A separated spouse or CP73 does not count as a “spouse” or “civil

partner”.
The practical consequence of this definition for trust drafting is that it is

possible to include in the class of beneficiaries:
(1) the widow, widower or surviving civil partner of the settlor; and
(2) a separated spouse/CP.
Settlor’s surviving spouse/civil partner as beneficiary of lifetime

trust
It is recommended that the surviving spouse/CP of the settlor should be 5.33

included in the class of beneficiaries in a lifetime trust. The intended ben-
eficiaries of the trust may be children and descendants of the settlor; there
may be no intention to use the funds to benefit the settlor’s widow or CP.
Nevertheless there are advantages in including him or her in the class of
beneficiaries. It is to be stressed that we are not necessarily concerned with
any actual benefit, but to retain the opportunity of benefiting him or her.
It is conceivable that a widow might find herself in need after the death of
the settlor. More significantly, the existence of the power to benefit may
be a comfort to him or her; and specifically it may enable the survivor to
make lifetime gifts, confident in the knowledge that the trust fund is there
to fall back on in case of unforeseen need. The inclusion of the surviving
spouse or CP of the settlor in the class of beneficiaries may therefore be an
important aid to long-term inheritance tax planning.
Testator’s spouse/civil partner as beneficiary of will
A testator will normally include their spouse/CP74 in the class of beneficiar- 5.34
ies under their will as a matter of course. The will of a testator who is single
should not include any reference to a spouse or CP since (1) if the testator
does not marry or enter into a civil partnership, there will be no spouse/CP
73
In the words of the statute, “a spouse or civil partner from whom the settlor is separated under
an order of a court, or under a separation agreement” or “where the separation is likely to be
permanent”. As a matter of general law, a marriage continues until dissolved by decree absolute.
Until decree absolute, therefore, the parties to a marriage are still “spouses”, except where the
word is given an artificial defi nition. This proposition is obvious; but if authority is needed see
Aspden v Hildesley 55 TC 608.
74
It makes no difference whether one refers in a will to a “wife”, “spouse” or “widow” of the testa-
tor. The term “wife” or “spouse” is preferred in the wills in this book since (at the time the will
is written) it is more apt than “widow” and more cheerful.

76 BENEFICIARIES
and (2) if the testator does marry or enter into a civil partnership the will is
revoked by the marriage or civil partnership! So the reference to “spouse”
or “civil partner” in such a will can never take effect and may cause confu-
sion. (A will expressed to be in contemplation of marriage or civil partner-
ship may include in the class “my intended wife or civil partner [ Jane]”.)
Separated spouse/civil partner of settlor as beneficiary
5.35 The next question is whether a typical settlor will want to include their
separated spouse/CP as a beneficiary. The answer, in general, is that they
will not; so it is suggested that it is not appropriate in a standard draft to
include the separated spouse/CP expressly as a beneficiary. (It may be
possible later to add the spouse/CP as a beneficiary after divorce or, if the
settlor exclusion clause permits, after separation.)
Charities as beneficiaries
5.36 This section considers the position where charities are included as ben-
eficiaries of trusts which are not wholly charitable. For wholly charitable
trusts, see Chapter 25 (Charitable Trusts) and for gifts to charity by will,
see Chapter 18 (Will Drafting).
No drafting problem should arise if the settlor wishes to include specific
charities by name. The charity should be identified by name, address, and
charity registration number if it has one. It is the duty of the drafter
to check that:
(1) the name given by the client is correct,

(2) the body is still in existence when the will or trust is
made.75
The registers of English76 and Scottish77 charities are accessible online.

There will eventually be a similar register of charities in Northern
Ireland. Unfortunately a delay in bringing the relevant provisions of the
75
Re Recher [1972] Ch 526. Bold print should not be needed to emphasise this “most elementary”
duty but this is sometimes overlooked (a fault perhaps attributable to cut price will drafting). It is
not sufficient to check in published reference books. In Recher the drafter was criticised for draft-
ing a will which made a gift to an association less than six months after the association was wound
up. A phone call or (now) an internet search would have identified the problem. Fortunately well
advised bodies do not disband on a reorganisation or merger: they continue a dormant existence
in order to receive future legacies.
76
www.charitycommission.gov.uk.
77
www.oscr.org.uk.

CHARITIES AS BENEFICIARIES 77
Charities Act (NI) 2008 into effect means that the registration process has
not yet started and will not be completed for several years. In the mean-
time the Charity Commission for Northern Ireland can advise whether
any given organisation is currently within its jurisdiction as being one
which had been recognised as a charity by HMRC.78
The Institute of Legacy Management has an online database which can
be used to find information such as previous and alternative names and
addresses of charities.79
If a settlor has set up a private charitable trust then that trust may con-
veniently be named as one of the class of beneficiaries.
If it is desired to refer to charities generally, that is, if it is desired that
all charities should be beneficiaries, there are a number of statutory prec-
edents. The defi nition for tax purposes (in short) is:
“charity” means a body of persons or trust that is established for charitable

purposes only.80
The Charities Act definition, which applies for English law purposes
generally, is:
“charity” means an institution which—

(a) is established for charitable purposes only and
(b) falls to be subject to the control of the High Court in the exercise of its
jurisdiction with respect to charities.81
Our preferred form is to say that “Beneficiaries” includes:
any company, body or trust established for charitable purposes only.82
One sometimes sees a definition which incorporates the Charities Act

definition:
any institution 83 which is a charity for the purposes of the Charities Act 2011.
This definition is narrower as it would not include charities governed by

Scottish, Northern Ireland or foreign laws, even if their objects are chari-
table in the English law sense. So the first definition is preferred.
78
By virtue of the provisions of the Charities Act 2008 (Transitional Provision) Order (NI) 2011.
79
www.ilmnet.org.
80
Para.1 Sch.6 F(No.1)A 2011. The remaining parts of the defi nition jurisdiction, registration and
management conditions, are not relevant here. “Body of persons” has an obscure and obsolete
defi nition in s.989 ITA 2007 which does not have any discernible effect.
81
Section 1 Charities Act 2011. “Institution” is defi ned (we think only for the avoidance of doubt)
in s.9 CA 2011: “institution” means an institution whether incorporated or not, and includes a
trust or undertaking.
82
It is unnecessary to say that “charitable” means “charitable according to English law”: It is also
unnecessary to say “exclusively” charitable. See 25.2 (Some general comments).
83
“Institution” (even if not defi ned) would include any body or trust.

78 BENEFICIARIES
In the absence of a definition, “charity” would in principle have the

meaning given in s.1 Charities Act 2011, which is restricted to English
charities.84
Where a trust wishes to make a gift to charity, it may be more tax effi-
cient in practice to transfer trust capital to a beneficiary who (independ-
ently) makes a donation to charity which qualifies for income tax relief.
Foreign charities as beneficiaries
5.37 Although foreign charities are not “charities” for English law purposes, a
foreign charitable trust may nevertheless be a beneficiary of an English law
trust. While English law would not recognise a non-charitable purpose
trust as valid, it will recognise a power or duty for trustees to transfer
property to foreign trustees to hold on the terms of foreign trust law. This
does not breach the English law rule which is based on propositions that
a trust must be enforceable by beneficiaries: the foreign trustees are the
“beneficiaries” for this purpose.
Charities established in Scotland and Northern Ireland in principle
qualify as charities for UK tax purposes, provided that their objects
are charitable within the English law defi nition. Similarly, chari-
ties established in the EU (and Norway and Iceland) may qualify as
charities for UK tax purposes, and so receive the same tax reliefs as UK
charities. However other non-EU charities do not do so. It may be desir-
able to make gifts to UK charities associated with the foreign charities;
e.g. a gift to the UK charity “Friends of Harvard University” would
qualify for charity tax reliefs but a gift to Harvard University would
not.85
Non- charitable companies as beneficiaries
5.38 Where non-charitable companies (e.g. social or political organisations)

are to be beneficiaries, the drafter should check that the name given by
84
Section 1(1) Charities Act 2011 provides: “For the purposes of the law of England and Wales,
(a) is established for charitable purposes only, and
(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with
respect to charities.”
In the absence of contrary indication, one would expect that a document governed by English
law uses the word “charity” with the meaning which applies for English law.
85
Kessler and Brown, Taxation of Charities and Non-Profit Organisations (8th edn, 2011) Ch.2
(Defi nitions of Charity). Accessible www.taxationofcharities.co.uk.

POWER TO ADD BENEFICIARIES 79
the client is correct and that the body is still in existence when the will or
trust is made, and that a non-charitable institution is not misdescribed in
the documentation as a charity. The drafting should not create a trust for
the purposes of the institution, but simply a gift to the company.86
The same checks should be made with a gift to an unincorporated non-
charitable body.
Power to add beneficiaries
A settlor who specifies even a very wide class of beneficiaries may later 5.39
regret that the trustees cannot benefit some other persons. Hence the
popularity of powers to add beneficiaries, which arm the trustees with a
weapon which will enable them to consider all developments and respond
to all future mishaps and disasters. It is a convenient way to provide for
unmarried cohabitees of beneficiaries. The power can simplify the draft-
ing of a trust: it may become unnecessary to include some classes of ben-
eficiaries “just in case”. The power to add beneficiaries could, however,
be used to frustrate the wishes of the settlor. The authors would not confer
a power to add beneficiaries unless it is subject to constraints to prevent
abuse. The obvious restraint is to require the consent of the settlor during
the settlor’s life. That is straightforward, but what should be done after
the settlor’ death? One does not want the power to lapse. The proposed
solution is to require the consent of two beneficiaries after the death of
the settlor. It is unlikely that two beneficiaries and the trustees should all
conspire to defeat the intentions of the settlor. It may occasionally happen
that there is only one adult beneficiary; the power to add beneficiaries
would then be suspended until such time as there are two adult benefici-
aries available.
The wording formerly adopted in this book was to say that “the
Beneficiaries” include:
Any person or class of persons nominated to the Trustees by:
(i) the Settlor, or
(ii) two Beneficiaries (after the death of the Settlor)
and whose nomination is accepted in writing by the Trustees.
The reason was that it had been (implausibly87) suggested that a power for
trustees to add anyone in the world to a class of beneficiaries was too wide
to be a valid fiduciary power. That objection would not have applied to
the narrower power to add nominated persons. But now it is clear that a
86
A gift to the company is not regarded as a trust for the purposes of the company: Re Recher [1972]
Ch 526.
87
See the 6th edn of this book at 4.38.

80 BENEFICIARIES
power to add anyone in the world is valid.88 The wording can therefore
be simplified.
The power to add beneficiaries may be treated either as a separate
power in a clause of its own; or it may be included in the defi nition of
“Beneficiaries”. The latter course is adopted in this book, since the form
used is short and concise.
Any person89 or class of persons added to the class of Beneficiaries by the Trustees by
deed with the consent in writing of:
(i) the Settlor or
(ii) two Beneficiaries (if the Settlor has died or has no capacity to consent).
If there is a protector, one can simplify the form by requiring the protec-
tor’s consent instead of that of the settlor or two beneficiaries.
Power to exclude beneficiaries
5.40 This is not needed as the overriding powers can be used to exclude any
beneficiary if desired.
Other possible beneficiaries
5.41 In drafting any trust, the drafter should as a matter of course ask the settlor
whether it is desired to include any other particular beneficiaries. There
may be other specific individuals or members of their family whom the
settlor wishes to keep in mind; and there are certain categories of benefi-
ciaries to which we can now turn. These are not for inclusion in a standard
draft.
Dependants
5.42 It is certainly possible to include in the class of beneficiaries the dependants

of any person. It is a matter of fact and degree what constitutes “depend-
ence” but the courts have held the concept to be sufficiently certain for
trust law requirements.90 The inclusion of dependants may be desirable for
both practical and tax reasons. The precedents in the book do not include
88
Re Manisty [1974] Ch 17 approved Schmidt v Rosewood [2003] 2 AC 709. Lewin on Trusts agrees:
18th edn, 4–32. The same applies to will trusts: Re Beatty [1990] 3 All ER 844.
89
This term would include charitable trusts and charitable purposes generally: Re Triffitt [1958] Ch
852 at 862.
90
Re Baden (No. 2) [1973] Ch 9. s.86(1)(b) IHTA 1984 is also drafted on the basis that “dependancy”
is sufficiently certain to satisfy trust law requirements, and the law on this point must be regarded
as settled.

“FALL BACK” BENEFICIARIES 81
dependants in a standard form as the power to add beneficiaries ought to

be sufficient.
Although it would be satisfactory to use the bare term “Dependants”,
we would prefer to use the wording from s.1 Inheritance (Provision for
Family and Dependants) Act 1975. This is slightly more precise and has
the benefit of some discussion in the case law. The class of dependants of
a testator would be defined in these terms:
Any person who immediately before the death of the testator was being maintained,
either wholly or partly, by the testator. For this purpose a person shall be treated as
being maintained, either wholly or partly, by the testator if the testator, otherwise
than for full valuable consideration, was making a substantial contribution in money
or money’s worth towards the reasonable needs of that person.
It is better practice where possible to name specific dependants as ben-

eficiaries, and not to leave them to qualify under this clause. That saves
the trustees from having to satisfy themselves that such persons qualify as
dependants.
“Fall back” beneficiaries
A settlor will generally want their trust fund to be used in the fi rst instance 5.43
for their children and their families. They may all die: what should happen
to the fund then?
This is of course a matter for the settlor to decide: the drafter should
seek instructions.
Charity as “fall back” beneficiary
The settlor may wish the trust fund to pass to charity absolutely. This is 5.44
straightforward and can be dealt with in the default clause. The settlor
may wish the trust fund to pass either to charity or (at the discretion of the
trustees) to some other beneficiaries. Careful drafting is needed to ensure
that, if the gift to charity takes effect, the IHT charity exemption applies.91
Distant relatives as “fall back” beneficiaries
The common and understandable wish is that if the settlor’s own family 5.45
die out, the fund should pass to the nearest surviving family: brothers or
sisters and their families; or nephews and nieces and their families. (For
the purpose of this discussion we shall refer to “direct family” and “distant
relatives”.) How is the drafter to achieve this?
91
See Kessler and Brown, Taxation of Charities and Non-Profit Organisations (8th edn, 2011) acces-
sible www.taxationofcharities.co.uk Ch.23 (IHT Reliefs on transfers to charity) and Ch.24 (Will
Drafting).

82 BENEFICIARIES
Use of default clause
5.46 It is possible to name some distant relatives in the default clause. Then on
the death of the direct family, the trust fund passes to the named relative;
if the nominee is dead, the fund passes with the nominee’s estate, on the
terms of the nominee’s will. This is a crude and unsatisfactory solution.
The default clause is too inflexible. Who is to be specified? At the time the
trust is made, the only practical course may be to name (say) the brothers
or sisters of the settlor; but by the time of the death of the direct family,
it may be desired to pass the fund not to the siblings of the settlor, but to
their children or grandchildren.
Simple addition to the class of beneficiaries
5.47 A better course is to expand the class of beneficiaries, the objects of the
overriding powers, to include the distant relatives as well as the direct
family. Thus:
(b) The Spouses of the descendants of the Settlor.
(c) The Surviving Spouses of the descendants of the Settlor.
(d) The Surviving Spouse of the Settlor.
(e) The descendants of [name and address (“Name”)].
(f ) The Spouses of the descendants of [Name].
(g) The Surviving Spouses of the descendants of [Name].
[Set out the standard defi nition of “Spouse” and “Surviving Spouse”: see 5.30.]
This is superior to the use of a default clause alone. On the failure of

the direct family, the trustees have the discretion they need to benefit the
more distant relatives in the most appropriate way.
This clause does give the trustees an unnecessarily wide discretion.
They could use their overriding powers to cut out the settlor’s direct
family in order to benefit the distant relatives. That should not matter too
much, since the trustees will not, in practice, behave in such an irrational
manner. However, the settlor may not want the trustees to possess such
a power and even if he or she is content to leave the matter to the good
sense of the trustees it raises the problem mentioned in 5.19 (Definition
of “Beneficiaries”).
A general power to add beneficiaries could also be used to solve this
problem, but should not be regarded as satisfactory: something more spe-
cific is needed.92
92
The power to add beneficiaries in the form used in this book would not be exercisable unless the
settlor or two adult beneficiaries were living and willing to give consent to the exercise of the
power.

TAX AND THE CLASS OF BENEFICIARIES 83
Limited extension of the class of beneficiaries
The intention of the settlor is likely to be that the distant relatives become 5.48
beneficiaries on the death of all the direct descendants of the settlor. While
the form is slightly more complicated, there is no reason why this should
not be expressed in the trust. The following is proposed:
(b) The Spouses of the descendants of the Settlor.
(c) The Surviving Spouses of the descendants of the Settlor.
(d) The Surviving Spouse of the Settlor.
(e) At any time when there is no Beneficiary within (a) above:
(i) The descendants of [name and address (“Name”)].
(ii) The Spouses of the descendants of [Name].
(iii) The Surviving Spouses of the descendants of [Name].
[Set out the standard defi nition of “Spouse” and “Surviving Spouse”: see 5.30.]
Tax and the class of beneficiaries
Apart from the exclusion of the settlor and spouse, are other exclusions 5.49
from the class of beneficiaries sometimes needed for tax reasons?
Offshore trusts. A settlor may wish to exclude “defi ned persons” from the
class of beneficiaries to avoid the CGT charge on the settlor of an offshore
trust.93 Non-resident trusts do not qualify for the income tax relief for
“disregarded income” if there is a beneficiary who is ordinarily resident
in the UK or is a UK resident company.94
Remittance basis planning. Foreign domiciled settlors transferring income or

gains to a trust may wish to exclude “relevant persons” in order to avoid a
charge under the remittance basis.95
Re-investment relief. There are (somewhat curious) restrictions on benefi-

ciaries in certain cases where trustees wish to claim CGT re-investment
relief.96 All that matters however is that the relevant conditions are satisfied
when the trustees realise a gain on which they want to claim the relief.
93
Section 86 TCGA 1992; see Taxation of Non-Residents and Foreign Domiciliaries, (10th edn, 2011)
Ch.44 (Gains of non-resident trusts: s.86), accessible www.foreigndomiciliaries.co.uk.
94
Sections 811–812 ITA 2007; see Kessler, Taxation of Non-Residents and Foreign Domiciliaries, (11th
edn, 2012) paras 39.2–39.5, accessible www.foreigndomiciliaries.co.uk.
95
Section 809 M ITA 2008; see Kessler, Taxation of Non-Residents and Foreign Domiciliaries, (11th
edn, 2012), Ch.10 (The Meaning of Remittance), accessible www.foreigndomiciliaries.co.uk.
96
Sch.5B, para.17 TCGA 1992.

84 BENEFICIARIES
Accordingly, the drafter need not be concerned with this at the time the
trust is made. If need be, beneficiaries can be excluded at some later time,
so as to qualify for the relief.
Entrepeneurs’ relief. This relief applies to a trust if the life tenant is a “quali-
fying beneficiary” (in short an employee with 5% of the shares).97 Trusts
holding business property should review their position to ensure that this
relief applies if possible.
97
Section 169J TCGA 1992.

CHAPTER 6
EXECUTORS AND TRUSTEES
Number of trustees
The minimum number of trustees is one.1 There is no maximum, though 6.1

minor complications arise if trustees of personal property exceed four in
number2 ; and considerable complications arise if trustees of land exceed four.3
1
A sole trustee is competent in every respect with the following exceptions:
(1) A sole trustee cannot give a valid receipt for capital sums derived from land: TA 1925, s.14;
LPA 1925, s.27(2).
(2) Two trustees are needed to discharge a retiring trustee under the statutory power.
(3) A sole professional trustee cannot charge under the statutory power: TA 2000, s.28.
These three restrictions do not apply to a trust corporation. Rules (2) and (3) are excluded in the
precedents in this book; see 6.42 (Two trustees requirement); 6.48 (Trustee remuneration).
(4) The drafter may require that two trustees are required to exercise certain powers: see 7.14
(Two-trustee rule).
2
On the appointment of additional trustees bringing the total above four, see 6.43 (Further provi-
sions concerning appointment of additional trustees?) and its footnotes.
Under the Model Articles for Public Companies the directors may refuse to register a transfer of
shares to more than four transferees, see Art. 63(5) (The Companies (Model Articles) Regulations
2008). But if necessary the shares could be vested in nominees for the trustees.
3
TA 1925, s.34(2) as amended by the TLATA 1996 provides:
In the case of . . . dispositions creating trusts of land . . .
(a) the number of trustees thereof shall not in any case exceed four, and where more than four
persons are named as such trustees, the four fi rst named (who are able and willing to act) shall
alone be the trustees, and the other persons named shall not be trustees unless appointed on
the occurrence of a vacancy;
(b) the number of the trustees shall not be increased beyond four.
Let us consider a number of situations:
(1) S creates a trust of land which purports to appoint more than four trustees at the outset:
only four trustees are validly appointed.
(2) S creates a trust of land, and later purports to appoint trustees (in excess of four): the
appointment is invalid.
Situations (1) and (2) are plain cases. In other circumstances the position is less clear, and the
inadequate drafting of the section is exposed:
(3) S creates a trust of land, the trustees then sell the land and hold only personal property. Can
more than four trustees be appointed subsequently? It is considered that the answer is, yes.

86 EXECUTORS AND TRUSTEES
The maximum number of personal representatives is also four.4

There should normally be two trustees:
(1) A professional trustee who should be a partner in a firm of solici-

tors or accountants. This gives slightly more security than a sole
practitioner.
(2) The settlor, or a friend or member of the family.
There may be more than two trustees, though trust administration

becomes more cumbersome. In older precedents one occasionally sees
requirements that there should be at least two or even three trustees at all
times. This seems unnecessary and has rightly fallen out of favour.
Choice of executors and trustees
Settlor and spouse as trustees
6.2 The settlor may be a trustee and so may the settlor’s spouse/civil partner.
The appointment of the settlor (or spouse/civil partner) as trustee does not
have any tax drawback.5 The prejudice sometimes met against the settlor-
(4) S creates a trust of personalty, with four trustees, and the trustees acquire land. Can more
than four trustees be appointed subsequently? It is considered that the answer is, no.
The question in cases (3) and (4) is whether one has had a disposition “creating” a trust of land,
for the purposes of s.34(2) TA 1925. Inference from tenses is notoriously imprecise. It is consid-
ered that in these cases the question is whether trusts of land subsist at the time of the appointment
of new trustees. Contrast Customs and Excise Commissioners v Link Housing Association Ltd [1992]
STC 718. This view leads to a sensible state of the law, and is at least consistent with the language
of the statute. It is also consistent with the law before the amendment by TLATA 1996.
(5) S creates a trust of personalty with five trustees, as is plainly permitted. The trustees
purchase land. Are there (i) still five trustees, or (ii) only four trustees, or (iii) five trustees in
relation to personalty and four in relation to the land?
There is something to be said for each of these answers, but answer (i) seems best. So in this case
one can have more than five trustees of land. The land cannot be conveyed to all five trustees: s.34
LPA 1925. But that is only a matter of conveyancing. The land must be conveyed to nominees
for the five trustees. To avoid uncertainties, it is suggested that where there are more than four
trustees, the number should be reduced to four before the trust purchases land.
If it were desired to create a trust with more than four trustees, and the trust may hold land,
a better course would be to constitute a committee or protectorship under the trust deed, and
direct the trustees (four or less) to follow the decisions of the committee on key points of trust
administration.
The case for repeal of s.34(2) TA 1925 seems very strong. The section does not apply to chari-
ties, and no difficulty seems to have arisen; it is difficult to see why it should apply to private
trusts. Canada and Northern Ireland have no equivalent. In practice trusts with more than four
trustees would be very infrequent and no difficulty would arise.
4
Section 114(1) Senior Courts Act 1981.
5
A settlor may be a trustee (or the sole trustee) without transgressing s.102 FA 1986 (gifts with
reservation): Perpetual Executors & Trustees Association of Australia Ltd v The Commissioner of Taxes of

CHOICE OF EXECUTORS AND TRUSTEES 87
trustee probably reflects a distant memory of Estate Duty provisions which

discouraged the appointment of a settlor as trustee.6 On the settlor as sole
trustee, see 7.27 (Settlor (or spouse) as sole trustee?).
Beneficiaries as executors and trustees
Old precedents sometimes direct that a beneficiary may not be appointed 6.3
trustee. This is entirely the wrong approach.7 The appointment of a ben-
eficiary as trustee gives them a direct interest and involvement in their
family’s financial affairs, and may be highly advantageous.
The appointment of a beneficiary as executor or trustee does, however,
give rise to a possible confl ict of interest. There are various ways to mini-
mise the problems which may arise. First, of course, no one will appoint a
beneficiary executor or trustee unless confident that the appointee will act
properly. Secondly, the beneficiary will not be the sole trustee. There will
be a professional trustee to hold the balance. A settlor creating a trust for
their two children and their respective families might appoint each child
trustee to safeguard each family interest. Thirdly, the trust will provide
that a beneficiary who is a trustee cannot exercise powers in their own
favour without the concurrence of an independent trustee.
In short it is thought that the confl ict of interest will be manageable
and should not be a serious objection to the appointment of a benefici-
ary as executor or trustee. There are many cases where the law accepts
an element of confl ict of interest.8 Given the advantages of a beneficiary
acting as executor or trustee, the rigorous exclusion of the possibility of
confl icts of interest carries too high a price.
Professional executors and trustees
The aim in combining family and professional executors or trustees is that 6.4
the estate or trust should be administered both with technical expertise
and an understanding of the needs of the beneficiaries.
Professionals will be reluctant to act if they may incur personal lia-
bilities unless indemnified. Trustees may incur liabilities to third parties
the Commonwealth of Australia [1954] AC 114. HMRC accept this: IHT Manual 14394. On trustee
remuneration, where the settlor is trustee see 6.55 (Trustee remuneration clause: dispositive or
administrative?) and 6.57 (Can the settlor charge if he or she is a trustee but there is a settlor
exclusion clause?)
6
Sections 40 and 58(5) FA 1940. There is no equivalent in current tax legislation.
7
This may in the past have been done for Estate Duty reasons doubtful then and now obsolete. See
13.17 (Extending the settlor exclusion clause to exclude trustees). Where an existing trust has this
or any other inappropriate prohibition on the choice of trustees, it would be possible to override
it, if there was a good reason, by an application to the Court.
8
The concept of a trustee-beneficiary was enshrined in the Settled Land Act scheme, under which
many trustee powers were given to the tenant for life. For further cases where a sensible confl ict
of interest is accepted see s.9 TLATA 1996; Model Articles for Private Companies, art.14 (The
Companies (Model Articles) Regulations 2008).

(e.g. loans to acquire trust property, leases with onerous covenants, sale
or purchase agreements or shareholder agreements). Here, with care, it
should be possible to arrange that the professional trustees are not person-
ally liable beyond the extent of any trust property. This, therefore, should
not cause the trust to be deprived of the benefit of a professional trustee.
Tax liabilities (and liability for breach of trust) are inescapably joint and
several liabilities of trustees. These may be liabilities for which trustees
cannot be suitably indemnified. The solution may be for a professional
trustee to retire in favour of a family trustee before any liability accrues.9
Informing the client
6.5 The drafter should provide clients with sufficient information to make an
informed decision about the appointment of a professional as executor or
trustee and its related cost. It is important that clients understand that such
an appointment is not compulsory and may be inappropriate if the estate
or trust is small or straightforward. If non-professionals (e.g. friends or
family) are appointed, they can always engage the services of a professional
to assist them with the administration of the estate or trust.
The Law Society’s Appointment of a Professional Executor Practice Note10
contains the following guidance for solicitors:11
“When a client is considering the appointment of an executor, you may

promote you or your fi rm’s services as an executor, but you should inform
the client that such appointment is not compulsory, and you should take into
account the size and complexity of the estate before promoting you or your
fi rm’s services instead of a lay executor.
You should inform the client that an executor can be either a:

a. professional such as you or your fi rm, or
b. lay person(s) such as a family member or beneficiary, who has the option
of engaging a professional to assist him or her in the administration of
the estate.
If you decide to promote your services you should also take into account the
client’s best interests. For example, if the estate is small or straightforward, it
may not be appropriate to encourage the client to appoint you or your fi rm
as the executor.
9
However, a retirement in order to facilitate a breach of trust may itself be a breach of trust.
10
Accessible www.lawsociety.org.uk/productsandservices/practicenotes/executorships/4906.article.
11
The Practice Note (17 March 2011) applies to solicitors and law fi rms who provide will-writing
or probate services or who are retained by or have an economic relationship with a third party
selling its own executor services, e.g. a high street bank. It represents the Law Society’s view of
good practice. Solicitors are not required to follow the guidance but in practice they should do
so. See also the Solicitors’ Regulation Authority’s Question of Ethics guidance (May 2010 issue)
on Drafting wills which appoint you or your fi rm as executor(s), accessible at www.sra.org.uk/
solicitors/code- of- conduct/guidance/questionofethics/May-2010.page.

Before fi nalising a Will that appoints you or your fi rm as an executor(s) you

should therefore be satisfied that:
a. the client understands that the executor does not have to be a profes-
sional and that a lay person(s) such as a family member or beneficiary
can be appointed and that lay person(s) have the option of engaging
professional help after the client’s death, if they require assistance, and
b. it is not contrary to the client’s best interests at the time of drafting the
Will to make such an appointment.”
Solicitors and law firms should also provide an indication of the likely
costs of both carrying out the administration of the estate and acting as
an executor. They should inform the client whether the fees quoted are
based on an hourly rate and/or percentage of the estate. It should be clear
whether the amount quoted is for the work involved in administering the
estate or simply for acting as an executor and supervising others doing the
necessary work.
The same practice should be adopted where the client is considering
appointing professional trustees for lifetime trusts.
Partners in the firm of solicitors
A testator may not want to name an individual solicitor as executor 6.6

because they may predecease, retire or change firms. It is not possible to
appoint a partnership as this does not have legal personality. The solution
is to appoint partners in the firm at the date of death, with the wish that
only two take out a grant and act. Even if only two take out a grant, all
the partners will be appointed executors but this should cause no problem
because they can disclaim and the proving executors can administer the
trust in the meantime.
It is important to make provision for the firm being succeeded or incor-
porating. The following form is suggested:
I appoint as my executors and trustees the partners at the date of my death in the fi rm
of [name] of [address] or the LLP, company, or the partners at my death in the partner-
ship which at the date of my death
(i) has succeeded to that fi rm’s practice and
(ii) whose practice includes the administration of estates.
I express the wish that only two partners shall prove my will and act initially in its trusts.
LLPs and company practices
In Re Rogers12 a will appointed as executors the “partners at the date of my 6.7

death in the fi rm of [x] or in the fi rm which at that date has succeeded to
12
[2006] 2 All ER 792. The partners may include a non-profit- sharing partner: see M Young Legal
Associates Ltd v Zahid [2006] 1 WLR 2562.

and carried on its practice”. At the time of the testator’s death, a LLP carried
on the practice, and it was sensibly held that this wording took effect as an
appointment of the profit-sharing members of the LLP. However, LLPs
(and company) practices have legal personality, and the better course is to
appoint the entity, not its members (or shareholders). Then there is no need
for member (or shareholders) to take out a grant (and the administrative
inconvenience of all but two of them disclaiming trusteeship). Again, it is
important that provision is made for successor practices.
With the introduction of Alternative Business Structures, testators may
be concerned that successor practices will be owned or run by people
lacking sufficient expertise.13 The solution is, in our view, to require that
only successor practices authorised by the SRA or other approved regula-
tor are appointed. The proposed form is:
I appoint [Name] LLP whose registered office is [Address] to act as my executor and
trustee or the LLP, company, or the partners at my death in the partnership which at
the date of my death
(i) has succeeded to that LLP’s practice and
(ii) is authorised by the Solicitors Regulation Authority or other approved regulator
to carry on that LLP’s practice.
Corporate trustees
6.8 There is a choice between professional individuals, and trust companies.

Trust companies will neither die nor retire. On the other hand, if a trust
company is appointed executor or trustee, the personnel actually manag-
ing the estate or trust may and usually will change from time to time,
without the consent and perhaps even without the knowledge of the testa-
tor or settlor. It is also common offshore for trust companies to be sold, in
which case effective management and even the jurisdiction of administra-
tion may change. This is a good reason for the settlor or protector to have
power to change trustees.
If the trust holds land, the use of a corporate trustee may raise SDLT
problems; see 30.15 (Stamp duty and SDLT).
Accountants as trustees
6.9 An accountant may be unable to act as trustee if their firm also audits
a company held by the trust. See ICAEW Code of Ethics section 290
13
The current reservation of “probate activities” is limited to preparing papers on which to found
or oppose a grant of probate or letters of administration: para.6, Sch.2 Legal Services Act 2007.
However, the Legal Services Board’s provisional recommendation is that estate administration
is added to the list of reserved activities—meaning those services which can only be provided by
persons authorised by approved regulators: see the Consultation Document, Enhancing consumer
protection, reducing regulatory restrictions: will-writing, probate and estate administration, 23 April 2012,
accessible www.legalservicesboard.org.uk/what_we_do/consultations/closed/index.htm.

and the APB Ethical Standards 2 and 5.14 These rules have caused some
accountancy firms to hive off their trust companies or to dispose of them
altogether.
Director of listed company as trustee
If a director of a listed company acts as trustee, disposals of a trust’s share- 6.10

holding in that company must be in accordance with the Stock Exchange
Listing Rules.15
Insider dealing and trusteeship
Similarly, any person who may obtain inside information relating to trust 6.11
property may be constrained by the Insider Dealing legislation and unable
to deal with trust property. Such a person may be unsuitable to act as
trustee.16
Custodian trustees
A custodian trustee holds the trust fund on behalf of active trustees, known 6.12
as managing trustees.17 The custodian trustee is similar to a nominee but
with rather greater powers and responsibilities. Custodian trustees are
more trouble than they are worth, and in practice they are not and should
not be used either for private trusts or for charitable trusts.18
Foreign trustees
If it is desired to appoint non-resident trustees the choice is generally 6.13

restricted to professional trustees. The disadvantages of non-resident trus-
tees in terms of additional expense and inconvenience is one factor to be
balanced against the tax advantages; the tax advantages were reduced but
by no means eliminated by the reforms in the Finance Acts 1991 and 1998.
If offshore trustees are appointed it is recommended that the settlor
(i) should find a firm with professional liability insurance and (ii) should
insist that there is no wide indemnity clause. An anxious settlor might set
up a private offshore trustee company.
14
Accessible www.icaew.co.uk and www.frc.org.uk/apb/publications.
15
Ch.11 of the Listing Rules. The restrictions may apply in any event, if the director or his minor
children are beneficiaries, in which case the appointment of the director as trustee may make no
practical difference.
16
Wight v Olswang (No. 1) [1998] NPC 111 accessible www.kessler.co.uk illustrates these difficulties.
17
Section 4 Public Trustee Act 1906.
18
They raise a number of doubtful questions. For instance Hallett (Conveyancing Precedents, p.782)
questions whether custodian trustees can retire without a Court Order. It is considered they can;
but how much better not to have to consider these obscure questions.

Order of trustees’ names
6.14 The order in which the trustees’ names appear is of little significance.19
The idea that the first named trustee is in a special position is a fallacy. This
misconception is based on a confusion with the company law rule that, in
the case of joint shareholders, the company has regard to the vote of the
first named on the register.20 There is no reason why the first name on the
register should be the first named trustee. Moreover, while the company
will only regard the first named on the register, the first so named may
only act with the concurrence of the co-trustees.21
Flee clauses
6.15 The purpose of “flee clauses” is to facilitate the appointment of new trus-
tees if, where the old trustees reside, there is a breakdown of law and order,
or confiscation of private property. These are sometimes seen in offshore
trusts, but they fall outside the scope of this book. There are a number
of difficulties with them; the authors’ view is that the possibility of their
being usefully invoked is not sufficient to warrant their inclusion in a
standard draft. But a settlor may take the view that a not wholly satisfac-
tory clause is better than nothing at all.
Conflicts of interest
6.16 The general rule is that a trustee cannot enter into any transaction which
might confl ict with their duty as trustee. Trustees cannot purchase trust
property, or sell property to the trust, nor can property be sold between
trusts which share a trustee. Trustees cannot take a lease of property which
was formerly let to the trust.22 A trustee-landlord cannot consent to the
assignment of the lease to a property company of which the trustee is
director.23 The prohibition is not absolute: such acts may be carried out
with the consent of the court, or may be authorised in the trust deed.
The aim of the rule is the prevention of fraud; but the rule is too strict:
19
For an exception see s.34(2) TA 1925 (more than four trustees of land appointed; only the fi rst
four named are validly appointed).
20
Section 286 Companies Act 2006.
21
IRC v Lithgows Ltd 39 TC 270. Although a Scottish case, the same principles will apply in
England. The order of trustees may matter for tax (e.g. Barclays Bank v IRC [1961] AC 509) but
in practice that will only exceptionally be the case.
22
Keech v Sandford (1726) Sel Cas Ch 61.
23
Re Thompson [1986] Ch 99.

CONFLICTS OF INTEREST 93
one independent person would be sufficient to safeguard the interests of

the trust.24 That is the aim of this clause:
(1) In this clause:
(a) “A Fiduciary” means a Person 25 subject to fiduciary duties under the Trust.
(b) “An Independent Trustee”, in relation to a Person, means a Trustee who
is not:
(i) that Person
(ii) a brother, sister, ancestor, descendant or dependant of the Person;
(iii) a spouse or Civil Partner of (i) or (ii) above;
(iv) a company controlled by one or more Persons within (i), (ii) or (iii)
above.
(2) A Fiduciary may:
(a) enter into a transaction with the Trustees, or
(b) be interested in an arrangement in which the Trustees are or might have
been interested, or
(c) act (or not act) in any other circumstances;
even though their fiduciary duty under the Trust confl icts with other duties or with
their personal interest.
(3) Sub- clause (2) above has effect only in relation to administrative and not disposi-
tive matters, and only applies if:
(a) the Fiduciary fi rst discloses to the Trustees the nature and extent of any
material interest confl icting with their fiduciary duties, and
(b) there is in relation to the Fiduciary an Independent Trustee in respect of
whom there is no confl ict of interest, and the Independent Trustee consid-
ers that the transaction arrangement or action is not contrary to the general
interest of the Trust.
This draft is loosely based on statutory precedent.26 It is sometimes said that 6.17
clauses of this type should be strictly construed. But it is considered that
these clauses should be construed fairly and naturally, according to their
terms, like any other clause.27
The aim is to cover all eventualities. This has led to a fairly complex
draft; though not so complex, it is hoped, that it needs reading more than
once to be understood. The clause is in three respects more widely drawn
than others in use.
24
This is the view of Millett L.J.:
“The rule has been thought in modern times to operate harshly where one of several trustees
purchases the trust property at a fair price properly negotiated with his co-trustees.”
Ingram v IRC [1997] STC 1234 at p.1260.
25
The expression “Person” is defi ned in the precedents in this book to include any person in the
world, and to include a trustee.
26
Section 68 SLA 1925; Table A art.85 Companies (Tables A to F) Regulations 1985 (now
replaced); Sch.2, para.5(1) Intestates’ Estates Act 1952.
27
This was the approach of the Court of Appeal in Sergeant v National Westminster Bank (1990) 61 P.
& C.R.518 accessible www.kessler.co.uk.

(1) The clause authorises a wide range of transactions. A common

form which simply authorises trustees to purchase trust property
would not solve many difficulties which arise in practice.28
(2) The clause defines in detail the qualifications of an independent
trustee. The definition is not wholly comprehensive; there may
be occasions where it is doubtful whether there is a “confl ict of
interest” or what is meant by “control of a company”. This should
not matter in practice, where there will generally be a professional
trustee of undoubted independence. Further refinements (such
as defining “control”) are thought unnecessary. The short-cut of
incorporating statutory rules29 is rejected. The statutory rules are
too cumbersome, and the trust may need to be read and under-
stood many years after those provisions have become obsolete.
(3) The clause applies to trustees and other persons subject to fiduciary
duties. If it applied only to trustees then others (e.g. former trustees
and the protector if there is one) might remain subject to the self-
dealing rule.
The clause specifies that the transaction is only to proceed if the trustees
consider it to accord with the general interest of the settlement. This
phrase “the general interest of the settlement” has statutory authority.30 It
would be possible simply to require the independent trustee’s “consent”;
but it seems better to spell out the circumstances in which consent is to
be granted.
Distinguishing personal and fiduciary conflicts
6.18 Some drafters distinguish between:
(1) Fiduciary confl icts of interest, for instance, where it is desired to sell
assets from one trust to another, and the same persons are trustees
of both trusts.
(2) Personal confl icts of interest, for instance, where a trustee wishes
to purchase property him or herself from a trust of which s/he is a
trustee.
28
For instance, such a limited form would not have helped the trustees in Re Thompson [1986] Ch
99, where a trustee breached the self- dealing rule when he consented (in his capacity as trustee)
to the assignment of a lease to a company of which he was a director. Nor would the limited form
help the trustees in Keech v Sandford (1726) Sel Cas Ch 61, where the trustees took a new lease of
property after an earlier lease to the trustees had expired. Nor would the limited form help where
trust property is to be sold from one trust to another, and the same person was a trustee of both
trusts.
29
Such as ss.22 and 23 Pensions Act 1995 (independent trustee) or tax provisions defi ning “control”.
30
Section 11 TLATA 1996.

The distinction is a real one31 and, strictly, rather more protection is needed
in the case of a personal confl ict of interest. This school of drafting there-
fore sets out different rules to govern the dealings of trustees in the two
situations. For instance, trustees may be authorised to act in all situations
where there is merely a fiduciary confl ict of interest; and an independent
trustee is required only in cases of personal confl ict. It is considered that
the matter is not of sufficient practical importance to be worth taking the
trouble to make these distinctions in a standard draft.
Trustee-beneficiaries
The powers of the Trustees may be used to benefit a Trustee (to the same extent as if 6.19
he were not a Trustee) provided that:
(1) There is in relation to that Trustee an Independent Trustee in respect of whom

there is no confl ict of interest or
(2) The Trustees consist of or include all the trustees originally appointed under
this Settlement.
A trustee is not, generally speaking, able to exercise a fiduciary32 power of
appointment in their own favour unless expressly or implicitly authorised
to do so.33
It is a matter of construction whether the exercise of a power is implic-
itly authorised.34 In the absence of an express clause the answer may not be
entirely clear. Even where there is no implicit authority to act in confl ict
of interest, there are cases where trustees are nevertheless able to exercise
their power.35 That is, the rule prohibiting exercise of trustees powers in
cases of confl ict is not always an inflexible rule. In appropriate cases the
exercise of the power will be valid. (The onus of proof may rest on the
trustees if challenged but that does not ultimately matter.) Once again,
however, the extent of that leniency is not entirely clear.
All these problems should be avoided by a clause which addresses the
point directly.
31
It is recognised in the SRA Code of Conduct Ch.3, distinguishing own interest confl icts and
client confl icts: www.sra.org.uk/solicitors/handbook/code/content.page.
32
Different considerations apply to powers vested in individuals, not trustees; see Taylor v Allhusen
[1905] 1 Ch 529 and Re Penrose [1933] Ch 793 but these powers are not used in the precedents in
this book.
33
Public Trustee v. Cooper [2001] WTLR 901 at p.933.
34
In the context of pension funds the Courts have held after some vacillation that a trustee-
beneficiary can exercise powers in their own favour: Edge v Pensions Ombudsman [2000] Ch 602
at 621–2 not following Re Drexel Burnham Lambert UK Pension Plan [1995] 1 WLR 32. For private
trusts, one case where a confl ict is implicitly authorised is that of the original trustees (the trust
deed shows the intention that those particular trustees should be able to exercise the power in
their own favour). See In the Matter of the Z Trust [1997] CILR 248 accessible www.caymanjudicial-
legalinfo.ky; John Mowbray “Choosing Among the Beneficiaries of Discretionary Trusts” [1998]
PCB 239 accessible www.kessler.co.uk; Thomas on Powers, 11.14–11.33; Lewin on Trusts (18th edn,
2008) 20–122–134 (interest of trustees in exercise of dispositive powers).
35
Public Trustee v. Cooper [2001] WTLR 901 at p.933–934.

The course adopted here is to say that this can be done with the
approval of an independent trustee or where the trustees are those origi-
nally appointed.36
Another possible course is to provide that the beneficiary could appoint
property to that beneficiary even if there is no independent trustee, pro-
vided there is at least a second trustee. This would be more appropriate
where a settlor wanted all the trustees to be members of the family, so
there would be no independent trustee (as defined). A precedent is:
(1) In this paragraph “a Fiduciary” means a Person subject to fiduciary duties under
this Trust.
been interested, or
even though their fiduciary duty under the Settlement confl icts with other duties
or with their personal interest.
(3) Sub- clause (2) above only has effect if there is at least one other Trustee and the
Fiduciary fi rst discloses to the Trustee(s) the nature and extent of any material
interest confl icting with their fiduciary duties
(4) The powers of the Trustees may be used to benefit a Beneficiary who is a Trustee
(to the same extent as if the Beneficiary were not a Trustee) provided there is at
least one other trustee.
Another course is to provide that the beneficiary could appoint property to

that beneficiary even if the beneficiary is sole trustee. This raises a number
of difficulties, and is not recommended.37
Alternative form where there is a “protector”
Where there is a protector, he or she is an ideal person to authorise a breach

of the self-dealing rule. This allows the form to be simplified:
(1) In this paragraph “a Fiduciary” means a Person subject to fiduciary duties under
this Trust, but not the Protector.
been interested, or
even though their fiduciary duty under the Settlement confl icts with other duties
or with their personal interest.
36
For a statutory precedent see s.39 Pensions Act 1995.
37
Drexel Burnham Lambert UK Pension Plan; Re Penrose [1933] Ch 793.

CONSTRUCTION OF TRUSTEE EXEMPTION CLAUSES 97
(3) Sub- clause (2) above only has effect if:

(a) the Fiduciary fi rst discloses to the Protector the nature and extent of any
material interest confl icting with their fiduciary duties, and
(b) the Protector considers that the transaction arrangement or action is not
contrary to the general interest of the Settlement.
(4) The powers of the Trustees may be used to benefit a Beneficiary who is a Trustee
(to the same extent as if the Beneficiary were not a Trustee) with the consent in
writing of the Protector.
Construction of trustee exemption clauses38
This section considers the meaning of the wide range of expressions used 6.20
in exemption clauses.
“Actual fraud”
The leading case Armitage v Nurse 39 discussed the following clause:
No Trustee shall be liable for any loss or damage which may happen to the Trust
Fund or any part thereof or the income thereof40 at any time or from any cause
whatsoever unless such loss or damage shall be caused by his own actual fraud.
It was held that the expression “actual fraud” means dishonesty.41

“Dishonesty” connotes action by a trustee:
(1) knowing that it is contrary to the interests of the beneficiaries (in

the discussion below, “knowing dishonesty”);
(2) recklessly indifferent whether it is contrary to their interests or not
(“reckless indifference”); or
38
A note on terminology. The terms “exemption clause”, “exoneration clause”, “exclusion clause”,
“exculpation clause” and “indemnity clause” are all used interchangeably. “Indemnity clause”
means a clause which provides an indemnity for an extant liability, rather than a clause which
prevents a liability arising, but the end result may be the same.
For a discussion, see NZLC Report 79 “Some Problems in the Law of Trusts” (2002) p.3
(Exculpating Trustees); Law Commission, “Trustee Exemption Clauses”, Law Com No. 301,
2006, accessible http://lawcommission.justice.gov.uk.
39
[1998] Ch 241.
40
The words “or the income thereof ” are needed. In Martin v Triggs Turner Bartons [2009] EWHC
1920 (Ch), [2010] PNLR 3 at [113] the exemption clause provided: “No trustee shall be liable
for any loss to any part of my estate however caused except severally for a loss caused by his or her
own deliberate or reckless breach of trust.” The trustees miscategorised income as capital, and
since the capital was distributed, the income was lost to the life tenant. The exemption clause did
not save the trustees since the loss was not a loss to the estate.
41
The word “actual” excluded an extended meaning of “fraud” (known as “constructive fraud”
or “equitable fraud”) with the vague defi nition (or non- defi nition) of “a breach of duty, falling
short of deceit, to which equity attached its sanction”.

(3) with the honest belief that it is proper, but which is objectively so
unreasonable that no reasonable professional trustee could have
thought it for the benefit of beneficiaries. This category may not
apply to non-professional trustees.42
“Wilful fraud”, “ dishonesty”
These expressions have the same meaning as “actual fraud”.43
“Wilful default”
Some exemption clauses exclude liability for loss unless due to the “wilful
default” of the trustee.44 The expression “wilful default” has two mean-
ings. It sometimes means want of ordinary prudence (i.e. negligence); or
any breach of fiduciary duty (for instance in the phrase “liable to account
on the footing of wilful default”). In the context of a trustee exemption
clause, however, wilful default means fraud: knowing dishonesty or reck-
less indifference.45
It is considered that “wilful misconduct” has the same meaning.
“Gross negligence”
It is considered that this means a serious or flagrant degree of negligence,

which is a serious, unusual and marked departure from the normal stand-
ards of professional trustees.46 While the English courts have had difficulty
with the phrase in some contexts, they have not done so in others.47 It is
used in legislation in both Jersey and Guernsey and is considered to be
sufficiently certain for use.48
42
The concept of dishonesty in categories (1) and (2) is derived from Armitage v Nurse. It is consistent
with the defi nition of “fraud” for the purposes of the tort of deceit (fraudulent misrepresenta-
tion). See Derry v Peek (1889) 14 App. Cas. 337; the headnote reads: “In an action of deceit the
plaintiff must prove actual fraud. Fraud is proved when it is shown that a false representation has
been made knowingly, or without belief in its truth, or recklessly, without caring whether it be
true or false.” Walker v Stones [2001] QB 902 at 937 adds category (3). A layman using ordinary
language would not describe category (2) or (3) as “dishonesty”, so “dishonesty” is being used
in an artificial, technical sense. This is unfortunate but understandable. The court’s regrettable
ruling that exclusion clauses are effective (except for dishonesty) causes injustice which the court
mitigates by giving an unnaturally wide meaning to “dishonesty”.
43
Walker v Stones [2001] QB 902.
44
Section 30(1) TA 1925 (repealed) was the pattern for such clauses.
45
Armitage v Nurse [1998] Ch 241 at p.252, approving Re Vickery [1931] 1 Ch 572. This view of
“wilful default” seems well grounded in the natural sense of the expression, and settled in law,
despite academic disapproval illustrated, for instance, by the Trust Law Committee Consultation
Paper on Trustee Exemption Clauses, para.3.10ff accessible www.kcl.ac.uk/schools/law/research/tlc.
46
Midland Bank Trustees ( Jersey) Ltd. v Federated Pension Services Ltd. [1996] P.L.R.179, Jers. CA.
47
See Lewin on Trusts (18th edn), para.39–134; and Armitage v Nurse especially pp.253–256.
48
But note the doubts expressed in the Law Commission’s Consultation Paper No.171 (paras 4.67
to 4.78) and its Report No.301 (paras A.43 to A.48) on Trustee Exemption Clauses.

“Conscious wrongdoing”
Some exemption clauses exclude liability for loss unless due to “conscious
wrongdoing” on the part of the trustee. It is suggested that “conscious
wrongdoing” is best construed to mean the same as “actual fraud”, that is,
both knowing dishonesty and reckless indifference.49
“Wilful and individual fraud or wrongdoing”
This phrase concludes the prolix exemption clause in Encyclopaedia of

Forms and Precedents and Precedents for the Conveyancer. On one occasion
the wording was “wilful or individual fraud or wrongdoing” but the
court construed the first “or” to mean “and”.50 On another occasion, the
wording was “wilful and individual fraud and wrongdoing” but the court
construed the second “and” to mean “or”! 51 But since the words “wilful
and individual” govern both fraud and wrongdoing52 we cannot see what
difference it makes, because wilful wrongdoing must constitute fraud (in
the sense discussed above). So there is no difference between this wording
and that used in Armitage v Nurse.
“Free from responsibility for loss”
A clause discussed in Armitage v Nurse provided: 6.21
The Trustees may carry on the business of farming and the Trustees shall be free
from all responsibility and be fully indemnified out of the Trust Fund in respect of any
loss arising in relation to the business.
Millett L.J. commented:
In the absence of the clause, the trustees would have no power to carry on
a farming business. If they did so, however prudently, they would commit a
breach of trust. The concluding words of the clause confer upon the trustees
a consequential exemption from liability for trading losses incurred in the
carrying on of the farming business. It does not exonerate them from liability
for imprudently investing in a farming business yielding poor returns or from
failing to ensure that the business is properly managed.53
49
Millett L.J. in Armitage v Nurse [1998] Ch 241 at 252 referred to both “knowing dishonesty”
and “reckless indifference” as “conscious and wilful misconduct”. He also expressed the view
that the prolix exemption clause in Key & Elphinstone (15th edn, 1953) vol.2, p.695 had the same
meaning as an exemption clause referring to actual fraud. The Key & Elphinstone clause referred
to “personal conscious bad faith of the trustee”
50
Bogg v Raper (1998) 1 ITELR 267 at [39].
51
Wight v Olswang (No. 1) [1998] NPC 111 accessible www.kessler.co.uk.
52
Bonham v Fishwick [2007] EWHC 1859 (Ch) at [23] and [28]; this point was not discussed on
appeal.
53
[1998] Ch 241 at 260.

The words in italics appear at first sight to be an exemption clause.

But on this (slightly forced) construction, the words are not an exemp-
tion clause at all: they simply spell out the implications of the power to
carry on the business of farming; the words are in fact otiose. This should
be regarded as an application of the rule of construction that exemption
clauses are to be narrowly construed54 overriding the (weaker) rule of
construction that words in a document should not be regarded as otiose.55
It would be better drafting not to use this form of words.
“No liability for loss”
6.22 Wight v Olswang (No. 1) 56 considered the following common form:
(1) Every discretion or power hereby conferred on the trustees shall be

an absolute and uncontrolled discretion or power; and
(2) no trustee shall be held liable for any loss or damage accruing as
a result of their concurring or refusing or failing to concur in any
exercise of any such discretion or power.57
The second part seems like an exemption clause, but it is not. The Court
of Appeal held that its purpose was “to make clear that the trustee would
not be liable for exercising or not exercising a discretion or power merely
because the court considered the trustees’ grounds unreasonable or merely
because the court would not have exercised the discretion or power in the
same way.” The court continued:
Whilst on its face exempting every trustee from liability it does so only in
relation to loss or damage accruing as a result of the trustees concurring or
failing to concur in the exercise of the absolute and uncontrolled discretion or
power. It is significant that there is no reference to, for example, a breach of
trust or other impropriety in the exercise or non- exercise of the power . . . the
loss or damage, liability for which is exempted, is that which accrues merely
as a result of the trustee concurring or failing to concur.
54
Wight v Olswang (No. 1) [1998] NPC 111 accessible www.kessler.co.uk; cf Walker v Stones [2001] QB
902 at p.941: exclusion clauses to be construed “no more widely than a fair reading requires”; Bogg
v Raper (1998) 1 ITELR 267 at [28]: “the clause should be restrictively construed and anything
which was not clearly within it should be treated as falling outside it;” but note at [30]: the docu-
ment should be “fairly construed accordingly to the natural meaning of the words used”.
55
“There is no canon of construction which denies to a testator the privilege of indulging, to some
extent, in tautology”: Re Ward [1941] Ch 308 at p.318. Likewise Fattal v Walbrook Trustees [2010]
EWHC 2767 (Ch) at [72]: “the argument from redundancy does not carry a great deal of weight
in relation to the more traditionally drafted trust instruments”.
56
[1998] NPC 111 accessible www.kessler.co.uk.
57
Needless to say, sub-paragraphing here added for clarity. The fi rst part of the clause is discussed
briefly in Re Locker [1971] 1 WLR 1323. The parliamentary drafter used similar forms: ss.33,
47(1)(iii) AEA 1925.

It follows that the words in the second part of the clause are not only
otiose, but misleading (since there could be no liability in any event in
the absence of a breach of trust). Forms of this kind should generally
not be used. It may be appropriate if the drafter wishes to authorise
some exercise of a power that could cause a loss and which might (in
the absence of these words) be regarded as an improper exercise of the
power. The wording must exonerate negligence specifically, not in
general terms.
“In the professed execution of the trusts and powers hereof”
These words add nothing.58 6.23
“As if the trustees were the absolute/beneficial owner”
Bartlett v Barclays Trust Co. (No. 1) considered the following clause: 6.24
The Trustees may act . . . in such way as it shall think best calculated to benefit
the trust premises and as if it was the absolute owner of such . . . property.
This was rightly held not to be an exemption clause protecting the trustee
against liability for breach of trust (or authorising a transaction that a
prudent man of business would have eschewed). The power was fiduci-
ary.59 The clause is in fact otiose though if it were desired to emphasise the
wide scope of a power the wording “the trustees may . . . as they shall in
their absolute discretion think fit” is better than to say “the trustees may
. . . as if they were beneficial owners.” 60 There are however a few statutory
precedents which use this form. 61
58
Walker v Stones [2001] QB 902 at p.935.
59
[1980] Ch 515 at p.536. Likewise Schmidt v Rosewood [2003] 2 AC 709 at [36]:
“Even if . . . the discretions are expressed in the deed as equivalent to an absolute owner of the
trust fund, a trustee is still a trustee.”
The same applies to similar phrases such as “The trustees may . . . as if they were beneficial owner”
or “. . . as they were absolutely entitled to the assets of the trust.” Some even say: “absolute ben-
eficial owner” (synonymy).
It might be said that if a power is fiduciary, and so restricted, it is not the power of an absolute
owner, so the wording of the clause is misleading. But then a power to invest “as the trustees
think fit” is equally misleading.
60
See 7.10 (“Absolute discretion” and “as the trustees think fit”).
61
See s.10 TA 1925 (repealed); s.3 TA 2000.

Validity of exemption clauses
6.25 It is now settled, at all levels below the Supreme Court, that one can
exclude liability except for fraud, in the wide sense of “knowing dishon-
esty” and “reckless indifference”.62
Plainly one cannot exclude liability for “knowing dishonesty”. That is
inconsistent with any trust at all.
Can one accept liability for “knowing dishonesty”, but at least exclude
liability for mere “reckless indifference”? Millett L.J. said:
There is an irreducible core of obligations owed by the trustees to the benefi-

ciaries and enforceable by them which is fundamental to the concept of a trust.
If the beneficiaries have no rights enforceable against the trustees there are no
trusts. But I do not accept that these core obligations include the duties of skill
and care, prudence and diligence. The duty of the trustees to perform the trusts
honestly and in good faith for the benefit of the beneficiaries is the minimum
necessary to give substance to the trusts, but in my opinion it is sufficient.63
Since honesty is a “core obligation” and reckless indifference is regarded

as a form of dishonesty, the natural reading of the passage is that one
cannot exclude liability for reckless indifference; and this is considered
to be the law. Nor can one exclude liability for an act which no reason-
able solicitor/trustee could have thought proper—another category of
“dishonesty”.64
A clause purporting to exclude liability for reckless indifference would
be wholly void, unless its invalidity could be severed so the clause could
be taken as void so far as it purported to exclude liability for reckless indif-
ference, but nevertheless valid so far as it deals with other matters (e.g.
excluding negligence).
Duty to disclose exemption clause to settlor/testator
6.26 In 2006 the Law Commission recommended a rule of practice should

require a paid trustee to make the settlor or testator aware of the effect of
a trustee exemption clause.65
62
Armitage v Nurse [1998] Ch 241. In conformity with the common law approach, the statutory duty
of care is subject to contrary intent: Sch.1, para.7 TA 2000.
63
[1998] Ch. 241 at p.254.
64
This view is supported by comments on the meaning of “dishonesty” in other cases, discussed
in Gardner, “Knowing Assistance and Knowing Receipt: Taking Stock” (1996) 112 LQR 56
accessible www.kessler.co.uk.
65
Law Commission, Trustee Exemption Clauses (Paper No. 301, July 2006) para.7.1, http://lawcom-
mission.justice.gov.uk.

DUTY TO DISCLOSE EXEMPTION CLAUSE TO SETTLOR/TESTATOR 103
STEP adopted this recommendation and STEP members who draft a

will or trust are subject to a duty to disclose trustee exemption clauses.66
The duty is to notify the settlor or testator of “the existence of provisions
in the Instrument . . . the effect of which would limit or exclude the
liability of a trustee or executor for negligence”.67
A full explanation is that, in Lord Millett’s words, the clause “exempts
the trustee from liability for loss or damage to the trust property no matter
how indolent, imprudent, lacking in diligence, negligent or wilful they
may have been, so long as they have not acted dishonestly”.68 However
STEP guidance (which is for practical purposes authoritative) states that it
is in principle sufficient to write to the settlor saying:
I should also draw your attention to clause [X]. This clause provides that no
executor of your will/trustee will be personally liable for any act by them in
that capacity unless they are guilty of fraud. If you have any queries in relation
to this, then please let me know.
For solicitors, the SRA Code of Conduct 2011 does not impose a duty of
disclosure; the former 2007 Code of Conduct contained guidance to that
effect69 but that was deleted in the 2011 Code. So a solicitor (not being a
STEP member) who fails to notify clients of a trustee exemption clause
should70 not be guilty of professional misconduct. Similarly, there is no
66
The rule is publically available appendix G of the Law Commission Report; it is also on the STEP
website but at the time of writing accessible to members only.
Strictly, the duty applies:
“Where a member prepares, or causes to be prepared, a will or other testamentary document
or a trust instrument (each an “Instrument”), or is aware of being named as an original trustee
or executor in an Instrument:
(a) (i) in which he, or any trustee or executor, is entitled to remuneration under the terms
of the Instrument; or
(ii) where he has, or may expect to have, a Financial Interest in the trusteeship or
executorship of the trust or will or the preparation of the Instrument”.
However it will (almost) always be the case that a professional trustee or executor is entitled to
remuneration so the duty will (almost) always apply.
67
Strictly, the duty is:
“such member shall use his reasonable endeavours to ensure:
(i) that he or another shall have notified the Settlor of the provisions in the Instrument
or the original trustee or executor’s terms and conditions relating to the Disclosable
Circumstances; and
(ii) that he has reasonable grounds for believing that the Settlor has given his full and informed
acceptance of such provisions prior to his execution or approval of the Instrument.”
But normally notification will be all that is needed.
68
Armitage v Nurse [1998] Ch 241 at p.251.
69
Paras 70, 71 Guidance to rule 2 (Client Relations). The text of that guidance was set out in the
10th edn of this work para.6.24 and is accessible http://www.sra.org.uk/solicitors/code- of- conduct/
rule2.page.
70
One might argue that a duty of disclosure could be inferred from Indicative Behaviour IB(1.8)
and Outcome 1.8 SRA Code of Conduct, accessible www.sra.org.uk/solicitors/handbook/code/
content.page

duty in the Bar code of conduct or in accountancy codes of conduct.

However it is good practice in all cases to inform clients of these clauses
and the absence of a specific duty in these codes of conduct probably makes
no difference in practice.
Failure to disclose the clause to the settlor/testator would not invalidate
the trustee exemption clause; the only sanction would be STEP discipli-
nary proceedings.71
Do exemption clauses raise a conflict of interest?
6.27 Where a drafter is acting for the settlor, and the drafter (or a partner in the
same firm) will be a trustee, the use of a trustee exemption clause appears
at first sight to raise a confl ict of interest. But the Court of Appeal has held
that there is no confl ict:
the inclusion [a wide trustee exemption clause] in the testator’s will was not
a transaction in which the testator and those advising him had confl icting
interests. It was not a transaction in which one would expect the testator to be
separately represented. It was [the solicitor’s] duty to advise the testator as to
the terms on which executors and trustees could properly be asked to accept
office. He was entitled to tell the testator that he would himself insist on a wide
exemption clause and would not accept office as executor without one . . .
It might be said that there is a confl ict because the clause confers a benefit
on the solicitor. But Millett L.J. rightly rejects that.72 At first sight however
there is a confl ict because:
(1) The advisor wants the benefit of the clause (so they cannot be sued
for negligence); and
(2) The client would in principle want the beneficiaries to have a
remedy if the trustees are negligent.
“if you seek to limit your liability to your client to a level above the minimum required by the
SRA Indemnity Insurance Rules, ensuring that this limitation is in writing and is brought to
the client’s attention”.
71
Bogg v Raper (1998) 1 ITELR 267. Bogg v Raper states at [53] that an exclusion clause is not
effective “if the draftsman inserted the provision without calling the settlor’s intention to it and
knowing that the settlor did not realise its effect”; presumably that is based on the rules relating
to knowledge and approval of a will. It is less obvious why that should be the case for a lifetime
settlement; the answer is perhaps rectification.
72
“[The trustee exemption clause] does not confer a benefit on the persons responsible for advising
the Testator on the contents of his Will. In the fi rst place it does not discriminate between the
persons who advised the Testator in connection with his Will and other persons who become
executors or trustees and who have had no part in the preparation of his Will. In the second place,
it does not confer a benefit on the executors and trustees but defi nes the extent of their potential
liabilities. Unlike a trustee charging clause, it does not enable the executors and trustees to profit
from their position; but it protects them from loss thereby.”

SHOULD THE DRAFTER INSERT A WIDE EXEMPTION 105
We agree with Millett’s observation that one would not expect the client
to be separately represented. But that is essentially another way of saying
that no confl ict exists; it does not explain why what appears to be a confl ict
does not exist. We think the reason is that the exclusion clause concerns
solicitors’ terms of engagement. There is (in one sense) always a confl ict
relating to solicitors terms of engagement: the client wants low fees; the
solicitors’ interest would be to have higher fees. Similarly with other terms
such as (non)liability for negligence. But no-one regards a confl ict of that
kind as one that is prohibited by the code of conduct. It is therefore not a
confl ict of interest within the meaning of the code of conduct. It is dealt
with by the code of conduct under the heading of client care.
Should the drafter insert a wide exemption clause for paid

trustees?
There are some special circumstances where a wide exemption clause may 6.28
be wanted by the client. For example:73
1. Where the drafter is acting for the trustees and is not acting for the
settlor. The clause is in the interest of the drafter’s client. It would
be good practice to require the settlor to be separately advised.
2. Where the settlor (or members of the settlor’s family) are trustees.
Here the settlor may indeed wish for a low standard of duty to rest
on the trustees, because they may like the trustees more than they
like the beneficiaries. But this could normally be dealt with by an
exemption clause limited to unpaid trustees.
But these are special cases; in the general case, should the drafter insert a
trustee exemption clause? The older generation of textbooks advised that
exemption clauses should not be a standard form. In 1959, Prideaux stated
“the form should only be used in special circumstances”. In 1965, Hallett
advised that the relieving clause should only be used for unpaid trustees.
The Encyclopaedia of Forms and Precedents adopted the same approach:
the proposed exemption clause does not apply to professional trustees.74
Waters stated “The wisdom of such a provision is itself questionable, since
it weakens the trust machinery available to the beneficiary”.75
The mood of the profession has changed, perhaps due to the rise of the
73
This list is not comprehensive. Another example may be artificial tax avoidance schemes, under
which the client may not mind (or may even (dangerously) desire) that trustees are not diligent
in carrying out their functions as trustees.
74
Prideaux, Forms and Precedents in Conveyancing (25th edn, 1959) Vol.3, p.158; Hallett, Conveyancing
Precedents (1965) p.801, n.30; Encyclopaedia of Forms and Precedents (5th edn) Vol.40, p.512.
75
Law of Trusts in Canada, 3rd edn.

“litigation culture”, and many firms routinely insert wide trustee exemp-
tion clauses for paid trustees.
Normally, the rule is of course that the duty of the drafter is to advise,
ascertain, and carry out the wishes of the client, the settlor or testator. But
as noted above, in this case the drafter may also have regard to the terms
on which they or their firm want to act as executor or trustee.
The precedents in this book do not include a wide exemption clause as
it is hoped there is still a marketplace in which some firms will undertake
the duties of trustee on terms that they undertake to use reasonable care
and accept responsibility if they fail to do so. That may indeed offer a
marketing advantage against fi rms who do not take that view.
Exemption clause for unpaid trustees
6.29 Suppose there are non-professional, unpaid trustees. Certainly less can
reasonably be expected of them. The law already recognises this; or, more
positively, it may be said that more is expected of the professional trustee.76
Moreover, in the usual case, where there are professional and family trus-
tees, the professional (and their firm) will act for the trustees as a whole;
so in the event of professional incompetence, the professional will carry
the liability.
In these circumstances, this book (as the STEP standard provisions)
provides some exemption to lay trustees:
A Trustee shall not be liable for a loss to the Trust Fund unless that loss or
damage was caused by his own actual fraud, provided that:
(1) the Trustee acts as a lay trustee (within the meaning of section 28
Trustee Act 2000); and
(2) there is another trustee who does not act as a lay trustee.
The safeguard for the trust is that there must be at least one trustee who is
required to take care in the proper running of the trust.
Drafting an exemption clause
6.30 There are many statutory precedents, but in drafting it would be best now
to use or adopt the form approved in Armitage v Nurse.77
76
Bartlett v Barclays Trust Co. (No. 1) [1980] Ch 515.
77
A typical clause which limits the potential liability of the trustee or executor is:
“No Trustee shall be liable for any loss to the Trust Fund arising by reason of:

COMMENTARY: SHOULD EXEMPTION CLAUSES BE ALLOWED? 107
Commentary: should exemption clauses be allowed?
In Armitage v Nurse, Millett L.J. said: 6.31
The view is widely held that these clauses have gone too far, and that trustees
who charge for their services . . . should not be able to rely on a trustee exemp-
tion clause excluding liability for gross negligence.
Exemption clauses are outlawed or restricted in England for directors

(whose position is analogous to trustees) and in some investor protection
legislation;78 and in many if not most foreign jurisdictions.79 Yet if settlors
really wish their trustees to have the benefit of an exemption clause, it is
hard to see why they should not be allowed to do so. Moreover statutory
reform would bring additional problems and complications to the law. For
instance, if reform prohibited exclusion of liability for gross negligence,
the courts would have to identify what is “gross” negligence. It would be
difficult to frame legislation in a manner which a careful drafter cannot
evade, and yet which does not outlaw reasonable, targeted, exemption
clauses such as those mentioned below.
In most cases the fi rm of the solicitor-trustee will act for the trust (and
submit invoices accordingly). So the trustees (or beneficiaries) will have a
right to sue the firm for breach of contract (or negligence). The exclusion
clause in the settlement will not affect that.80
The 7th edition of this book concluded:
The problem with exemption clauses, it is considered, is not one of trust

law but of trust draftsmanship. The solution is not law reform, but a draft-
ing solution; to require appropriate use of such clauses in trust drafting. A
strengthening of the rules of professional conduct—or a greater recognition of
the implications of existing rules—would be the best solution to the problem.
(i) any mistake or omission made in good faith by such Trustee or by any of the Trustees
[except in the case of negligence by a paid Trustee]; or
(ii) any other matter or thing except his own actual fraud”
For further examples see Appendix A1 of the Law Commission’s Consultation Paper No. 1717,
Trustee Exemption Clauses ( January 2003) accessible http://lawcommission.justice.gov.uk/areas/trustee-
exemption- clauses.htm.
78
Sections 232, 750 Companies Act 2006; s.33 Pensions Act 1995; s.253 Financial Services and
Markets Act 2000.
79
Foreign jurisdictions use the full gamut of solutions. Some prohibit exclusion of liability for
negligence or failure to act with reasonable care: s.9 Trust of Property Control Act 1988 (South
Africa). The position is similar in the Turks and Caicos Islands. Others, e.g. Jersey, more ten-
tatively, prohibit exclusion of liability for gross negligence (so the Jersey Trustee may act negli-
gently, so long as he or she takes care not to be grossly negligent). Belize prohibits exclusion of
liability for fraud or wilful misconduct; a provision which merely codifies the common law rule.
80
However, in Young v Hansen (NZCA 16 September 2003 accessible www.ipsofactoj.com) a claim in
contract against a negligent solicitor-trustee failed, because a narrow view was taken of the scope
of the solicitor’s fi rm’s contractual duties. The fi rm was not (on the facts) retained to act generally
in administering the estate.

The Law Commission has gone down this road; it is not obvious whether
it has been a success or indeed what would be the measure of success. No
doubt clients are informed, but do they really notice, and do they make
an informed decision? Is there room in the marketplace for trustees who
take on work without exclusion clauses? An empirical study is needed to
answer these points. It was market failings of this kind which lead to the
Unfair Contract Terms Act.
What standard of care rests on trustees?
6.32 The form used in this book is as follows:

The duty of reasonable care (set out in s.1 Trustee Act 2000) applies to all the func-
tions of the Trustees.
The duty is expressed at length in the statute but amounts effectively to

“reasonable care”.
This applies to powers relating to investment, acquisition of land,
agents, nominees and custodians and insurance. It is considered that case
law imposes the same duty in the exercise of trustee functions generally
but it is best to say so expressly.
Excluding strict liability
6.33 Trustees have the benefit of what may be regarded as a statutory exemp-
tion clause. They are not liable if they have acted honestly and reasonably
and ought fairly to be excused for any breach of trust.81 Do they need any
more than this? It is considered some slight tinkering is desirable to get the
fairest balance between the needs of trustees and beneficiaries.
The first concerns no-fault liability. Trust law sometimes imposes
liabilities for innocent and non-negligent errors, for instance where trus-
tees act outside the powers conferred on them. It seems fair that personal
liability should be restricted to negligence:82
81
Section 61 TA 1925. See also s.20(3) Administration of Justice Act 1982.
82
The Charity Commission Model Charitable Trust adopts this idea:
“8 Duty of care and extent of liability.
When exercising any power (whether given to them by this deed, or by statute, or by any rule
of law) in administering or managing the charity, each of the trustees must use the level of care
and skill that is reasonable in the circumstances, taking into account any special knowledge or
experience that he or she has or claims to have (“the duty of care”).
No trustee, and no one exercising powers or responsibilities that have been delegated by the
trustees, shall be liable for any act or failure to act unless, in acting or in failing to act, he or
she has failed to discharge the duty of care.”

EXCLUDING CLAIMS BY UNKNOWN BENEFICIARIES 109
(1) A Trustee shall not be liable for a loss to the Trust Fund unless that loss was caused
by his own actual fraud or negligence.
Trustees may object that the duty of care is so vague that they may always
feel at risk; no matter how carefully they act it is easy with hindsight to
allege an innocent error was negligent. The higher standard of care may
increase the costs of running the trust. However, money spent on careful
(i.e. non-negligent) administration of a trust is not wasted. While one cer-
tainly wishes to make the administration of the trust as easy and as cheap
as possible, this must be balanced against the hazards of authorising sloppy
practice. Solicitors and accountants are generally subject to a duty of care
for their work in contract or in negligence. There is no reason why trust
administration should be different.
Moreover the professional trustee will be insured. So the effect of
the trustee exemption clause is to lighten the burden on the trustees’
insurer.
There is a respectable argument that trustee liability should be limited
to the amounts for which the trustees can reasonably obtain insur-
ance cover. The drafting would be tricky. This course is not pursued in
practice.
The above clause extends to a professional trustee. A trustee remains
liable for negligence. Trustees are not liable for breach of trust when they
have acted honestly and reasonably and ought fairly to be excused.83 This
clause relieves professional trustees from liability for breach of trust where
the trustee is not guilty of negligence.
Excluding claims by unknown beneficiaries
There is a fear that unknown beneficiaries may emerge with claims against 6.34
the trustees, who (unaware of their existence) may have distributed the
trust fund on the wrong basis.
When the Family Law Reform Act 1969 first extended the rights of
illegitimate beneficiaries, special protection was provided by statute.84
Unfortunately for trustees, the statutory protection was repealed.85 The
trustees may already have the protection of the general clause above, and
statute provides some general protection, especially s.27 Trustee Act 1925
It is considered that the law ought to develop in this direction and impose the simply stated duty
of reasonable care in relation to all trustee liability. The rules of breach of trust should in many
respects be assimilated with those of professional negligence. Section 1 TA 2000 is a step in this
direction.
83
Section 61 Trustee Act 1925.
84
Section 17 Family Law Reform Act 1969.
85
Section 20 Family Law Reform Act 1987.

(Protection by means of advertisements) 86 but something specific is prob-

ably appropriate.
The following is based on the original statutory wording:
(1) The Trustees may distribute Trust Property or income in accordance with the
Trust but without having ascertained that there is no Person who is or may be enti-
tled to any interest therein by virtue of a relationship unknown to the Trustees. 87
A Trustee shall not be liable to such a Person unless at the time of the distribution
the Trustee has knowledge of circumstances that call for enquiry.
(2) This clause does not prejudice any right of any Person to follow property or income
into the hands of any Person, other than a purchaser, who may have received it.
While trustees must take care, they may distribute trust property on the
basis of what they actually know, even though other beneficiaries may
exist by virtue of family connections hidden from, or not disclosed to,
the trustees.
Relying on counsel’s advice
Counsel’s advice generally
6.35 The relevant principles of professional negligence are as follows88 :
(1) In general, a solicitor is entitled to rely upon the advice of counsel

properly instructed.
(2) For a solicitor without specialist experience in a particular field to
rely on counsel’s advice is to make normal and proper use of the
Bar.
(3) Lawyers must not do so blindly but must exercise their own inde-
pendent judgment. If they reasonably think counsel’s advice is
obviously or glaringly wrong, it is their duty to reject it. The more
86
But advertising is hardly appropriate in small cases. Further, and importantly, s.27 only applies
to (i) trustees of a settlement (within the meaning of the SLA 1925) (ii) trustees of land (within
the meaning of the TLATA 1996) (iii) trustees for sale of personal property and (iv) personal
representatives. Thus there is a lacuna, and the section would not normally apply to a trust holding
only personal property, in the absence of a trust for sale. (This seems to be one of the few situ-
ations after the TLATA 1996 where a trust for sale may still have significance, and must be an
unintended quirk of the drafting of the 1996 Act.)
87
The 8th edition of this book referred to “an illegitimate relationship” rather than “a relationship
unknown to the Trustees”. But now that births out of wedlock have reached 45% in the UK,
2010 Social Trends Report, accessible www.statistics.gov.uk, this has ceased to be an appropriate
wording (though no difficulty should arise where it has been used in the past).
88
Locke v Camberwell Health Authority [1991] 2 Med LR 249 at 254 accessible www.kessler.co.uk. See
Cordery on Solicitors, Butterworths looseleaf, J553 citing nearly a dozen more cases.

R ELYING ON COUNSEL’S ADVICE 111
specialist the nature of the advice, the more reasonable it is likely

to be to follow it.
It is considered that exactly the same rules should apply to trustees who
rely on counsel even in the absence of anything dealing with the matter in
the trust deed; and a fortiori if there is a clause (as in this book) restricting
trustees’ liability to cases of negligence.89
However, dicta in some antique cases90 might be taken to suggest that
trustees who (acting reasonably) rely on counsel may nevertheless be liable
for breach of trust in some circumstances. It is best for an express clause to
make the position clear. An express clause may save the costs of cautious
trustees who might otherwise seek directions from the court.
Counsel’s advice on litigation
Where trustees propose to be involved in litigation, they should (under

the general trust law) apply to the court for prior approval.91 In 1893 it was
said to be a matter of ease and comparatively small expense for trustees to
obtain the opinion of a judge on the question whether an action should be
brought or defended at the expense of the trust.92 Nowadays the procedure
is slow and expensive; moreover a Chancery Master or judge (in a difficult
case) will not be in a good position to second guess counsel’s advice. In
these cases it is suggested that the opinion of counsel is as much protection
for the trust as can reasonably be provided. Counsel owes a duty of care
to the trustees and could be sued if negligent. This is the background to
the following clause:
(1) A Trustee shall not be liable for acting in accordance with the advice of counsel, of
at least five years’ standing, with respect to the Trust. The Trustees may in particu-
lar conduct legal proceedings in accordance with such advice without obtaining a
court order. A Trustee may recover from the Trust Fund any expenses where he/
she has acted in accordance with such advice.
89
See Bonham v Fishwick [2008] EWCA Civ 372 in which an allegation of “wilful wrongdoing” was
struck out where the trustees had heeded the legal advice given by their counsel and solicitor so
that the exoneration clause was a complete defence.
90
“The advice of counsel is not an absolute indemnity to trustees in bringing an action, though
it may go a long way towards it”: Stott v Milne (1884) 25 Ch D 710 at 714, approved Re Beddoe
[1893] 1 Ch 547 at 558. Relying on a solicitor (as opposed to Counsel) was thought no excuse
for a breach of trust in Re Dive [1909] 1 Ch 328 at 342: “Although no doubt it seems hard to hold
a trustee liable where he has followed the advice of his solicitor, I do not think I can allow the
trustee to be excused where, if he had with reasonable care considered the authority under which
he was acting, he would have found that it did not authorise that which he was doing.”
91
Failure to do so may result in the trustees being personally liable for the costs: Re Beddoe [1893]
1 Ch 547. Hence the application is called a Beddoe application.
92
Re Beddoe [1893] 1 Ch at 558. Jessel MR considered “It very often is cheaper to take the opinion
of the Court than even the opinion of counsel”; Sharp v Cash (1879) 10 Ch D 468 at 471. One can
only conclude that the operation of the Courts and the legal profession as recently as the late 19th
century was amazingly different from today. It is important to bear this in mind in considering
the relevance of these antique cases to the law today.

(2) Sub-paragraph (1) does not apply:

(a) in relation to a Trustee who knows or has reasonable cause to suspect that
the advice was given in ignorance of material facts;
(b) if proceedings are pending to obtain the decision of the court on the matter;
(c) in relation to a Trustee who has a personal interest in the subject matter of
the advice; or
(d) in relation to a Trustee who has committed a breach of trust relating to the
subject matter of the advice prior to obtaining the advice.
(3) Sub-paragraph (1) does not prejudice any right of any Person to follow property
or income into the hands of any Person, other than a purchaser, who may have
received it.
This follows the precedent of s.110 Charities Act 2011 (which provides
that charity trustees are not liable if they follow the advice of the charity
commissioners).93 The clause does not state expressly that the trustee
should refuse to follow counsel’s advice if “glaringly wrong”. However,
this must be implied, as no exclusion clause will relieve a trustee for reck-
less indifference.
“Five years’ standing” would mean five years since call to the Bar.94 We
consider that this is sufficient. Older practitioners may feel that 10 years
is better.95
Excluding duty to supervise family companies
6.36 Where the trust property includes a controlling shareholding in a family

company it is the duty of trustees under the general law to keep a close eye
on the company’s activities. A trustee may run the business him or herself;
or become a non-executive director; or appoint a director on the board to
report to him or her. Alternatively the trustee may be able to oversee the
93
For other statutory precedents, see s.48 Administration of Justice Act 1985; r.200 Land
Registration Rules 2003; s.4(2)(h) Public Trustee Act 1906. The form used in this book may be
contrasted with that in IRC v Botnar [1999] STC 711:
“The Trustees may take the opinion of counsel locally or where appropriate elsewhere con-
cerning any difference arising under this Settlement or any matter in any way relating to
the Trust or to their duties in connection with the trusts hereof and in all matters may act in
accordance with the opinion of such counsel.”
The form in this book merely saves trustees from personal liability: the Botnar form is wider as it
authorises trustees to act in a manner which would bind the beneficiaries. In Botnar the trustees
had been advised that they may use the trust fund to benefit the settlor (the unusually worded
settlor exclusion clause was ambiguous). It was stated (obiter, but rightly) that the settlor had
an interest in the settlement, regardless of the true construction of the settlor exclusion clause,
because of the effect of the Botnar form combined with the advice the trustees had received.
However, it is unlikely that there will be many, if any, cases like Botnar.
94
Parliamentary counsel often use this phrase (e.g. s.3 Tribunals, Courts and Enforcement Act
2007) and it is not necessary to be more specific.
95
That was the view of the STEP Standard Provisions (1st edn). Parliament thought 10 years appro-
priate: s.48 Administration of Justice Act 1985 (action taken in reliance on Counsel’s Opinion).

EXCLUDING DUTY TO SUPERVISE PARENTS AND GUARDIANS 113
company’s affairs by studying the agenda and minutes of board meetings

if regularly held, or management accounts, or quarterly reports. A trustee
should not sit back and allow the company to be run by its directors,
receiving no more than statutory accounts. If the trustee does so, s/he is
at risk if things go wrong.96 The same principle applies where the trustees
hold a substantial minority interest, if their holding gives them effective
power to interfere in the company’s business.
Now, where the trust property is shares in a family company, the
last thing that the settlor wants is professional trustees on the board or
interfering in any way with the settlor’s management of the company.
Professional trustees—not by training or temperament qualified to run a
business97—will not want to undertake this duty of oversight. Here, then,
is a case where too much is expected of trustees, under the general law,
and some relaxation may be thought appropriate.
The proposed form is:
A Trustee is under no duty to enquire into the conduct of a company in which the
Trustees are interested, unless they have knowledge98 of circumstances which call for
enquiry.
This clause does not prevent trustees from interfering in the company’s
business; but it allows them to do very little; this they will normally prefer.
A common form allows trustees to do nothing until they have notice of
acts of dishonesty: under the suggested clause, the trustees should interfere
if they have knowledge of directors’ negligence or incompetence; and they
may do so even if they do not. This is thought to strike a fair balance.
Excluding duty to supervise parents and guardians
The proposed form is: 6.37

A Trustee is under no duty to enquire into the use of income or capital paid to the
minor’s parent or guardian on behalf of the minor, or to the minor if they have
attained the age of 16 unless the Trustee has knowledge99 of circumstances which
call for enquiry.
Where a payment is made to a parent for the benefit of a beneficiary, trus-

tees are obliged to take reasonable care to ensure that that sum is properly
96
Bartlett v Barclays Trust Co. (No. 1) [1980] Ch 515 at p.533.
97
This accords with the principle that a solicitor’s duty “is to advise on matters of law and the
solicitor is under no duty to advise on matters of business, unless he specifically agrees to do so”
(Cordery on Solicitors, J354).
98
On the concept of “knowledge” (to be contrasted with “notice”) see an illuminating article by
Gardner, “Knowing Assistance and Knowing Receipt; Taking Stock” (1996) 112 LQR 56 accessible
www.kessler.co.uk.
99
See above footnote.

applied for the beneficiary’s benefit, not misappropriated by the parent or

misapplied by the beneficiary.100
The common practice is to exclude this duty. Is this advisable? On one
hand, it eases the burden of the trustees, and reduces administrative costs
of the trust. On the other hand, the wider power would permit negligent
trustees to dissipate trust funds.
This clause confers a carefully circumscribed freedom on the trustees.
They may make regular payments of income to the parents. If they are
dealing with capital—the sums will usually be greater—they must take
proper care. (This follows the example of s.21 LPA 1925, which allows
a beneficiary who is unmarried but under 18 to give a good receipt for
income but not capital.) Moreover, if their suspicions are aroused at any
time, the trustees are expected to investigate. It is thought that this is as
much relief as the settlor would normally wish the trustees to have.
Appointment of new trustees
6.38 The Trustee Act 1925 provides a detailed code of rules to regulate the
appointment and retirement of trustees. The usual practice is to adopt the
statutory rules with slight amendments. The approach in this book is to
specify in the main part of the deed the person who has power to appoint
new trustees; that is an important matter. Points of detail are placed in the
Schedule.
Who appoints trustees?

The power of appointing trustees101 is exercisable by the Settlor during his life and
by will.
This form is self-explanatory.102

100
Re Pauling [1964] Ch 303.
101
The small “t” is appropriate here: see 10.33 (How to make defi nitions).
102
Three minor variants of wording may be noted here:
(1) Some drafters refer to “the statutory power of appointing new trustees . . .” but the clause
can hardly be read as referring to anything else.
(2) Some refer to a power to appoint “new or additional trustees”. Section 36(1) TA 1925 confers
a power to appoint a “new” trustee in place of a retiring trustee; s.36(6) confers power to
appoint “another person . . . to be an additional trustee.” There is statutory authority for
the phrase “new or additional trustees”: ss.64(2) and 68(17) TA 1925; but elsewhere statute
is content to use the shorter form: see, e.g. s.30(3) SLA 1925; and the precedents in Forms
Nos. 1 and 2 of Sch.1 to SLA 1925.
(3) Some refer to the power as “vested in” the Settlor; “exercisable by” the Settlor seems more
lucid.
It is not necessary to say: “will or codicil”: see 3.18 (Archaic or prolix expressions).

A PPOINTMENT OF NEW TRUSTEES 115
Obviously the settlor will want the power of appointment of new trus-
tees during the settlor’s life. (Under the forms in this book the settlor can
release or delegate the power if desired.) It is less clear who should have
the power to appoint new trustees after the settlor’s death.
In the absence of specific provisions in the trust, the power to appoint
new trustees will vest in the continuing trustees. This is the most satis-
factory general solution and it is adopted in the precedents in this book.
Where this course is adopted, it does not seem necessary to spell the posi-
tion out in full.103 Occasionally the surviving spouse of the settlor is given
the power; that is:
The power of appointing trustees is exercisable by the Settlor during his life, and after
his death by his widow during her life.
Is this desirable? In an age where one third of marriages end in divorce—

the proportion may still be rising—it is quite possible that the spouse of
the settlor will not be the parent of the main beneficiaries, the settlor’s
children. In such cases this form might be a recipe for trouble.
If the settlor wants to decide trustees in the event of the settlor’s death,
the settlor should have an express power to appoint new trustees by
will.104 It is suggested that most settlors would like this power so it should
be a standard form. A precedent for a will clause exercising this power
is included. (A more complex solution is to provide that a “protector”
should appoint new trustees. The settlor can appoint the settlor’s spouse,
or child, or whoever, to be protector and can have power to revoke that
appointment and appoint a different protector. The advantage of this
course is that the protector’s powers continue after the death of the settlor.
The protector can (if desired) appoint the protector’s own successor in due
course. See 7.29 (Protectors).)
Where there are two settlors, see 10.11 (Form where trust made by joint
settlors).
Appointment of foreign trustees
A Person may be appointed Trustee of the Trust even though they have no connection 6.40
with the United Kingdom.
Is it possible to use the statutory power to appoint foreign trustees? A

cryptic passage in Re Whitehead states that this is not generally right
103
If the drafter does wish to set the position out in full, it would be best to set out the relevant parts
of s.36(1) and (8) TA 1925 more or less in full. This of course is not impractical, but the form
becomes complicated.
104
The position in the absence of an express power is unclear. Re Parker [1894] 1 Ch 707 decided
that (what is now) s.36(1)(b) TA 1925 did not permit an appointment of new trustees by will. It
is arguable that s.36(1)(a) or s.36(6) TA 1925 would authorise such an appointment.

or proper.105 If that were right, it would be a serious deficiency in the statu-

tory power. No-one seriously thinks that the obiter dicta in Re Whitehead
represent the law106, but still, the drafter can and should avoid the issue: the
form in this book therefore sets out an express power to appoint foreign
trustees. This is generally desirable even if the appointment of foreign
trustees is not contemplated; one can never anticipate the future needs of
beneficiaries.
There is no reported case in which a clause of this kind has been con-
sidered. The drafter has no judicial guidance as to what form of words
is required. It would be sufficient to give power to appoint trustees “not
resident in the United Kingdom” or “anywhere in the world”. This prec-
edent adopts a slightly wider formula.
The clause does not affect the duty to consider the suitability of any
new trustees before making an appointment. This may be especially
important when foreign trustees are to be appointed.
The statutory power allows trustees to be replaced if they remain out
of the UK for more than a year. It is fairly standard practice, where the
appointment of foreign trustees is permitted, to amend this rule so that:
remaining out of the United Kingdom shall not be a ground for the replacement or removal of a
trustee.
However, there is something to be said for retaining what is effectively a

power of dismissal over foreign trustees. This can do no harm: the non-
resident trustee does not have to be replaced so in this book the statutory
rule is not amended in this way. Of course, the statutory power to replace
non-resident trustees is nugatory if the power of appointing new trustees
is vested in trustees who are all non-resident.
105
[1971] 1 WLR 837. The Whitehead principle did not apply where (a rare case) the beneficiaries
have themselves become resident in a foreign jurisdiction.
106
For the following reasons:
(1) Whitehead gives insufficient weight to the tax advantages which may be enjoyed by ben-
eficiaries of offshore trusts. If the duty of trustees is to secure the maximum benefit for
beneficiaries, then in some cases it should be a breach of trust not to retire in favour of
non-resident trustees.
(2) There is little cause for indiscriminate jurisdictional chauvinism: in some jurisdictions
professional trustees are at least as well regulated as in the United Kingdom.
(3) The law is influenced by the practice of the profession. Whitehead is ignored in practice:
non-resident trustees are regularly appointed under the statutory power.
(4) The case was not followed in two cases in 1987: Richard v Mackay and Re Beatty (No. 2),
belatedly reported in Trust Law International, Vol.11, (1997) p.23 and 77 accessible www.
kessler.co.uk.
If Whitehead were correct, interesting questions would arise as to the consequences of an
“improper” appointment. The fourth edition of this book touched on these; but the discussion is
wholly theoretical, except so far as it supplies further reasons why Whitehead cannot be good law.

TWO TRUSTEES REQUIREMENT 117
Mandatory retirement of trustees
The 8th and earlier editions of this book included a provision that a trustee 6.41
who has reached the age of 65 shall retire if requested to do so.107 Such a
provision is still valid under current age discrimination law.108 However,
we do not consider that it complies with the spirit of the times (or perhaps
with the spirit of the legislation) so we have removed it from the precedents
in this edition.
Two trustees requirement
A Trustee may be discharged even though there is neither a Trust Corporation109 nor 6.42
two Persons to act as Trustees provided that there remains at least one Trustee. A
Ttrustee may be appointed under s.36(1) Trustee Act 1925 in place of more than one
trustee.
This clause reverses the rule of trust law that a retiring trustee is not dis-
charged from the trust unless there remain two persons to act as trustees, or
a trust corporation.110 Thus if a foreign trust company111 is appointed to be
trustee in place of United Kingdom trustees, the United Kingdom trustees
would not generally be discharged, unless the trust provided otherwise.
The second sentence resolves a somewhat theoretical doubt whether a
single trustee can be appointed in place of more than one trustee without
satisfying the conditions of s.39 Trustee Act 1925.
The drafter can alter the general rule if desired.112 The rule now offers
107
Drafting Trusts and Will Trusts, 8th edn, para.6.35.
108
The Equality Act 2010 prohibits discrimination in the fields of employment and occupation,
amongst others. Section 49 sets out the application of the discrimination legislation to “office-
holders”—the only category under which a trustee could fall. This provision prohibits discrimi-
nation in the context of any post “(a) to which a person is appointed to discharge a function
personally under the direction of another person, and (b) in respect of which an appointed person is
entitled to remuneration”: s.49(2). Trustees are not under the direction of another person. They
must exercise their powers and discretions independently. They do not therefore fall within the
category of officer-holder so that the discrimination legislation does not apply.
109
“Trust Corporation” should be defi ned as having the same meaning as in the TA 1925.
110
Sections 37(1)(c) and 39 TA 1925, as amended by Sch.3 TLATA 1996. Prior to the 1996 reforms,
there had to be two individuals or a trust corporation to act as trustees. This led to disaster in
Jasmine Trustees v Wells [2008] Ch 194 in which it was held that the term “individuals” in s.37(1)
(c) meant natural persons and did not include a body corporate so that two individuals had not
retired when thought they did and subsequent appointments of trustees in which they did not
participate were invalid. Similar rules apply where a trustee retires without the appointment of a
new trustee: s.39 TA 1925 (likewise amended).
111
A foreign trust company is not generally a “trust corporation” as defi ned, see 7.14 (Two-trustee
rule).
112
LRT Pension Fund Trustee Co. Ltd v Hatt [1993] Pensions Law Reports 227. This was followed
without discussion in Adam v Theodore Goddard [2000] WTLR 349 where the issue was whether
a particular clause had the effect of reversing the normal rule. (Both cases are accessible www.

little protection to the trust.113 It is considered that the rule serves no real
purpose, and for ease of trust administration it should be excluded.
Further provisions concerning appointment of additional

trustees?
6.43 In practice, new trustees are usually needed to replace trustees who have
died or wish to retire. Under the statutory code a new trustee may also
be appointed to boost the number of trustees, without a retirement. The
power to appoint additional trustees has two somewhat senseless restric-
tions.114 Fortunately, they can in practice be avoided.115 The question for
the drafter is whether to leave the (slightly odd) statutory rules to apply, or
whether to delete the restrictions. It is suggested that in a private trust, the
drafter should leave matters as they stand. It is not worth the trouble to deal
with these points. However in a charitable trust, the position is different.
Here it may be desirable to have more than four trustees, and the restricted
power to add trustees may well cause inconvenience.
Trustees’ right to resign
6.44 Trustees are sometimes given a right to resign. The statutory provision,
under which a trustee can retire with the consent of co-trustees, is gener-
ally thought to be sufficient. In the case of a charity, where there may be
a large number of unpaid trustees, a right to resign without the consent of
fellow trustees would be appropriate. The following form is suggested:116
kessler.co.uk.) Prior to 1993 it was unclear whether the rule could be amended. Accordingly the
STEP provisions (1st edn, 1992) did not deal with this point. Failure to exclude the rule matters
less after the TLATA 1996 reforms.
113
The second company to act as trustee may be a subsidiary of the fi rst, with nominal share capital.
See 7.14 (Two-trustee rule).
114
1. The person holding the power to appoint trustees cannot appoint himself.
2. One cannot add trustees so as to increase the number beyond four trustees, even if the
general law permits more than four trustees (because the trust does not hold land or is a
charity).
115
Suppose a trust has four trustees, and the settlor, having the power to appoint additional trustees,
wishes to appoint him or herself as fi fth trustee. This cannot be done directly under s.36(6) TA
1925. Instead:
(1) One of the present trustees retires, and the settlor and another trustee is appointed in his
or her place, under s.36(1) TA 1925 (which is wider than s.36(6)).
(2) Then the other trustee retires, and the fi rst mentioned trustee is appointed in his or her
place.
This was in fact a common practice before 1925: see Wolstenhome & Cherry, Conveyancing
Statutes (13th edn, 1972), Vol.4, p.60. Where the trust holds land, see 6.1 (Number of trustees).
116
For statutory precedents see art.19 Trusts ( Jersey) Law 1984 and s.3 Trusts (Scotland) Act 1921.
For a case (of construction) where a right to retire was inferred from exiguous wording see Davis
v Wallington [1990] 1 WLR 1511 at p.1528.

FURTHER PROVISIONS CONCERNING APPOINTMENT 119
A Trustee may resign by giving notice in writing to the other Trustees. On receipt of
such notice the retiring Trustee shall cease to be a Trustee provided that there shall be
remaining at least two persons to act as Trustees or a Trust Corporation (within the
meaning of the Trustee Act 1925).
Sections 19 and 20 Trusts of Land and Appointment of Trustees Act 1996
Sections 19 and 20 TLATA 1996 give beneficiaries powers to replace 6.45

trustees where beneficiaries are all adult and absolutely entitled to trust
property. It is considered that it is not appropriate to exclude these sections
in a standard form for two reasons:
(1) It is relatively rare that all the beneficiaries will be of full age
and (taken together) absolutely entitled to the trust property. In
particular, that would not be the case in the precedents in this
book.117
(2) In the simple case where the beneficiaries are so entitled, the power
conferred by sections 19 and 20 is appropriate. For the beneficiaries
could in any event direct the trustees to transfer the trust prop-
erty to other trustees, by virtue of the rule in Saunders v Vautier.118
Sections 19 and 20 only allow them to achieve the same result
without a possible capital gains tax difficulty.
Power to replace trustees
On this topic see 7.30 (Power to replace trustees). 6.46
Short form
In short forms (e.g. a declaration of trust for an insurance policy) it would 6.47
be simplest to adopt the statutory rules without amendment. In that case
the trustees will have the power to appoint their successor. When that is
done, nothing need be put into the trust deed at all. It is quite unnecessary
to say (as one sometimes sees) that:
The statutory power of appointing new trustees shall apply hereto.
117
Except for the bare trust; there is no point in excluding ss.19, 20 TLATA 1996 in a bare trust
because the beneficiaries acting together can do whatever they want with the trust property in
any event.
118
[1835–42] All ER 58.

Trustee remuneration
6.48 In the absence of any specific provision, the position is governed by the
Trustee Act 2000. For trusts other than charities a trust corporation can
always charge.119 A trustee acting in a professional capacity can also charge,
but subject to the safeguard that he or she is not a sole trustee and the
other trustees agree in writing.120 Should a professional trustee rely on
this? It is considered that an “agreement” with the other trustees may be
irrevocable (so that the professional trustee is not at risk if the other trustee
later tries to change his or her mind). However, if the other trustee dies
the surviving sole trustee could not charge until he or she has appointed
a second trustee who will consent to his or her charges. In the case of a
will, the necessary consent could not be obtained until after the death of
the testator. Where two trustees are partners in the same partnership it
is considered that each could consent to the charges of the other but the
contrary is faintly arguable (because the trustee benefits from his or her
own consent).121 While little difficulty should arise in practice from the
statutory rule, however, the form allowing trustees to charge without
consent has long been used and few difficulties seem to have arisen. The
precedents in this book therefore retain the traditional form. The drafting
echoes the statutory wording.122
(1) A Trustee acting in a professional capacity is entitled to receive reasonable remu-
neration out of the Trust Fund for any services that he/she provides to or on behalf
of the Trust.
(2) For this purpose, a Trustee acts in a professional capacity if he/she acts in the course
of a profession or business that consists of or includes the provision of services in
connection with:
(a) the management or administration of Trusts generally or a particular kind
of Trust, or
(b) any particular aspect of the management or administration of Trusts gener-
ally or a particular kind of Trust.
(3) The Trustees may make arrangements to remunerate themselves for work done for
a company connected with the Trust Fund.
It is fair that lay trustees, such as members of the family of the settlor,
should not charge for their services. If they do not want to do the work,
they may appoint professional agents to do it for them. But this will need
to be reconsidered in special cases.
An old and traditional formula authorises charges to be made by:
119
Section 29(1) TA 2000.
120
121
It is even arguable that the same applies where there is a third trustee who also consents.
122
For other statutory precedents see s.42 TA 1925; Sch.11, para.6 School Standards and Framework
Act 1998.

TRUST CORPORATIONS 121
Any trustee being a solicitor or other person engaged in a profession or business . . .
This is wider than the clause used in this book. There need be no con-
nection between the trustee’s business and the trust. Under this form, any
self-employed person, carrying on a trade or profession, will be able to
charge; the window cleaner just as well as the solicitor. A trustee who is
a company director can charge for work done since he or she is engaged
in the business of his or her company. A trustee who is an employee is
likewise “engaged” in the business of his or her employer or in the busi-
ness of being an employee.123 Even (say) a part-time nanny is “engaged”
in the business of being a nanny. There is some sense in allowing a trustee
to charge in all these cases. If the trustee were not involved in his or her
duties as trustee, he or she would have more time to devote to, and might
therefore expect more profit from, his or her other business. The test is to
ask what the typical settlor or testator would want, and on this basis the
traditional wording is thought to be rather wide as a standard form.
The power of remuneration used in this book is based on s.29 Trustee
Act 2000. We consider that the express and statutory powers are wide
enough to allow a partnership or LLP of which the trustee is a member
to charge.
Trust Corporations
The form used in this book is: 6.49

(1) A Trust Corporation appointed by [my will/this Trust] may act as Trustee on the
basis of its standard terms as published at the date of [my will/this Trust]
(2) On the appointment of a Trust Corporation as Trustee the parties to the appoint-
ment may provide that the Trust Corporation may act as Trustee on the basis of
its standard terms as published at the date of the appointment (in which case sub-
clause (1) shall not apply).
(3) The Trust Corporation is entitled to receive remuneration and other charges in
accordance with those terms.
(4) In the event of a confl ict between those terms and these provisions, those terms
shall prevail.
(5) In this clause “Trust Corporation” has the same meaning as in the Trustee Act
1925.
The clause authorises a trust corporation (in the meaning of the TA 1925)
to act on the basis of its standard terms.
123
This natural reading is also supported by the reference to the “business” of the directors in art.89
of Table A of the Companies (Tables A to F) Regulations 1985 (which applied for companies
incorporated before 1 October 2009) and Ronbar Enterprises v Green [1954] 2 All ER 266 (discuss-
ing comparable wording in a covenant in restraint of trade).

If a testator appoints a trust corporation by his or her will, he or she

should be taken to approve of its standard terms and conditions. It is not
reasonable for a testator to appoint (say) a bank as trustee, not to tell them
about the appointment, and then to expect them not to act on their stand-
ard terms and conditions (whatever they may be.)
Sub-clause (2) helps where a trust corporation is appointed many years
after the will or trust was executed. The trust corporation may rely on the
standard terms and conditions on the date of its appointment.
The wording of the clause does give carte blanche to any standard pro-
visions that there may be. The only protection is that:
(1) The person appointing a trust corporation as trustee has the oppor-
tunity to review its standard terms and conditions before making
the appointment; if he does not like the terms he may either try to
negotiate other terms or look for another trustee.
(2) A trust corporation (as defined) must generally be of a certain size
(£250k share capital) and subject to some regulator.
A complication here is the duty of the drafter to inform testators of

provisions restricting liability of trustees for negligence.124 Some trust
corporation standard provisions will do this, though others do not. The
duty is to notify the settlor or testator of “the existence of provisions in
the Instrument . . . the effect of which would limit or exclude the liability
of a trustee or executor for negligence”.125 In our view, this duty would
apply if
(1) the will incorporated SSP2; and
124
See www.step.org/attach.pl/1622/2894/STEPGuidanceNotes.pdf. Strictly, the duty applies:
(i) “Where a member prepares, or causes to be prepared, a will or other testamentary docu-
ment or a trust instrument (each an “Instrument”), or is aware of being named as an original
trustee or executor in an Instrument:
(a) (i) in which he, or any trustee or executor, is entitled to remuneration under the terms
of the Instrument; or
(ii) where he has, or may expect to have, a Financial Interest in the trusteeship or
executorship of the trust or will or the preparation of the Instrument”.
However it will (almost) always be the case that a trustee or executor is entitled to remuneration
so the duty will (almost) always apply.
125
Strictly, the duty is:
“such member shall use his reasonable endeavours to ensure:
(i) that he or another shall have notified the Settlor of the provisions in the Instrument
or the original trustee or executor’s terms and conditions relating to the Disclosable
Circumstances; and
(ii) that he has reasonable grounds for believing that the Settlor has given his full and informed
acceptance of such provisions prior to his execution or approval of the Instrument.”
But normally notification will be all that is needed.

TRUST CORPORATIONS 123
(2) the will appointed a trust corporation whose standard terms

restricted liability for negligence
that is, even if the restriction of liability was incorporated indi-
rectly and not directly.
The drafter of a will or trust which appoints a trust corporation and

incorporates SSP2 will therefore need (1) to ascertain whether or not the
standard terms of the trust corporation concerned limit liability, and (2) if
it does, to advise the client accordingly.
Standard charges and conditions
Another standard form provides: 6.50

A corporate trustee shall have the rights benefits and remuneration set out in its published terms
and conditions for the time being . . .
As far as remuneration is concerned, it is suggested that the normal remu-

neration clause is quite sufficient. It will allow reasonable remuneration;
if the corporate trustee cannot justify its charges as reasonable, the drafter
should hesitate to provide a form which might allow them.
As far as the other “conditions” are concerned, the drafter should him
or herself deal with such matters and should not leave the matter to sub-
sequent negotiation. Standard conditions drafted on behalf of corporate
trustees will naturally give the trustees the most generous exemption
clause.126 Experience suggests that there will be no difficulty in finding
corporate trustees prepared to act without these clauses.
Some commentators take the view that a reference to scale fees or con-
ditions of a trust corporation in a will may be ineffective to incorporate a
scale or conditions which are variable in the future.127
Fees to be agreed at time of appointment
A common form provides:

[1] The trustees are entitled to charge and be paid out of the Trust Fund such remu-
neration as at or prior to their appointment may have been agreed upon in writing
between the trustees and the person or persons making such appointment.
[2] Notwithstanding the foregoing it is expressly declared that any corporate body
which by its constitution is entitled to undertake the office of Trustee may as such
Trustee as aforesaid act on its terms and conditions (including the right to remu-
neration and the incidence thereof ) in force at the date hereof as if such terms and
126
See 6.20 (Construction of trustee exemption clauses).
127
Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (19th edn, 2008), 5–07.
Under the usual rules of incorporation by reference this is strictly correct. But the courts would
probably not strike down what has become common conveyancing practice.

conditions were set out herein provided always that if and so often as the Trustee
shall from the date hereof publish new terms and conditions in which its rates or
modes of charging remuneration or both shall be different from those in force at
the date hereof the Trustee shall thereafter be entitled to remuneration in accord-
ance with such new terms and conditions in substitution therefore (only so far as
concerns remuneration for those previously in force).
It has been held (despite the word “notwithstanding”!) that clause (1)
prevails over (2), for there is no point in agreeing fees if the trustee is free
to resile from the agreement later.128 It is suggested the better basis for the
decision is that a trustee who agrees fees is not free to change them later
(at least without giving reasonable advance notice). But in this book this
wording is not used.
Excursus: trustee charging clauses129
6.51 The burden of history rests heavily on the construction of trustee charging
clauses. In earlier times there was a plenitude of persons with the leisure
and resources to take on unremunerated trusteeships. In those days it was
natural that the courts would regard charging clauses with suspicion, and
construe them strictly. Of course times have changed. Professional trus-
tees, who charge, have ceased to be the exception and have become the
norm. On reading the older cases, this must be borne in mind: thought-
less citation of dicta from the old cases will give an entirely misleading
impression.
Layman’s work
6.52 Older forms often specifically provide that trustees can charge for work
that does not require professional assistance. This is now covered by
s.28(2) Trustee Act 2000. A charging clause is taken (in the absence of
contrary intent) to include charges for layman’s work.130 The old formula
is therefore superfluous.
128
Mackie v BCB Trust Co Ltd [2006] WTLR 1253 (Supreme Court of Bermuda).
129
A transcript has also been seen—presumably prepared by a rueful litigant—which referred to a
“trustee chagrin clause”.
130
Some commentators expressed the view that before the TA 2000 an express charging clause
authorised charges for professional work but not layman’s work unless this was expressly stated. It
is considered that this view was based on a misreading of some antique cases on the construction
of specific charging clauses. The point is now academic but for a discussion see the fourth edition
of this work at para.15.062. Section 28(2) only applies where the trustee is a trust corporation or
acting in a professional capacity. However, where lay trustees are authorised to charge, the rule
excluding charges for layman’s work cannot on any view be considered to apply. For charitable
trusts see 25.9 (Remuneration of charity trustees).

TRUSTEE REMUNERATION CLAUSE 125
Informing the client
The old cases laid down that a drafter should not include a charging clause 6.53
of the kind used in this book except under express instructions given by
the client him or herself with full knowledge of its effect.131 This made
sense at a time when the client would not expect trustees to charge.
Nowadays no client of testamentary capacity will expect professional trus-
tees to work for nothing. Further, charging clauses are generally implied
by statute. Accordingly this rule has ceased to apply. Having said that, it is
the solicitor’s duty to explain the draft to the client, and an explanation of
the charging clause would follow as part of that in any event.
Remuneration of corporate trustee
One commentator formerly expressed the view that a charging clause only 6.54
authorised companies (as opposed to individuals) to charge if this was
expressly authorised. It is considered this was based on a misreading of a
case on the construction of a specific charging clause.132 However, no-one
could take this view now; the Trustee Act 2000 implied charging clauses
for a trustee acting in a professional capacity plainly apply to companies
and individuals.
Trustee remuneration clause: dispositive or administrative?
Status of remuneration clause for purposes of succession law
It was formerly the case that: 6.55
(1) The charging clause did not take effect in a will if the trustee—the
“beneficiary” of the charging clause (or spouse of the trustee)—
was a witness. Likewise if the witness was a partner or the spouse
of a partner of the trustee.
(2) The benefit of the clause would abate if the estate was insufficient
for payment in full.
(3) The clause would not take effect if the estate was insolvent.
131
Re Chapple (1882) 27 Ch 584; Re Sykes [1909] 2 Ch 241. There is no contemporary authority on
the point, except the delphic comment of Vinelott J. in Re Orwell [1982] 3 All ER 177 at 179: “It
has been said that a wider form of charging clause entitling a solicitor trustee to charge ought not
to be included except under express instructions given by the client himself with full knowledge
of its effect.” (Emphasis added; the fi rst four words are surely significant.)
132
The point is now academic but for a discussion see the fourth edition of this work at para.15.064.

This was because the charging clause was a beneficial133 provision for these
purposes. Now these rules have been reversed in relation to professional
trustees.134
Status of remuneration clause for other purposes
6.56 By contrast, a remuneration clause is administrative for the following

purposes:
(1) The courts’ jurisdiction to secure proper administration of a trust:

the court has inherent jurisdiction to authorise trustee remunera-
tion (though it has no jurisdiction to alter beneficial interests).135
(2) The rule against perpetuities: the remuneration clause is outside
the scope of that rule.136
(3) All tax purposes;137 no-one has ever doubted that a trustee remu-
neration clause may be included in an IP trust and any IHT special
trust and does not infringe the conditions for such trusts. If the
settlor receives remuneration, this is not a benefit for the IHT
reservation of benefits rules,138 or, by parity of reasoning, for the
income tax or CGT settlement provisions.
(4) Charity law: see 25.9 (Remuneration of charity trustees).
Reviewing this list it is obvious that the succession law cases are anomalous
and explicable only for historic reasons. Thus for all other purposes it is
considered that a modern court should regard the remuneration clause as
administrative.
133
See 16.1 (Administrative, dispositive, beneficial: terminology). If these matters had fi rst come
before the courts today, when trustees charging clauses are the norm, the matter would have been
decided differently. But the law is now settled.
134
Section 28(2) TA 2000. The old law still applies in relation to charging clauses for the benefit of
lay trustees. It is a pity the Law Commission did not adopt the simpler solution of abolishing the
old law entirely. The point does not arise in the precedents in this book, which do not authorise
lay trustees to charge.
135
Re Duke of Norfolk [1982] Ch 61.
136
Section 1 PAA 2009.
137
Section 90 IHTA 1984 (trustees annuities) is an exception.
138
HMRC rightly accept this: see the IHT Manual 14394:
“The donor may be, or become, a trustee of the settlement of the gifted property. So may the
donor’s spouse or civil partner. This is not of itself regarded as a reservation of benefit. The
spouses or civil partners hold the property in a fiduciary capacity only and are required to deal
with it in accordance with their fiduciary duties. The position is the same even if the donor
and spouse or civil partner are entitled to payment for their services as trustees provided the
remuneration is not excessive. This is despite the Court’s decision in Oakes v Commissions of
Stamp Duties for NS Wales [1954] AC 57.”
HMRC sensibly ignore the old Australian estate duty decision to the contrary, Oakes. The same
applies to trustee/director remuneration clauses discussed below.

TRUSTEE REMUNERATION CLAUSE 127
Can the settlor charge if he or she is a trustee but there is a settlor exclusion
clause?
The reader will recall that a trust will generally contain a settlor exclusion 6.57
clause:
. . . no power conferred by this Settlement shall be exercisable for the benefit of the
Settlor or the spouse or Civil Partner of the Settlor . . .
It is considered that the settlor exclusion clause does not prevent remunera-
tion of a settlor or spouse. This is because (looking at the matter broadly)
the settlor or spouse has gained no advantage: he or she has worked for
his or her remuneration. The alternative basis for reaching this conclusion
is that the payment is administrative and not dispositive. On any view, it
is not necessary to say expressly that the settlor and spouse cannot charge
remuneration.
Trustee/director remuneration
The form used in this book is as follows: 6.58
The Trustees may make arrangements to remunerate themselves for work done for a
company connected with the Trust Fund.
Where trustees hold a majority of shares in a company they cannot

receive remuneration for work done for the company. Where trustees
have a minority shareholding, it seems that they should use their trust
votes to oppose their own remuneration. This rule would prevent trus-
tees from working for companies connected with the trust; hardly desir-
able. The general rule must therefore be reversed by express provision
in the trust.
How should this be done? It is said that the standard trustee remunera-
tion clause does not itself allow trustees to charge a company for work
done for that company.139 A common form is:
The Trustees may enter into a contract with and be remunerated as a director or other offi cer or
employee or as agent or adviser of any company at any time or in any way connected with the
Trust Fund and retain as the Trustees’ absolute property any remuneration received in that capac-
ity notwithstanding that his offi ce or employment may have been obtained in right or by means
or by reason of his position as one of the Trustees or any shares, stock, property, rights or powers
belonging to or connected with the Trust Fund.
139
Re Gee [1948] Ch 284. The reasoning is unconvincing and perhaps the point may come to be
reviewed by the courts.

The more succinct form used in this book is derived from a precedent
upheld in Re Llewellin.140 The judge observed that it was not necessary to
state in express terms that the trustees “are not to be liable to account to
the trust for the remuneration derived from their office”; that followed as
a matter of necessary implication.
140
[1949] Ch 225.

CHAPTER 7
TRUSTEES’ POWERS
Introduction
This chapter considers some general questions relating to powers of trus- 7.1
tees: the drafting of specific powers is considered at 12.1 (Overriding
powers) and 21.1 (Administrative provisions).
Duties and powers distinguished
Trust law distinguishes between: 7.2
(i) A power conferred on trustees, which permits them to act.

(ii) A duty imposed on trustees, which obliges them to act.
There is also a hybrid between the ordinary power and a duty, a form
such as:
The trustees shall pay the income to A, B, or C.
Here trustees have a duty to act—to pay the income to somebody—

but a choice as to which of A, B or C is to receive it. In this book this is
referred to as a “discretionary duty” or a “discretionary trust of income”.
Duties or powers: does it matter?
The distinction between a duty and a power seems crucial. If one reads 7.3
“The trustees shall pay the income to X” then X will receive the income.
If one reads that “The trustees may pay the income to X” then the trustee
may or may not do so.
However, when duties and powers are combined together, the formal
distinction loses most of its significance. Contrast:

130 TRUSTEES’ POWERS
(i) The trustees may accumulate any income and shall pay the remain-
der to X.
(ii) The trustees may pay any income to X and shall accumulate the
remainder.
(iii) The trustees shall either accumulate the income or pay it to X.
The first of these clauses confers a power to accumulate income, with

a duty to pay unaccumulated income to X. The second confers a power
to pay income to X, with a duty to accumulate the remainder. The third
imposes a discretionary duty to do one or the other. The practical differ-
ences between them all are very small and only rarely is the distinction
important.1 The drafter will not usually mind which form is used but
there should be no ambiguity. The drafter should be aware whether the
form of words used creates a duty or a power.
Powers and duties: terminology
7.4 Terminology in this area is something of a headache.
Terms to describe “duties”
The modern approach—much to be encouraged—is to use the word

“duty”.2 The traditional term for this was the word “trust”. That usage
was unfortunate. Nowadays the word “trust” is more commonly used as a
synonym of “settlement”—except in a few stylised phrases, such as “trust
for sale” (meaning a duty to sell).3
Terms to describe powers
The words “power” and “discretion” are used indiscriminately to refer to

both true powers and discretionary duties.4 The usage is understandable
1
There are different results if the trustees cannot agree about the exercise of the power; or if they
delay before its exercise. The clauses would have different results in the event of a breach of the
rule against accumulations. The distinction also affects income accruing but not paid on the death
of X or on an assignment of X’s interest: IRC v Berrill [1981] 1 WLR 1449. The distinction may
remain of some significance for the rule relating to “administrative workability” of a trust. These
differences savour more of academic than practical interest and need not concern the trust drafter.
2
An early statutory example was in s.2(4) Trustee Investments Act 1961 (“the exercise of any
power or duty of a trustee”). There are many examples in the updating provisions of Sch.3 Trusts
of Land and Appointment of Trustees Act 1996, where the word “trust” in the old legislation is
replaced by the word “duty”.
3
Also see the discussion of trust in Terminology.
4
On use of “power” in this wide sense, see for instance, Re Wellsted [1949] Ch 296 at 308 (where
Lord Greene said the word power could “properly” be used to describe an obligation to choose

DRAFTING DUTIES AND POWERS 131
and (it is considered) acceptable. “True powers” and “discretionary duties”

are best regarded as two types of power.5 Where (as is almost always the
case) the difference does not matter, it is not realistic to expect any preci-
sion in normal use.
Statute and drafters often use the phrase “powers and discretions”.6
Here it could be that “power” refers to true powers; and “discretions”
refers to discretionary duties; but in view of the vagaries of usage, the
better view must be that the two terms are used as synonyms.
The phrase is sometimes expanded to “powers, authorities and
discretions”.7 This is mere synonymy: the word “authorities” adds style
but contributes nothing to the sense. Thoughtful drafters in the modern
style need not use this expression.
The best and modern term to describe duties, powers and discretionary
duties of trustees is “functions”.8
Drafting duties and powers
The best approach is to adopt the well settled rule that the word “may” 7.5
confers a power: the word “shall” imposes a duty.9 Thus we simply say as
required:
between a number of objects, i.e. a discretionary trust). Statutory examples of this usage are: ss.18,
30(2) (repealed), 31, 69(2) TA 1925.
Statutory examples of “discretion” in this wide sense are s.655 ITTOIA 2005 and ss.480 and
812(4) ITA 2007.
5
Mettoy Pension Trustees Ltd. v Evans [1991] 2 All ER 513 at 545. Something should be done on
those occasions (rare outside textbooks) when one does need to distinguish between true powers
and discretionary duties. One must use some special phrase but at present there is no agreed ter-
minology. One sometimes fi nds “powers” or “powers in the strict sense” to describe powers; and
“imperative trusts” “trust powers” or a whole variety of other expressions to describe discretion-
ary duties.
For lack of better terminology we shall refer to “true powers” and “discretionary duties” or
“discretionary trusts.” Perhaps one day a decision of the higher courts will prescribe some termi-
nology. We need better descriptive labels than those adopted by Warner J. in Mettoy: “Categories
1, 2, 3 & 4.”
6
For instance, s.25 TA 1925 as amended.
7
For instance, s.36(7) TA 1925.
8
e.g. s.36(9) TA 1925 (which dates from 1959). An early example of the term “functions” in
modern statutory usage is s.84 Financial Services Act 1986 (which makes void certain exclusion
clauses). Here the parliamentary drafter had before him the precedent of (what is now) s.750
Companies Act 2006) and substituted the word “functions” for the traditional phrase “powers,
authorities or discretions”. The term is ubiquitous in the TLATA 1996. In Hazell v Hammersmith
LBC [1992] 2 AC 1 at p.29 the House of Lords held that the word “functions” in Local Authority
legislation “embraces all the duties and powers of a Local Authority, the sum total of the activi-
ties Parliament has entrusted to it”. The word is (rightly) undefi ned in the TLATA 1996 though
(unnecessarily) given a partial defi nition in the TA 2000.
9
Of course the context may show that the word “may” or “shall” has been used wrongly, and
the context governs the sense; this is self- evident but for an example see Grunwick Processing
Laboratories Ltd v ACAS [1978] AC 655 at 698: “Prima facie the word ‘shall’ suggests that it is
mandatory but that word has often been rightly construed as being directory. Everything turns

The trustees may . . . or The trustees shall . . . .
The alternative methods of imposing duties and powers are innumerable.

For duties:
The Trustees shall hold the trust property on trust to . . .
It shall be the duty of the Trustees to . . .
The Trustees shall be bound to . . .
The Trustees must . . .
For powers:
The Trustees shall have full power to . . .
The Trustees shall have the right to . . .
It shall be lawful for the Trustees to . . .
The Trustees shall be entitled and are hereby authorised to . . .
The Trustees shall be at liberty to . . .
I empower my Trustees to . . .
The Trustees shall. . . if they think fit . . .10
It is better to use a simple and consistent form.
Other usage of “shall” and “may”
7.6 A draft should be composed in the simple present tense. Unless one is
conferring a duty or a power, it is best not to use the modal auxiliaries
“may” or “shall”. Thus for:
. . .as the Trustees may think fit; or
. . .as the Trustees shall think fit;
Read:
. . . as the Trustees think fit
Again, for:
“The Trust Fund” shall mean . . .
upon the context in which it is used—the subject matter, the purpose and effect of the section in
which it appears.” (Lord Salmon.)
10
Thus (as in Pearson v IRC [1980] STC 318) a direction that:
“the trustees shall accumulate so much of the income of the Trust Fund as they shall think fit”
confers a power to accumulate income. Likewise, in a normal context (as in Breadner v Granville-
Grossman [2001] Ch 523), a provision that:
“The Trustees shall stand possessed of the Trust Fund and the income thereof upon trust for
the Principal Beneficiaries or any one or more of them exclusive of the other or others in such
shares as the Trustees shall from time to time by deed appoint”
confers a power of appointment (not a discretionary duty). See 7.10 (“Absolute discretion” and
“as the trustees think fit”).

PROVISIONS ABOUT HOW OFTEN AND WHEN POWERS ARE EXERCISED 133
Read:
“The Trust Fund” means . . .
The word “shall” should be used in legal drafting primarily in this man-
datory sense of imposing a duty. Some say the word should not be used
at all.11 A blanket application of that rule is contrary to ordinary English
usage and common legal usage.12 While no doubt it would always be
possible to paraphrase, the word “shall” does in some contexts serve as
well as any other. So this approach has not been completely adopted in
this book.
Provisions about how often and when powers are exercised
Should true powers have time limits? 7.7
Consider a simple power such as:

The Trustees may pay the income of the trust fund to X.
Such powers must be exercised within a reasonable time. If it is not exer-

cised within a reasonable time, the power will lapse. What is a “reasonable
time” is uncertain and will vary according to the circumstances. Some
drafters specify a time limit (typically 12 months). This avoids the uncer-
tainty which might otherwise arise: in the event of some delay trustees
may not know whether their power remains exercisable or has lapsed. This
book does not impose any time limit. The “reasonable time” period raises
little difficulty in practice; a fi xed and inflexible time limit may cause
greater difficulty. In this we follow the example of the statutory power of
maintenance; indeed there is no statutory trustee power for which a fixed
time limit is imposed.
Should discretionary duties have time limits?
Suppose trustees hold income on discretionary trusts: 7.8

the Trustees shall pay the income to any Beneficiaries as the Trustees think fit.
11
Garner’s Dictionary of Legal Usage, (3rd edn, 2011) entry under Words of Authority contains a good
discussion of the possible ambiguities of the word “shall”.
12
Likewise the EU Joint Practical Guide on the Drafting of Legislation 2.3.2:
“In the enacting terms of binding acts, French uses the present tense, whilst English gener-
ally uses the auxiliary ‘shall’. In both languages, the use of the future tense should be avoided
wherever possible.”

The trustees should, within a reasonable time, decide who to pay

the income to. The drafter could if desired, specify some time limit.
There seems little point in doing this. The discretionary duty will never
lapse.13
Powers exercisable “at any time” and “from time to time”
7.9 A common formula provides that trustees’ powers may be exercised “at
any time”. The purpose of this must be to make it clear that the power will
not lapse during the life of the trust.
A related and equally common formula is to direct that powers may be
exercised “at any time or times”, or “at any time and from time to time
. . .”. This emphasises that the power can be exercised more than once.
Another form to similar effect is to say that the trustees may exercise a
power “by deed or deeds”.
These forms are not usually necessary. In most cases it is obvious from
the nature of the power whether any sort of time limit is implied. It is
also obvious whether the power may be exercised more than once. The
forms are considered undesirable. To specify on every occasion that
powers are exercisable “at any time and from time to time” would be
inordinately repetitive; to scatter the phrase here and there might give
the misleading impression that the omission of the phrase in other con-
texts is significant.
The solution adopted in this book is to set out a general provision that
trustees’ powers in general may be exercised “from time to time as occa-
sion requires”. It is then unnecessary to say anywhere else in the document
that the trustees’ powers are exercisable “from time to time” or “at any
time or times”. This is in fact the approach adopted by the parliamentary
drafter as long ago as 1882.14 A drafter seeking brevity could safely omit
the clause.
The provision is included in the absolute discretion clause, to which we
can now turn.
13
Mcphail v Doulton [1971] AC 424; Re Locker [1977] 1 WLR 1323. For completeness: the time limit
would have one consequence. Suppose the trustees failed to distribute the income, in breach of
trust. The beneficiaries could take action (i) after the fi xed time, if there was a fi xed time limit;
but (ii) only after a “reasonable time” if no time was fi xed. But this is not important in practice.
14
Section 55(1) SLA 1882 provided that: “Powers and authorities conferred by this Act . . . are
exercisable from time to time.” Then the Interpretation Act 1889 introduced a general principle,
now found in s.12 Interpretation Act 1978. Where any Act confers a power or imposes a duty then
(subject to contrary intention): “the power may be exercised, or the duty is to be performed, from
time to time as occasion requires”. So when the SLA 1882 was recast as the SLA 1925 the drafter
was able to jettison s.55(1) SLA 1882; its work was done by the Interpretation Act provision.
(Inconsistently, the form “at any time or times” surfaces in s.32 TA 1925; and the form “from
time to time” is in s.102(3) SLA 1925. The words must be considered otiose as the context could
hardly supply the contrary intention.) The clause in the book is modelled on s.12 Interpretation
Act 1978. It is unnecessary to refer to duties.

“A BSOLUTE DISCRETION” AND “AS THE TRUSTEES THINK FIT” 135
“Absolute discretion” and “as the trustees think fit”15
In general it should be the trustees—and no one else—who decide how 7.10

their powers should be exercised. The “absolute discretion” clause is
intended to make this clear:
The trustees may . . . in such manner as they may in their absolute discretion think fit.
It is reasonably clear that the absolute discretion clause has no effect

whatsoever. If trustees act improperly they may be restrained even if their
powers are said to be “uncontrollable”.16 Conversely beneficiaries cannot
control trustees acting properly. This is so even in the absence of an
“absolute discretion” clause. Trustees’ freedom of action is not increased
by including an “absolute discretion” provision, and not decreased by its
omission.17 The clause can be justified as for the avoidance of doubt or as
a statement of what might not be obvious to the layman. For these rather
marginal reasons, the precedents in this book include an absolute discre-
tion clause.
Parliamentary drafters have used a variety of forms: 7.11
The trustees may
. . . as they shall in their absolute discretion think fit
. . . as the trustees in their absolute discretion, without being liable to account
for the exercise of such discretion, think fit.
. . . at their sole discretion . . .
. . . if and as they think fit . . .
The power shall be exercised according to the discretion of the trustees.18
These expressions are all equally efficacious; drafters may take their
choice. Another way to make the same point is to say that “the trustees may
. . . as if they were absolute owner” but the “absolute discretion” wording
is to be preferred.19
What, then, is the drafter to do? One could specify whenever trustees
are given a power that such power is to be “absolute”; that would be inor-
dinately repetitive. The usual approach is to scatter a variety of “absolute
15
A note on terminology. We have seen the term “Gisborne clause” used to describe what is here
called an “absolute discretion” clause; but the more transparent term is to be preferred.
16
Re Gulbenkian [1970] AC 508; Harris v Lord Shuttleworth [1994] ICR 991. For a discussion see
Thomas on Powers (2nd edn, 2012).
17
In the leading case Gisborne v Gisborne (1877) 2 App.Cas. 300, the Court refused to interfere with
the trustees’ decisions even though it would have exercised the power differently. The House of
Lords drew some comfort from the use of the word “uncontrollable” in the trust concerned, but
see Parry, “Control of Trustee Discretions”, [1989] The Conveyancer 244 accessible www.kessler.
co.uk.
18
The examples are from ss.3, 15, 31, 32, 33 TA 1925. We have even seen the form “fullest, widest
and most unfettered discretion”.
19
See 6.24 (“As if the trustees were the absolute/beneficial owner”).

discretion” formulae intermittently throughout a trust.20 This is not an

attractive course; it sets in defiance the usual principle of interpretation
which would suggest that where the words were omitted, trustees’ powers
were intended to be less than absolute.21
The preferred approach is to insert in the trust a general provision,
expressed to apply to every power of the trustees:
The powers of the Trustees may be exercised:
(a) at their absolute discretion; and
(b) from time to time as occasion requires.
It is then unnecessary to provide anywhere else that trustees’ powers are
“uncontrollable” or exercisable at the trustees’ “absolute discretion”, or
“exercisable at any time or times”. The clause may be omitted where
brevity is desired.
The clause should be amended where trustees’ powers are made subject
to the consent of a “protector”. The following is proposed:22
Subject to obtaining the consent of the Protector when necessary, the powers of the
Trustees may be exercised:
(a) at their absolute discretion; and
(b) from time to time as occasion requires.
Guidance and control of trustees
7.12 This section is concerned with methods of controlling trustees. First,

however, a short note on how trustees make decisions in the absence of
any form of control in the trust deed.
Majority decisions
7.13 Trustees’ decisions must be unanimous unless the trust directs otherwise.
The usual practice is to leave the rule of unanimity to apply and this is the
course taken in the forms in this book.23
20
The favourite place for “absolute discretion” formulae is in discretionary trusts of income and trust
for sale clauses (now obsolete); perhaps this shows the influence of the statutory precedents: s.33(1)
(ii) TA 1925 (discretionary trust of income); s.25(2) LPA 1925; s.33 AEA 1925 (trusts for sale).
21
An argument of this kind was rejected in Julius v Lord Bishop of Oxford (1880) 5 App. Cas. 214.
Here the words “if he shall think fit” qualified one power but not another. The House of Lords
refused to draw any inference from this; the words were “mere surplusage”. The litigation would
have been unnecessary had the words been omitted.
22
But it would not matter if there was no reference to the Protector.
23
Where two or more family members are to be trustees, and their relationship may be inharmoni-
ous a majority clause may be an effective solution so long as there is a third trustee to hold the

TWO-TRUSTEE RULE 137
If majority rule is desired the drafting is simple enough:

The functions of the Trustees may be exercised by a majority of them.24
Some drafters add that the trustees in the minority must join in the execu-
tion of documents in accordance with the decision of the majority but that
is plainly implied.
Two-trustee rule
A sole trustee can generally exercise all the powers of the trustees.25 It 7.14
is quite common to specify that powers of appointment should only be
exercised by two trustees or a trust corporation.26
This restriction may formerly have been imposed for estate duty reasons
which are long obsolete. The requirement does impose some restraint on
wayward acts of a sole trustee but only a limited restraint. One point may
be made in particular. Generally a sole trustee has (after the death of the
settlor) the power to appoint additional trustees. So a sole trustee can side-
step the restriction by appointing a like-minded co-trustee, if one can be
found.27 For what it is worth, however, the restriction is applied to the
overriding powers in this book.
If the trustee is a substantial trust company the requirement of a second
trustee is not necessary and may be inconvenient. Accordingly the prec-
edents in this book provide that the requirement of two trustees does not
apply if the trustee is a company carrying on a business which consists of
or includes the management of trusts.28 A simpler course, which would
work in practice, would be for the draft just to say that the requirement of
two trustees does not apply if the trustee is a company.
balance. But a better course may be the creation of two or more separate trusts, one for each
member of the family; or to use professional trustees alone. Majority rule applies in the case of
charitable trusts.
24
The draft is loosely based on that approved in Re Butlin [1976] Ch 251. A variant sometimes used
is that the power may be exercised by a majority so long as a Professional Trustee is one of the
majority. There should be a consequential amendment in the confl ict of interest clause, so that
where a trustee was under a confl ict of interest, his vote could not override his co-trustee.
25
Subject to minor exceptions: see 6.1 (Number of trustees).
26
The Parliamentary drafter has occasionally adopted this approach: see 6.1 (Number of trustees).
A more drastic version of the same idea is to require at least two (or even three) trustees at all
times.
27
An individual could not avoid a two-trustee rule simply by appointing as a second trustee an “off
the shelf ” company, of which he was sole director. In Gilford Motor Co. v Horne [1933] Ch 935 (as
explained in Yukong Line Ltd v Rendsburg Investments Corp (No. 2) [1998] 1 WLR 294 at p.307)
a one-man company was held to be ineffective as a device to avoid a restraint of trade clause. It
is suggested that similar reasoning applies in the case of a one-man company used as a device to
avoid a two-trustee rule.
28
The wording is derived from the original s.69(2) TCGA 1992 (repealed 2006). Similar wording
is found in s.28(5) TA 2000.

Another course would be for the draft to say that the requirement of
two trustees does not apply if the trustee is a trust corporation and to define
that expression to have the same meaning as in the Trustee Act 1925. This
could be inconvenient if a foreign trust company is appointed trustee as
it would not normally be a trust corporation within this definition. (This
inconvenience is avoided by widening the definition but the drafting
becomes more complicated.)
A course to avoid is for the draft to say that the requirement of two
trustees does not apply if the trustee is a trust corporation and to leave that
expression undefined. When the parliamentary drafters use the expression
they always take care to define it.29 Without a definition it is ambigu-
ous.30 The drafter is best advised to avoid the expression trust corporation
altogether.
Letter of wishes
7.15 Where trustees have wide powers, it is always desirable to record the
settlor’s wishes as to how they should be exercised. The settlor’s wishes
are conventionally recorded in a document addressed to the trustees and
called a “letter”. Perhaps the epithet “letter” was adopted to emphasise the
informal and non-binding nature of the statement of wishes. The docu-
ment would more aptly be titled: “statement of wishes” or “memorandum
of wishes” but “letter of wishes” has become standard terminology and it
is best to adopt it.
29
“Trust Corporation” for the purposes of the TA 1925 means (i) the Public Trustee; (ii) a corpo-
ration appointed by the court to be a trustee; (iii) a corporation entitled under Rule 30 Public
Trustee Rules 1912 to act as custodian trustee; or (iv) a list of persons (not all corporations!) set
out in s.3 Law of Property (Amendment) Act 1926. There are identical defi nitions in the other
1925 property statutes and (with slightly different wording) in the Supreme Court Act 1981.
Modern statutes incorporate this defi nition by reference. There are occasionally non- standard
defi nitions, e.g. s.3 Enduring Powers of Attorney Act 1985 (but s.64 Mental Capacity Act 2005
reverts to the standard defi nition); and Sch.4, para.2 IHTA 1984 (Maintenance funds for historic
buildings). Companies incorporated outside the EU or with less than £250,000 share capital are
not generally “Trust Corporations” within these defi nitions.
30
There are (broadly) three possible meanings:
1. Trust corporation may have its TA 1925 meaning. (An objection to this solution is that there
are various statutory defi nitions but the one in the TA 1925 is the standard one which will
immediately come to the mind of a trust lawyer.)
2. Trust corporation may mean any company carrying on trust business.
3. Trust corporation may mean any company which is a trustee.
The better view is that the expression (if written in lower case letters and assuming no guidance
from the context) should be taken to have the second of these meanings but in practice one should
proceed on the most cautious view. In Jersey, “Trust Corporation” is used to mean “a normal
corporate trustee” which suggests meaning 2: Regent Trust Co v RJD [2009] JRC 117 at [6].

LETTER OF WISHES 139
Drafting the letter of wishes
The letter of wishes may be put in a recital or in the body of the trust itself, 7.16
but it is more appropriately put in a separate document. This is because it
is non-binding, it may be changed, and it may be confidential.31
The important drafting point is to state that the wishes are not binding
on the trustees, so the status of the memorandum of wishes is clear. A
statement of “wishes” expressed in imperative terms may be construed to
be binding and override the terms of the trust instrument.32
This is the sort of precedent one might use:
Joan Smith Will Trust: Statement of Wishes
This note sets out my wishes for my will trust. I express these wishes only for
the guidance of the trustees. It is not intended to bind them. They must use their
own discretion. They should also have regard to any change in circumstances of
my family and of course to any wishes which I may record for their guidance in the
future.
My wishes are as follows:

(1) My trustees should ensure that my husband is reasonably provided for.
(2) Subject to that, I would like my trustees to regard my children (and if the fund
is not distributed, their families in due course) as the principal beneficiaries of
the residuary estate.
(3) Subject to that I would like my trustees to regard my nephews and nieces as the
principal beneficiaries per stirpes [or per capita].
The letter of wishes must not be peremptory but can, if appropriate, be
strongly worded. This is not always appreciated and may be helpful for
settlors reluctant to create wide powers or trusts of long duration. Some
examples:
I wish to express my fi rm desire (without binding the trustees) that they should trans-
fer the Trust Fund to my son Adam absolutely, on attaining the age of 25, unless there
are overpowering reasons for not doing so.
I have accepted the advice of my solicitors that the most tax efficient form of will is a
discretionary will trust, but (tax apart) I would rather have made an absolute gift to
my son Adam. I request the trustees (without binding them) to give weight to Adam’s
wishes accordingly.
I wish to express my desire (without binding the trustees) that the trustees should
regard my son Adam as the principal beneficiary of the Trust Fund.
31
On rights of beneficiaries to see the letter of wishes see 29.3 (Beneficiary’s right to trust
information).
32
For an example see Chen v Ling [2000] HKCFI 481 and 552 belatedly reported [2006] TLI 262
accessible www.hklii.org.hk.
A statement of wishes (however expressed) could not override the terms of a will, unless executed
in accordance with the formalities required for a will, though it could form the basis of an applica-
tion to rectify the will.

The letter of wishes should give reasons (if not obvious). It should be
reviewed periodically and best practice would be for the trustees to seek
confirmation that the wishes are unaltered every few years as appropriate.
The settlor’s signature is normally witnessed, and this is good practice,
though not strictly essential. The statement should be dated.
Some drafters put into the trust a clause requesting the trustees to have
regard to any letter of wishes, but this is plainly unnecessary and best
omitted.
When should the letter of wishes be executed?
Some commentators advise that the letter of wishes should not be executed
at the time of the trust.33 The reason is to make the non-binding nature
of the statement even clearer. Of course, this will not help if the facts are
that the settlor gives binding oral directions to trustees at the time of the
settlement, and merely delays putting them into writing to avoid giving
the appearance of a sham. Conversely, if the letter of wishes is non-binding,
as it should be, there is no need to wait until after executing the trust. It is
considered that the better practice is to execute the letter of wishes at the
same time as the trust. In practice settlors will indicate their wishes to the
trustees (no other course is really practical) and formal legal documenta-
tion should accord with the reality.
Power of appointment of new trustees
7.17 The power of appointment of new trustees gives considerable power to

the appointor. If trustees propose to do something of which the appointor
disapproves, the appointor can frustrate their intention by appointing a
trustee opposed to the idea. The consent of existing trustees is not required
for that appointment. Trustees can refuse to disclose certain confidential
documents34 but the appointor can bypass that restriction by appoint-
ing a sympathetic trustee, who will have much greater rights to see trust
documents. Offshore, institutional trustees may require the appointment
of additional trustees to be subject to their consent. However, that is not
thought appropriate as a standard form.
33
Underhill & Hayton, Law of Trusts and Trustees (18th edn, 2010) para.4.13.
34
See 26.3 (Beneficiary’s right to trust information).

CONSULTATION WITH BENEFICIARIES 141
Consultation with beneficiaries
Should the drafter impose a duty on trustees to consult with beneficiaries 7.18
and if so what duty? There are four options:
(1) Say nothing, so the default rules apply.

(2) Exclude the statutory duty of consultation and say nothing more.
(3) Exclude all duties of consultation.
(4) Replace the default rules with an express duty of consultation.
Default rules
Section 11 TLATA 1996 provides:

The trustees of land shall in the exercise of any function relating to land subject to
the trust —
(a) so far as practicable, consult the beneficiaries of full age and beneficially entitled
to an interest in possession in the land, and
(b) so far as consistent with the general interest of the trust, give effect to the wishes
of those beneficiaries, or (in the case of dispute) of the majority (according to
the value of their combined interests). 35
This imposes two duties, here called “the statutory duty to consult” and
“the statutory duty to obey”. Unfortunately this provision does not make
good sense when applied to substantive trusts. 36 It is arbitrary, as the duties
depend on the nature of the trust property, and come and go as the trustees
buy or sell land. It is limited, as the duties are only to consult and obey the
life tenant, whereas the interest of the remainderman may actuarially be
much more valuable. But in practice no difficulty would arise because it
is so circumscribed (“so far as practicable . . . so far as consistent with the
general interest of the trust”) that trustees can ignore it (as in practice they
do, and for the most part they must). The general law, which includes some
reasonable duty of consultation,37 is not excluded by the statutory duty to
consult, but only (imperceptibly) modified by it.
35
This replaced s.26(3) LPA 1925 which imposed a duty of consultation only where the trust instru-
ment expressly so directed, so in practice it could be ignored. The only comparable statutory
precedent is Form 6 Statutory Will Forms 1925 (notice of intended appropriation) accessible www.
kessler.co.uk.
36
The provision was drafted with bare trusts of land in mind. It makes some sense if the trust prop-
erty is the residence of the life tenant, but not for land held as an investment. It may introduce
uncertainty into the administration of the trust, because it is debatable what is “the best interest
of the trust”. In the event of a dispute, it is unclear who decides what is in the best interest of the
trust. Would the court accept the trustees’ view, unless no reasonable body of trustees would reach
that view? Or would the court form its own view? But in practice no difficulty seems to arise.
37
This proposition is self- evident, but if authority is needed, see X v A [2000] 1 All ER 490.

Exclude the duty
The obvious form would be:

Section 11 Trusts of Land and Appointment of Trustees Act 1996 (consultation with
beneficiaries) shall not apply.
This restores the pre-TLATA position, under which trustees must act
reasonably, including consultation where reasonable, but have no duty
to obey. This is a satisfactory result, but no-one other than a trust lawyer
would understand the drafting, so it is not the preferred course.
A form used in the STEP Standard Provisions is:
The powers of the Trustees may be exercised . . . at their absolute discretion . . .38
This form of words, devised before the TLATA, excludes the (almost
illusory) statutory duty to obey the life tenant; though not the statutory
duty to consult.
The form used in this book is as follows:
The Trustees are not under any duty to consult with any Beneficiaries or to give effect
to the wishes of any Beneficiaries. The powers of the Trustees may be exercised at
their absolute discretion.
The intention is to maximise trustees’ freedom of action, and not to stop or

discourage trustees from consulting with beneficiaries where appropriate.
However some testators or settlors might feel it sent the wrong message
to their trustees, seemingly encouraging them to act in a high-handed or
paternalistic manner.
An express duty
Clients of this mind would prefer to set out an express duty (excluding
s.11 TLATA expressly or by implication). The following draft is based on
s.11 TLATA:
The Trustees shall, so far as appropriate, consult with Beneficiaries who have reached
the age of 25 (but there is no duty to consult with Beneficiaries who are not in practice
likely to receive substantial benefits from the Trust). The powers of the Trustees may
be exercised at their absolute discretion.
The clause is of course somewhat vague, but it has to be so.39

38
Standard Provision 10. The Provisions are in Appendix 1.
39
If the client wants more than that, he needs to consider the other methods of influencing trustees
discussed in this book. A very concerned client might wish to add:
The Trustees shall so far as consistent with the general interest of the Trust, give effect to the wishes of those
Benefi ciaries, or (in case of dispute) of the majority (according to the value in the opinion of the Trustees
of the Benefi ciaries’ anticipated receipts from the Trust Fund).

WHAT TRUSTEES’ POWERS SHOULD BE SUBJECT TO CONTROL? 143
Which route?
It actually makes little if any difference in practice what the drafter says.
Of course trustees should where appropriate consult with beneficiaries,
without express provision directing them to do so. But some choice needs
to be made about the drafting. In this book the standard form is to exclude
the duty to consult and to obey, but that may be replaced by the express
duty if the settlor or testator prefers it.
Control of trustees
Most settlors will be content to select trustees whom they trust and to 7.19
guide them if necessary with a letter of wishes. In the precedents in this
book the only important controls are the restraints on adding beneficiar-
ies, the power to dismiss a trustee after retirement age, and the confl ict of
interest clause.40
Human nature being what it is, some settlors seek further methods of
controlling their trustees. This is particularly common where shares in the
settlor’s family company are held in a trust.
It is no answer to say that the settlor should find trustees in whom the
settlor has complete faith.41
Of course it is possible as a matter of trust law to provide a variety of
checks on trustees’ powers. Three related sets of questions arise here: (i)
what powers of trustees should be subject to control; (ii) what methods of
control should be applied; (iii) to whom should these powers of control
be given?
What trustees’ powers should be subject to control?
A list of important powers can easily be drawn up. 7.20
(1) The most important are the overriding powers of appointment,

resettlement and advancement.
(2) Power to lend interest-free to a beneficiary. Money lent to a ben-
eficiary is rarely repaid.
But this clause is a rather unhappy compromise between the two more effective options of (i)
giving powers to trustees and (ii) giving powers to beneficiaries. It is almost entirely ineffective,
since, in practice, if the trustees did not want to adopt the beneficiaries’ wishes, they would
maintain that this was contrary to the “interests of the trust”.
40
5.39 (Power to add beneficiaries); 7.30 (Power to dismiss trustees); 6.13 (Confl icts of interest).
41
“. . . There is no art/to find the mind’s construction in the face . . .” (Macbeth).

(3) Power to allow beneficiaries to use trust property; power to guar-

antee a beneficiary’s obligations and to charge trust property to
support that guarantee; and power to apply capital as if it is income.
These may have a similar effect to a power of appointment.
(4) Power to release powers and power to change the governing law
may be used to change the effect of a trust.
In the discussion below we shall refer for the sake of brevity to restrictions
on “the power of appointment, etc.”.
What sorts of checks can be made on trustees’ powers and who exercises them?
7.21 The sorts of checks which may be made on trustees are as follows:
(1) powers of consent: so the trustees cannot exercise powers of

appointment, etc., without consent;
(2) giving powers of appointment, etc., to other persons instead of the
trustees;
(3) power to dismiss trustees.
These powers may be given to:
(1) Beneficiaries
(2) The settlor
(3) A protector.
We will discuss in turn the possible role of beneficiaries, settlors and pro-
tectors. The power to replace trustees is in a category of its own and will
be considered separately. One general comment may be made at this point.
Of course whoever is given these powers of control may act wrongly. This
is not a problem of trust law or drafting, but an aspect of the human condi-
tion: at some point someone must be trusted.
Giving powers of appointment to beneficiaries personally
7.22 A traditional approach is to give powers of appointment, etc., to a benefici-

ary, rather than to the trustees. One occasionally still sees trusts for a ben-
eficiary for life, with remainder to such issue as the beneficiary may appoint,
and in default of appointment, for the beneficiary’s children at 21.42
42
This form was so common that a precedent was provided in the Statutory Will Forms 1925: see
Forms 7 and 9 accessible www.kessler.co.uk. The form formerly had some advantages for the rule
against perpetuities. This has not been the case since the reforms of the PAA 1964.

WHAT TRUSTEES’ POWERS SHOULD BE SUBJECT TO CONTROL? 145
This sort of provision may be thought of not so much as controlling

the trustees, but conferring rights on the beneficiary for the beneficiary’s
own benefit, making the beneficiary’s position slightly closer to beneficial
ownership. This is why such powers are here classified as semi-fiduciary.
See 7.33 (Nature of powers of consent and appointment).
The use of personal powers of appointment remains an acceptable
drafting technique. However it has a few disadvantages.
The personal power would, in absence of specific provision, lapse on
the death of the beneficiary. The exercise of the power in the course of
winding up a trust may sometimes be frustrated by the doctrine of a fraud
on a power.43 There are further complications if the beneficiary could
appoint the property to him or herself.44
These problems may be solved if the drafter confers overlapping
powers, i.e. a beneficiary has a personal power of appointment and the
trustees have a second (usually wider) fiduciary power of appointment.
This is quite often seen. There can be no harm in this practice beyond the
complications of drafting. Yet there is no obvious advantage to be gained
from it. (Possibly, it might be thought to give the beneficiary greater
involvement in the devolution of the trust fund? But that is little more
than cosmetic.)
Personal powers might be supported on the grounds that a beneficiary
is the best qualified person to have the powers. Who better to decide how
to appoint property to the beneficiary’s children? The argument is wrong.
Some beneficiaries may not have the best understanding of their financial
affairs.45 The trustees will in practice consult the beneficiary and the ben-
eficiary may be appointed trustee.
In conclusion, there is little merit in personal powers of appointment,
and they are not used in the forms in this book.
Giving powers of consent to beneficiaries46
The next possibility is to direct that the trustees can only exercise a power 7.23
of appointment with the consent of a particular beneficiary (typically the
43
Re Brook [1968] 1 WLR 1661. See Thomas on Powers (2nd edn 2012), para.9–72.
44
Such a power may not be a fiduciary power: Re Penrose [1933] Ch 793. See also s.283(4) Insolvency
Act 1986. It can, however, be argued that there was no reason in principle to support the dictum
in Penrose that a power cannot be fiduciary if the donee is an object. On the contrary, such a power
may be fiduciary or not: it is a matter of construction. A full discussion, which would require
a review of many authorities and statutory provisions, falls outside the scope of this book; see
Mowbray, “Choosing Among the Beneficiaries of Discretionary Trusts” [1998] PCB 239 acces-
sible www.kessler.co.uk.
45
The technique of the (now obsolete) SLA 1925, giving administrative powers to the life tenant,
is also in this category. Hambro v Duke of Marlborough [1994] Ch 158 is a poignant example of why
the form is not desirable.
46
Thomas on Powers (2nd edn, 2012), Ch.7 has a good general discussion on consents to powers;
for pensions cases see Rowley, “The Interpretation of Pension Scheme Deeds” [2003] TLI 129 at
140.

life tenant).47 If the power of consent is a wholly personal one,48 this route
raises some intriguing tax questions.49 If the reader uses the forms in this
book the questions do not arise (but of course the questions do arise with
less carefully drafted trusts).
Giving powers of consent to the settlor
7.24 A common and practical course is to provide that powers of appointment,

etc., should only be exercisable with the consent of the settlor. This nor-
mally50 raises no tax problems though the simpler course in these cases
would be to make the settlor a trustee. The drafting is straightforward:
The Trustees may with the consent in writing of the Settlor during his life and afterwards at
their discretion . . .
This echoes a statutory precedent.51 The need for written consent is

obvious. Some say “with the prior written consent . . .”; but “prior” in this
context is unnecessary.52
A power exercisable “with the consent of the settlor” lapses after the
death; but a power exercisable “with the consent of the settlor during his
life” will be exercisable after the death of the settlor without any consent.
Giving powers of appointment to a settlor
7.25 This is a possible course, but not often adopted in practice. Plainly, some
provision would be needed to ensure that the power does not lapse at
the death of the settlor, and the benefits would not justify the drafting
complications.
Better methods of controlling trustees
7.26 Imposing the requirement for settlor consent is a practical step, as far as it
goes. It is of course a limited control on trustees. The settlor can prevent
the trustees taking some step of which the settlor disapproves but cannot
require them to take any action when the settlor wishes. What, then, can
47
For statutory examples see s.32(c) TA 1925 (power of advancement), s.41 AEA 1925 (power of
appropriation).
48
On this terminology see 7.33 (Nature of powers of consent and appointment).
49
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), para.75.13
(Consent to exercise of power) accessible www.foreigndomiciliaries.co.uk.
50
A CGT problem might arise in the case of a non-resident trust.
51
Section 32(1)(c) TA 1925.
52
The statutory powers of consent mentioned above do not use the word “prior”.

WEIGHTED MAJORITY CLAUSE 147
be done for a settlor who wishes to possess effective control over the trust
fund?
Settlor as one of the trustees. If the settlor is one of the trustees, the settlor will
in principle have a power of veto, for (in the absence of contrary provision)
trustees’ powers must be exercised unanimously. This may be sufficient
for most settlors.
Settlor (or spouse) as sole trustees?
One obvious suggestion is that the settlor should be the sole trustee. As a 7.27
matter of trust law there is little difficulty.53 Alternatively the settlor and
the settlor’s spouse/civil partner may wish to be the only trustees. This is
particularly common when the trust property is the family company, and
the settlor is not prepared to contemplate the possibility of interference.
However, it is not desirable for the settlor (or spouse) to act as sole trustees.
A trust will benefit in practice from having a professional trustee to keep
an eye on administration and the exigencies of tax planning from time to
time. Yet although undesirable in principle, this may be done. The profes-
sional adviser should stress the need to seek regular professional advice and
the difficulties which may arise if this is not done. Alternative possibilities
to this are to be preferred where possible.
For those who want a greater measure of control, there are two recom-
mended solutions. The first is the use of a weighted majority clause. The
second is the use of a protector.
Weighted majority clause
Under this route, the settlor will be a trustee, jointly with a single profes- 7.28
sional trustee. In addition there will be a clause providing that trustees’
decisions are made by a majority; and in the case of equality of votes, the settlor
should have a second and casting vote.
So provided that there are only two trustees, the settlor’s wishes must
prevail. The settlor should be advised that he or she will not own the trust
property. The settlor must act in good faith in the interests of the trust
and its beneficiaries.54 Nevertheless for many practical purposes the settlor
will have the control which the settlor desires.
A precedent is:
53
See 6.1 (Number of trustees). If the settlor is a beneficiary, problems may arise if he wishes to
appoint trust property to himself: see 6.19 (Trustee-beneficiaries).
54
In addition, if the settlor is a beneficiary, the settlor may require the consent of a co-trustee to
appoint the fund in the settlor’s own favour: see 6.19 (Trustee-beneficiaries).

The functions of the Trustees shall be exercisable by a majority of them, each trustee
to have one vote. In the case of an equality of votes, the Settlor (if a trustee) shall have
a casting vote in addition to his fi rst vote.55
This draws on familiar company law precedent.56

Sometimes the settlor may wish control to pass to some other person on
the settlor’s death. The easiest solution here is to use a protector.
Protectors57
7.29 The solution of a weighted majority vote only works if the settlor can
be a trustee. That is not possible where non-resident trustees are to be
appointed. The now traditional solution is to create an office of “protector”.
In practice protectors are used principally for offshore trusts. They may
have a useful role for United Kingdom trusts.
The word “protector”, as a term of property law, was first used in the
Fines and Recoveries Act 1833, in relation to entails. That area of law is
obsolete, but its nomenclature of “protector” survives to the modern law
of trusts.
The protector is commonly given the following powers:
(1) The protector’s consent is required to the exercise of powers of

appointment, etc., by the trustees.
(2) The protector is given power to appoint and to dismiss trustees;
and to authorise breach of the self-dealing rule.
The following precedent is proposed as a definition of “protector” where

the settlor is the initial protector.58
The Protector
(1) The Settlor shall be the fi rst Protector.
55
There should be a consequential amendment in the confl ict of interest clause, so that where there
was a confl ict of interest, a settlor could not override his co-trustee.
56
Articles 13 and 14 of the Model Articles for Public Companies (The Companies (Model Articles)
Regulations 2008).
57
On this topic, see Scottish Law Commission, “Discussion Paper on Supplementary and
Miscellaneous Issues relating to Trust Law” (April 2011) Ch.11 (Protectors); NZLC “Some
Problems in the Law of Trusts” R79 “Protectors” at para.20.
58
It is clear that the settlor may be a protector: Law Commission Consultation Paper No. 171,
Trustee Exemption Clauses, para.4.8; The Esteem Settlement [2003] JLR 188 [2004] WTLR 1
accessible www.jerseylaw.je at para.205(viii). The appointment of settlor as protector is possible but
less than ideal where the settlor is also the principal beneficiary. The main problem is the confl ict
of interest: see 7.30 (Power to dismiss trustees). Sham also needs consideration: see Kessler, “What
is (and what is not) a Sham” (2000) OITR, Vol.9, p.125 accessible www.kessler.co.uk.

PROTECTORS 149
(2) [The Surviving Spouse of the Settlor] 59 shall be the next Protector.
(3) The Protector for the time being may appoint one or more persons to be
Protector for such period as the Protector shall specify. All the powers of the
Protector (including this power of appointment) shall be vested in the new
Protector accordingly. The appointment shall be made by will or by deed. The
appointment may be revocable or irrevocable. The appointment has priority to
sub- clause (2) above.
(4) A Person ceases to be Protector in the event of the following:
(a) death;
(b) execution by the Protector of a deed of retirement;
(c) refusal or incapacity to act.
(5) If at any time there is no Protector able or willing to act, the Trustees shall
appoint a new Protector.
(6) A Protector shall not be appointed trustee. A Trustee shall not be appointed
Protector.
A slight variation is needed where the settlor is not the fi rst protector:
The Protector
(1) [Name and address] shall be the fi rst Protector.
(2) [Name and address] shall be the next Protector.
(3) [As (3) above]
(4) [As (4) above]
(5) If at any time there is no Protector able and willing to act:
(a) The Settlor if able and willing to act, and subject to that
(b) the Trustees
shall appoint a new Protector.
(6) [As (6) above]
The draft should make provision for the death or retirement of the first
protector. The usual form is to provide that a protector may select their
successor. A provisional successor is named in this draft. This is more con-
venient than an immediate exercise of the power of appointment (or the
risk that the protector may die without having appointed a successor). The
protector may alter the position later if desired.
The drafter must cater for the possibility that there is no protector. One
course is to allow all the trustees’ powers which require the protector’s
consent to lapse permanently. That could be most unsatisfactory. The
course adopted here is to rely on the trustees to appoint their new protec-
tor.60 The only objection is that the checks intended to restrict the trustees
will not at that moment be fully operative. It might be best to say that the
power to add beneficiaries should lapse or become further restricted.
59
The trust will name here the person provisionally intended to be protector after the death of the
settlor. This need not be the Surviving Spouse of the Settlor: it might for instance be a child of the
Settlor. If the Surviving Spouse is named, the standard defi nition of that term must be included.
60
The power to appoint a new protector is fiduciary: see Re Circle Trust, HSBC v Wong [2007]
WTLR 631 (Cayman Islands Grand Court) and Re Bird [2008] JLR 1 (Royal Court of Jersey).

One could add further precautions to try to ensure a suitable person is

chosen as a new protector. For instance, one could direct the trustees to
appoint a new protector being a solicitor of, say, ten years’ standing and
nominated by two beneficiaries or by the President of the Law Society.
The form adopted here is slightly simpler; and is not likely to give rise to
any problems in practice.
Occasionally a grander precedent is seen where the protector is not an
individual but a committee.61 The charging clause should if appropriate
be extended to allow a protector to charge. It is not necessary to make the
protector a party to the trust deed.62
Nature of protector’s powers and duties
It is a question of construction of any particular trust to determine the

nature of a protector’s powers and duties. If the trust does not contain
anything to answer the question expressly, the gap must be fi lled by a
legal presumption or principle of construction. In the absence of anything
unusual in the trust, the protector’s powers will be understood to be fidu-
ciary and not personal powers.63
One could provide that the powers conferred on the protector are
personal and not fiduciary. The typical settlor would want the protector
to exercise the powers in the interest of the trust, and not in the settlor’s
own interest.
The description of the powers as “fiduciary” does not answer all the
questions which may arise. In particular:
(1) Suppose a protector has a power to dismiss trustees. Is the protector

obliged to review the trust regularly, to be satisfied that the trustees
are doing a good job, and should not be removed? Or may the pro-
tector wait until something comes to the attention of the protector
to suggest that action is needed?
(2) Suppose the protector has power to consent to appointments by
the trustees. Is this subject only to the requirements of honesty and
61
For an example see IRC v Schroder 57 TC 94. But quaere whether a committee is likely to reach
wiser decisions than an individual.
62
See 10.8 (Who should be parties?).
63
See Re Star, Knieriem v Bermuda Trust Co., Butterworths Offshore Cases Vol.1, 1996, p.116.
(Supreme Court of Bermuda); for English authorities see Re Skeats (1889) 42 Ch D 522, which
was cited in the Bermudan case; IRC v Schroder 57 TC 94 and Mourant v Magnus [2004] JRC
056. In Centre Trustees Ltd v Van Rooyen [2010] WTLR 17 ( Jersey), it was held that the protec-
tor’s powers were semi-fiduciary: on this terminology see 7.33 (Nature of powers of consent).
Although the trust declared that no powers were vested in the protector in a fiduciary capacity,
it was clear from another provision that they were not personal. The protector was not therefore
under a duty to consider whether or not to exercise them but if he did, then they had to be exer-
cised for the benefit of the beneficiaries: see [28].

PROTECTORS 151
proper motive (summarised as “good faith”); or must the protector

consider whether the proposed appointment is desirable?
The question is whether the protector’s duties are fully fiduciary, or semi-
fiduciary.64 It is best to deal with these matters expressly:
Duties of Protector
(1) The powers of the Protector must be exercised in good faith.
(2) The Protector is under no duty to enquire into or interfere with the manage-
ment or conduct of this Trust, unless he has actual knowledge of circumstances
which call for enquiry.
(3) The Protector shall consider the appropriateness of any act before exercising his
powers.65
It is unnecessary to provide any further indemnity for a protector, or pro-
vision for access to trust documents. If trustees refuse to supply documents
the protector would exercise the power to remove them.
Where trustees have power subject to consent of the protector it is
implicit that the protector cannot be a trustee. It is desirable to say this
expressly so that the position is made clear.
Protectors: tax implications
This topic has been considered in detail elsewhere66 and it is concluded

that the use of a protector has no significant tax implications. In particular:
1. A protector cannot normally be regarded as a trustee for tax

purposes.
2. A trust with a UK resident protector may nonetheless be non-UK
resident for tax purposes. The most that can be said is that where
there is a UK protector, care is needed to ensure that the protector
is not a branch, agency or permanent establishment of the trustees.
The position could be different if the protector is given unusually wide

powers.
64
On this terminology see 7.33 (Nature of powers of consent).
65
What would the position be in the absence of express provision? This is a matter of construc-
tion of each individual trust. In the absence of any indication in the trust, it is considered that
the protector’s power of consent is semi-fiduciary only. The protector is not usually expected to
involve himself actively in the affairs of the trust. This view is based on the general practice in
the profession, a relevant matter in construction.
66
Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012) 4.13 (UK protector
and trust residence) accessible www.foreigndomiciliaries.co.uk.

Power to dismiss trustees
7.30 It is common for offshore trusts to confer powers to remove trustees. Such
powers are valid as a matter of trust law.67 It is considered that a will cannot
confer a power to appoint or dismiss executors.
It is considered that a power to dismiss trustees is not normally appro-
priate for United Kingdom trusts and should not be a standard form. The
appointment of the settlor as trustee, backed with a weighted majority
clause is sufficient. The following discussion is therefore principally of
importance for offshore trusts. It is also relevant to trustees in the United
Kingdom or elsewhere considering whether to accept an appointment to
a trust containing a power of dismissal.
A power of removal does not operate retrospectively. If the trustees
have done an act of which the person with the power to dismiss disap-
proves, the subsequent dismissal of trustees may come too late. The power
to dismiss trustees should therefore be seen as ancillary to the other con-
trols on trustees’ powers.
Who will exercise the power? A trust with power to dismiss trustees
will generally have a protector who will be given the power. The protec-
tor should ideally not be a principal beneficiary.
The power of removal would be a fiduciary power. If the settlor was a
protector, it could not be used for the private benefit of the protector. The
proper course for trustees is to ignore the existence of the power while
acting as trustee.68 Suppose the trustees refused to transfer trust funds to
the settlor; and the settlor (having the power of dismissal) then dismissed
them and appointed more amenable trustees. This would probably be an
invalid exercise of the power.69 The power to dismiss trustees may, for
this reason, fail when the person with the power most wants to use it. The
drafter should warn the settlor of the problem; or the settlor may seriously
misunderstand the settlor’s rights under the trust. For all this, the power
67
The power was accepted as valid in London & County Banking Co. v Goddard [1897] 1 Ch 642;
and in Davis v Richards and Wallington Industries [1990] 1 WLR 1511 the power was held to be
exercised by mere implication. See also Chelleram v Chelleram [1985] Ch 409 at 432. The validity
of the power is assumed in s.36(2) TA 1925.
68
The Esteem Settlement [2004] WTLR 1 at para.204(viii) accessible www.jerseylegalinfo.je.
69
IRC v Schroder [1983] STC 480 at p.500; The Esteem Settlement [2004] WTLR 1 at para.204(viii)
accessible www.jerseylaw.je. Pope v DRP Nominees Pty Ltd 74 SASR 78; [1999] SASC 337
provides a good illustration of the dangers of assuming that a protector with power to appoint
new trustees has control of the trust. In that case, on the application of one of the benefici-
aries, the Supreme Court ordered the removal of the trustee because of irregularities in the
administration of the trust. Under the trust deed there was an “appointor” who had power
to appoint a new trustee. On appeal, the Full Court held that the appointor (who as director
of a corporate trustee had also controlled the trustee) was in a position of confl ict and was
therefore under a duty NOT to exercise the power of appointing a new trustee. Instead, the
Court appointed professional trustees nominated by the applicant beneficiary (who was also
the appointor’s son).

POWER TO DISMISS TRUSTEES 153
may offer a solution to a settlor’s fears that trustees may refuse to resign or
will resign only on unacceptable terms.
A precedent is:
The Protector may remove any trustee by giving notice in writing to that and the other trustees.
On receipt of such notice the removed trustee shall cease to be a trustee provided there remains at
least two trustees.
Dealing with the former trustee
It is not enough to dismiss a recalcitrant trustee. One must also recover 7.31
the trust property which was vested in that trustee. Suppose the trustee
refused to part with it; which, in the context of a dispute, is likely to
happen. Obviously the new trustees could take proceedings; but is there
some short cut which might avoid that process?
There are three methods of extracting trust property from an ex-
trustee without that trustee’s consent:
(1) Use of Trustee Act 1925, s.40

Suppose that on the dismissal of the ex-trustee a new trustee is
appointed by deed. This automatically vests many types of prop-
erty in the new trustees without any need for a conveyance or
assignment. The dismissed trustee does not need to be a party to
the deed.
Section 40 does not apply to certain types of property, of which
the most important category is company shares; and such property
cannot be dealt with in this way.
(2) Use of power of attorney
A trustee on being appointed might give the protector an irrevoca-
ble power of attorney authorising the protector to execute a trans-
fer of the trust property. Appropriate provision would be needed
in the trust deed and in every appointment of new trustees. While
possible in theory, this is a somewhat impractical solution.70
(3) Use of nominees
If at the time of the dismissal the trust fund is vested in nominees.
The problem does not arise provided the nominee is not a sub-
sidiary of the ex-trustee. After the dismissal of the ex-trustee, the
nominees will hold the fund for the new trustees. In anticipation
70
The power would have to satisfy the conditions of s.4 Powers of Attorney Act 1971 if it is to be
irrevocable. A related idea is to have the trustees execute blank transfers of the trust property and
hand them to the protector or settlor. Besides the obvious problem that the trust property may
change, the trustees might counteract this by a transfer of trust property to a nominee prior to
their dismissal.

of such problems, it would be possible to provide in the trust deed

that the trust fund should at all times be held by nominees on terms
approved by the protector.
7.32 So it is possible, by one method or another, to arrange that trust

property can be wrested from an ex-trustee without that person’s co-
operation. However, there is a difficulty. These methods allow the pro-
tector to override what may be reasonable needs of the trustees. Trustees
may incur substantial liabilities—particularly tax liabilities—to which
they will generally remain liable even if they are later removed from their
trust. Trustees need recourse to the trust fund to meet those liabilities and
while they may have other remedies, they may not so easily be enforced.
The problem here is not the mechanisms of trust or property law. It
is more fundamental: the drafter must find a fair balance between the
confl icting interests of trustees on the one hand, and beneficiaries on
the other. It is considered that there is no objection to powers to dismiss
trustees. However, the more extreme routes, which allow the protector
to divest ex-trustees of the trust property, do not find the right balance.
They should not form part of a standard draft or standard administra-
tive procedures. Otherwise careful trustees will refuse to act without an
appropriate indemnity.
The approach of this book is to have the power of dismissal only where
there are foreign trustees. Provision is made to provide fair protection for
trustees.
Case law offers some precedents of far-reaching powers to dismiss trus-
tees and recover trust property.71
Nature of powers of consent and appointment
7.33 Where a person has a power of consent under a trust, what rights and duties
does this impose on that person? This is a question of construction of the
trust concerned. In general, however, the trust will not contain anything
which expressly answers the question, so the gap must be fi lled by legal
presumptions or principles of construction.
There are three broad categories of power of appointment. There is
general agreement as to their characteristics, but no agreed terminology.
In this area “a great deal of inaccurate argument arises from expressions
undeveloped and not explained which may bear two senses.” 72 In particu-
lar the expressions “fiduciary” or “as trustee” in isolation are unhelpful, as
they are applied to many quite different types of powers. If a power is not
71
London & County Banking Co. v Goddard [1897] 1 Ch 642 and London County and Westminster Bank
v Tompkins [1918] 1 KB 515. For a statutory precedent see s.109(5) LPA 1925.
72
Palmer v Locke 15 Ch D 294 at 303.

NATURE OF POWERS OF CONSENT AND APPOINTMENT 155
“fiduciary” that is the end of the matter. But if the power is “fiduciary”,
that is only the beginning of the enquiry: one has to go on and ask what
are the duties which attach to it. The following terminology is proposed:
(1) Completely Beneficial Powers of Appointment. Here the appointor is

not subject to any legal restraint in the motive or purpose for which
the power is exercised. The appointor may exercise the power (or
refuse to exercise it) for their own benefit. The classic example is
an unrestricted power to appoint to anyone in the world, including
the appointor: a general power.
(2) Semi-Fiduciary Powers of Appointment. Here the appointor is not
under any obligation to exercise the power; but if the appointor
exercises it, the exercise is subject to requirements of good faith
and proper motive (failing which it will constitute a “fraud on a
power”). That is, “the appointor under the power, shall, for any
purpose for which it is used, act with good faith and sincerity, and
with an entire and single view to the real purpose and object of
the power, and not for the purpose of accomplishing or carrying
into effect any bye or sinister object (sinister in the sense of its
being beyond the purpose and intent of the power) which he may
desire to effect in the exercise of the power”. In the same leading
case, Lord St. Leonards observed: “A party having a power like
this must fairly and honestly execute it without having any ulte-
rior object to be accomplished. He cannot carry into execution
any indirect object, or acquire any benefit for himself, directly or
indirectly. It may be subject to limitations and directions, but it
must be a pure, straightforward, honest dedication of the prop-
erty, as property, to the person to whom he affects, or attempts,
to give it in that character.” 73 The classic example is a power of
appointment exercisable by a beneficiary in favour of children and
descendents.
(3) Wholly Fiduciary Powers of Appointment: powers where the
appointor is under an obligation to consider whether or not to
exercise the power. The classic example is a common form power
of appointment exercisable by the trustees.
It is considered that the same framework should be applied to powers of

consent. There are then three categories of powers of consent:
(1) Wholly Personal Powers of Consent. An example is the power under

s.32 Trustee Act 1925 to consent to the exercise of the power of
advancement. Another example is a will trust, letting the widow
73
Portland v Topham (1864) 11 HLC 32, 54 accessible www.commonlii.org.

live in the matrimonial home, the trustees to sell only with the
consent of the widow. Obviously, the person with this power
may consult that person’s own interests: that is what the power of
consent is for. Another example is the protector’s power of consent
under the (obsolete) law of entails.74
(2) Semi-Fiduciary Powers of Consent. Here the consentor has a power
of veto, exercisable or not subject only to the requirements of good
faith and proper motive (summarised as “fraud on a power”).
(3) Wholly Fiduciary Powers of Consent. Here the consentor must con-
sider whether the proposed action is desirable.
The question of which category any particular power falls in can only be
a question of construction. In principle, it is considered:
(1) Trustees’ powers of consent should prima facie be considered to be

wholly fiduciary.
(2) Beneficiaries’ powers of consent which do not affect their own
interests should prima facie be considered to be semi-fiduciary.
(3) Beneficiaries’ powers of consent which do affect their own interests
should be considered to be wholly personal.
This is consistent with powers of appointment.

Does it matter which category a power falls into? The distinction
between wholly personal and fiduciary powers is obviously important.
The distinction between semi and wholly fiduciary powers is not impor-
tant in practice. What does it matter if a person is not obliged to consider
whether an appointment to which they consent is suitable? In practice,
that person will surely do so.
The distinction does not matter for other trust law purposes.75
Unfortunately the authorities in this area are extremely difficult.
First, they treat the question as one to be decided by authority. The
better view should be that it is a question of construction, in which
authority offers relatively little guidance. See 11.5 (The problem of
narrow powers of appointment).
Secondly, the law got off to the right start in Eland v Baker.76 Trustees’
powers of consent were held to be wholly fiduciary. Trustees were required
to consider the interests of beneficiaries affected by the appointment.
74
Section 36 Fines and Recoveries Act 1833 (a useful precedent for a draft to make a power of
consent a wholly personal one).
75
It does not matter for the rule against perpetuity: Re Churston [1954] Ch 334, as explained in
Commissioners of Estate & Succession Duties v Bowring [1962] AC 171. Re Phillips [1931] 1 Ch 347, if
correctly decided, is an exceptional case. (Unfortunately, a full discussion is beyond the scope of
this book.)
76
(1861) 29 Beav. 137; 54 ER 579.

NATURE OF POWERS OF CONSENT AND APPOINTMENT 157
Thirdly, the next case is Re Dilke.77 A power of appointment was

subject to trustees’ consent. The appointor appointed that the trust fund
should be held on such trusts as he appointed. This was (rightly) held to
be valid; for the trustees could properly consent to such an appointment,
if they thought it appropriate.
Fourthly, the law took a wrong turn, it is considered, with Re Phillips.78
Here, it was deduced from Dilke the remarkable proposition that trustees
had no duty to the persons appointed. The better view of that case was
that the trustees did have a duty, but exercised it. As often happens to
wrongly decided cases, Phillips was subsequently distinguished on wholly
illusory grounds: Re Watts.79 The nakedness of the attempted distinctions
was cruelly exposed in Re Churston.80 But both those cases concerned a
different point—the rule against perpetuities—and did not have to decide
the point now being discussed. Conversely, it must be admitted, Phillips
obtained obiter dicta support in other cases.81
For all practical purposes, however, the drafter may simply impose a
power of consent, and need not concern him or herself with the nature
of the power.
77
[1921] 1 Ch 34.
78
[1931] 1 Ch 347.
79
[1931] 2 Ch 302.
80
[1954] Ch 334 at 342 “I cannot think why . . . With all respect, I cannot agree. . . Again, I cannot
appreciate the bearing of that.” (Roxburgh J.)
81
Re Triffit [1958] Ch 852; Commissioner of Estate & Succession Duties v Bowring [1962] AC 171, PC.

CHAPTER 8
TRUST PROPERTY
Particular assets
8.1 Special considerations arise where the trust property takes the form of
certain assets.
Shares and securities in a private company
8.2 The normal procedure is to transfer the shares from the settlor to the
trustees. It must be checked that the company’s articles and any share-
holder agreement permit the settlor to do this. The consent of the settlor’s
co-shareholders may be needed. Where company articles do not permit
a transfer of the shares, it may be possible for the shareholder to create a
trust by declaring themself sole trustee or nominee for the trustees. This
involves no transfer of the legal title to the shares. This would need careful
consideration in the light of the individual case. Where the company is in
voluntary liquidation, the liquidator must sanction the transfer.1
Similar considerations and restrictions may apply to unlisted debentures
or loan notes.
Leasehold property
8.3 If the trust property is a lease it may be necessary to obtain the landlord’s
consent to any transfer to trustees.
Land subject to mortgage
8.4 If land subject to mortgage is to become trust property, the consent of

the mortgagee will usually be required: standard mortgage deeds prohibit
disposals of the mortgaged property without consent. A reasonable lender
1
Section 88 Insolvency Act 1986. If the company is being wound up by the court, the consent of
the court is required: s.127 Insolvency Act 1986.

PARTICULAR ASSETS 159
should readily grant consent, as the lender’s position is not prejudiced by

the making of the trust.
There are further questions to be addressed. Are the donees—the
trustees—to assume liability for the mortgage debt, or are they not?
Whichever is decided there should be an agreement between the trustees
and the settlor so the position is clear. If the trustees assume liability to pay
the mortgage debt, they will need to satisfy themselves that the property is
worth more than the mortgage; and that they have sufficient funds (and if
necessary indemnities) to pay interest and capital. There are tax complica-
tions which cannot be fully discussed here.2
Life insurance policies
See Chapter 23 (Trusts of life insurance policies). 8.5
Pension death benefits
See Chapter 24 (Trusts of pension death benefits). 8.6
Chattels
Trusts in this book are drafted with a view to holding land or investments. 8.7
Further consideration may be needed where the trust property will consist
of chattels. Form 3 of the Statutory Will Forms 1925 (accessible www.
kessler.co.uk) will provide some ideas.
Property qualifying for IHT business/agricultural property relief
On will drafting for an estate containing business or agricultural property, 8.8

see 18.21 (Married testator with business or agricultural property).
Consider IHT problems of ss.113A and 124A IHTA 1984 if the prop-
erty may be sold by the donees.
Property situate outside England and Wales
Where property is situate outside the United Kingdom the tax and other 8.9
requirements of the domestic law will need consideration. When property
is situate outside England but in other parts of the United Kingdom non-
tax aspects of the domestic law might still need consideration.
2
Where the donees (the trustees) assume the mortgage debt, a charge to SDLT and CGT may arise
as the gift may be treated like a sale for consideration. Where the trustees do not assume liability
for the mortgage debt that problem is avoided but others arise. How will interest on the debt be
paid? If it is paid by the trustees, one must ensure that the terms of the trust permit this. The CGT
position is interesting: what is the trustees’ base cost? Is there a reservation of benefit problem for
IHT? Will the interest qualify for income tax relief ?

CHAPTER 9
THE RULE AGAINST PERPETUITIES
Introduction
9.1 The rule against perpetuities is designed to prevent a trust from lasting
indefinitely.
In outline, the rule prescribes a maximum fi xed period of 125 years
within which the interest of a beneficiary is required to vest.1 The 125
year period automatically applies whether or not specified in the trust.2
This chapter discusses the law under the PAA 2009 which applies to
trusts taking effect after 6 April 20103 and wills executed on or after that
day.4
Drafting
9.2 It is helpful for the draft to coin a term to describe the perpetuity period
within which all interests must vest so that the trust complies with the rule
against perpetuities. The following terms are commonly used:
The Trust Period; the Trust Date

The Perpetuity Period; the Perpetuity Date; the Perpetuity Day5
1
Section 5(1) PAA 2009.
2
3
The Act’s commencement date.
4
Section 15 PAA 2009. The old rules will continue to apply to trusts taking effect and wills exe-
cuted before that day: for a general discussion of these rules see the 9th edn of this work para.9.1
(The rule against perpetuities) and 15.6 (The rule against accumulations). Different rules apply to
a non- charitable purpose trusts (exceedingly rare in England); this period does not apply: section
18 PAA 2009. For a discussion of the rules as they apply to pensions, see 24.15 (Pensions and the
rule against perpetuities) and 24.20 (Pensions and the rule against accumulations).
5
It is doubtful whether these three terms will survive the PAA 2009. The drafter has no choice
over the perpetuity period (for the purpose of the rule against perpetuities).

DRAFTING 161
The Vesting Date; the Vesting Day
The following are also seen:
The Specified Period

The Distribution Date; the Termination Date6
The Ultimate Date7
The choice hardly matters and the term used in this book is “the Trust
Period”.
The form is simple:
“The Trust Period” means the period of 125 years beginning with the date of this
Trust.8
It is suggested that the drafter should specify the maximum possible

period. The trust can of course end sooner if desired.
Confusion over dates
In this book, the trust period is expressed to “begin with” the day of the 9.3
trust. This avoids any confusion whether or not the day on which the trust
takes effect counts as part of the 125-year period. This is caused by apply-
ing (or misapplying) two rules of law:
(1) The law may ignore parts of a day. Suppose a trust is executed on 1
January 2011. The 125-year perpetuity period would expire on 31
December 2135. It would not matter what time on 1 January the
trust was made; the law does not usually take notice of fractions of
a day.
(2) The word “from” may be understood to be exclusive of the termi-
nus a quo.9 It might perhaps be argued that the period began on 2
January continuing until 1 January 2136, or even continuing to
2 January. If so, the perpetuity period would exceed 125 years,
which is not permitted. That view does not survive examination.
6
These two terms are appropriate to trusts under laws like that of Guernsey where the trust comes
to an end on the expiry of the perpetuity period. They are strictly less appropriate to English trusts
which need not come to an end on the expiry of the perpetuity period. The rule is that interests
must vest within that period.
7
This apocalyptic term seems to be a novel coinage in the Encyclopedia of Forms & Precedents (5th
edn); the 4th edn used the more usual term “perpetuity period”.
8
The defi nition is shorter than that used in previous editions of this book since it is no longer nec-
essary (or effective) to add the words: “That is the perpetuity period applicable to this settlement
under the rule against perpetuities”.
9
See the fi ne discussion on this point in Cooke, “Touching the time of the beginning of a lease
for years”, [1993] The Conveyancer 206 accessible www.kessler.co.uk.

162 THE RULE AGAINST PERPETUITIES
The true meaning would obviously be that the period begins on

the day of the trust and ends on the last moment of 31 December.
It must be intended that the perpetuity period begins as soon as the
trust begins. This may however have been the fear which led some
drafters to direct the period to be a day or two less than the former
statutory period.10
It is plain that the perpetuity period includes the day of the trust if the
words “begins with” are used and so the problem does not arise.
Power to curtail the trust period
9.4 One sometimes sees an express power to curtail the “Trust Period”.11 The
power is valid as a matter of trust law.12 However, this power is not needed.
The conventional overriding powers can be used to the same effect.
Accordingly the power is not used in this book.
Remaining within the perpetuity period
(1) Dispositive powers
9.5 All dispositive powers must be restricted so that they can only be exercised
in the perpetuity period. Thus in the case of a power of appointment, it
is necessary to say:
The Trustees shall hold the Trust Fund on such trusts as they may during the
Trust Period appoint.
In the case of a discretionary trust or power over income:
During the Trust Period the Trustees may pay the income of the Trust Fund
to such of the Beneficiaries as they think fit.
Administrative powers are not affected by the rule against perpetuities and
do not need such restrictions.13
10
The form survives in some older trusts. In the early years of the PAA 1964 some drafters
apparently believed that the perpetuity period must be a whole number of years. (The reason is
difficult to fathom. A fraction is a “number”.) Hence (perhaps) the occasional use of a 79-year
period.
11
The significance of curtailing the Trust Period would depend on how the term “Trust Period”
was used in the trust. Generally the ending of the “Trust Period” will bring forward the end of
the trust.
12
The perpetuity period remains fi xed at 125 years.
13
The rule only applies (for present purposes) to successive estates or interests under the trusts and
powers of appointment: s.1 PAA 2009.

THE RULE AGAINST ACCUMULATIONS 163
Powers of appointment and resettlement must of course be exercised in

a manner which complies with the rule against perpetuities. This is not,
however, a matter for the drafter of the trust itself.
(2) Beneficiaries’ interests
The Trustees shall hold the Trust Fund on trust for the Beneficiary during 9.6
their life.
The position here depends entirely on the definition of “the Beneficiary”.

If the beneficiary is born before the expiry of the trust period there will be
no difficulty. It may be that “Beneficiary” is a defined term, under which
a “Beneficiary” may be born after the trust period expires; then there is a
potential difficulty. So to avoid the problem the drafter must either restrict
the definition of “Beneficiary” to exclude beneficiaries born after the trust
period expires; or else put the limitation in the clause giving an interest
to the beneficiaries.14
Effect of failure to remain within perpetuity period
If the drafter does not follow these guidelines the trust will confer interests 9.7
which might vest outside the perpetuity period. This may not matter too
much since the trust remains valid during the lengthy 125-year “Wait and
See” period.15 Nevertheless it is better for the drafter not to rely on the
“Wait and See” rule. There are some uncertainties as to how it operates;
and a trust where the “Wait and See” rule applies may mislead the reader:
it will not take effect according to its tenor.
The rule against accumulations
The former statutory rule was that income could only be accumulated in a 9.8
trust for a limited period. This period was usually 21 years from the date of
the trust (or, in the case of a will, 21 years from the death of the testator).
After this period, neither a duty nor a power to accumulate income was
valid.16 The PAA 2009 has abolished this rule.17 Accumulations can now
be directed or authorised to take place throughout the perpetuity period.18
14
See 14.9 (A perpetuity problem) for an illustration of this technique.
15
Section 7 PAA 2009.
16
Section 164 LPA 1925; s.13 PAA 1964.
17
Section 13 PAA 2009. In relation to charities, the rule continues to apply in a modified form:
accumulations can be directed or authorised (1) for 21 years or (2) for the life of the settlor or (3)
as the Charity Commissioners or the Court may permit: s.14.
18
See 15.6 (Accumulation Limb).

164 THE RULE AGAINST PERPETUITIES
Pre- commencement wills
9.9 The best advice is to revoke wills made before 6 April 2010 and make a
new one. This could in theory be achieved by an appropriately worded
codicil, but it would be simpler to execute a new will.

CHAPTER 10
GENERAL PROVISIONS OF A TRUST
Order of Provisions
Blackstone introduces our subject: 10.1
The matter written must be legally and orderly set forth. . . . It is not absolutely
necessary in law to have all the formal parts that are usually drawn out in deeds,
so long as there are sufficient words to declare legally the party’s meaning. But,
as these formal and orderly parts are calculated to convey that meaning in the
clearest, distinctest, most effectual manner, and have been well considered and
settled by the wisdom of successive ages, it is prudent not to depart from them
without good reason or urgent necessity. . . .1
The following order is fairly standard:
1. Title, date and parties: “This settlement is made . . .”

2. Recitals: “Whereas . . .”
3. Testatum: “Now this deed witnesses . . .”
4. Definitions
5. Beneficial provisions
6. Overriding Powers2
7. Appointment of new trustees3
8. Incorporation of schedule (administrative provisions)
9. Settlor exclusion clause4
1
Commentaries Book II (1st edn, 1766) p.297.
2
See 11.1 (Drafting overriding powers).
3
See 6.38 (Appointment of new trustees).
4
See 13.10 (Settlor exclusion clause).

166 GENERAL PROVISIONS OF A TRUST
10. Default Clause5

11. Irrevocability clause
12. Testimonium clause: “In witness . . .”
13. Schedule: Administrative Provisions
These forms are discussed in this chapter except where footnotes give
another reference.
A lengthy document results: it is helpful to furnish it with a contents
page.6
Declaration of trust or transfer to trustees?
10.2 There are two ways to create a lifetime settlement:
(1) A settlor may declare himself or herself trustee (acting as sole

trustee unless and until another trustee is appointed).
(2) The settlor may:
(a) transfer trust property to trustees;
(b) direct the trustees to hold on the appropriate trusts.
The second is the normal route and adopted in the precedents in this book.
The first route, the declaration of trust, may be convenient if for any reason
it is difficult to transfer property to trustees. For instance, in the case of
shares, if there are restrictions on transfers, foreign land or certain pension
policies.
Of course, a declaration of trust may also be used for the different
reason that the settlor wants to be sole trustee.
See also 10.12 (Form where settlor is sole trustee).
On the consequential amendment of the definition of “the trustees”:
see 10.39 (Definition of “the trustees”). Either in the body of the trust
or in a separate document there will need to be a declaration of trust by
which the settlor declares that he or she holds the intended trust property
on the terms of the trust.7
5
See 13.23 (Default clause).
6
Some drafters subdivide their settlement into “parts” like a statute. The precedents in this book
are simple enough to render this unnecessary.
7
If the latter, the document might begin “This Declaration of Trust is made . . .”. However the
term “settlement” is just as apt and it is preferred to retain it for the sake of uniformity.

ON WHAT DATE DOES A TRUST TAKE EFFECT? 167
Title
This trust is made . . . 10.3
The title is self-explanatory.8 The term “settlement” is acceptable but

“trust” is now more commonly used.
Date
A document should be dated, though the absence of a date or even a 10.4

wrong date does not invalidate it.9 It only means that there may be
doubts as to when it was made. For the style of writing a date, see 3.12
(Dates).
On what date does a trust take effect?
The date is important for tax and property law purposes (e.g. if the settlor 10.5
wishes to resile from the gift). The position is complex, because several
distinct sets of rules interact:
(1) Rules as to when a transfer of assets to a trustee takes effect. As

every student learns, a trust cannot take effect until the trust prop-
erty is vested in the trustee, or the settlor has done all the settlor
can do to transfer it.
(2) Rules as to when a settlor becomes bound by a deed which has
been executed by the settlor but not by other parties.10
(3) Rules as to when a deed signed by a settlor binds the settlor: the law
of “delivery” (a confusing and unfortunate term) and escrow.11
8
The custom before 1925 was to begin all deeds with the words “this Indenture” (if more than one
party) or “this Deed Poll” (if only one party). Section 57 LPA 1925 put an end to that unhelpful
practice.
9
Lewison discusses dates in The Interpretation of Contracts (5th edn) 10.02–10.03. See also the Law
Commission’s Report No 253, The Execution of Deeds and Documents by or on behalf of Bodies
Corporate, (1998) accessible http://lawcommission.justice.gov.uk, also has a discussion at para.6.6.
10
Perhaps surprisingly, a settlor is in principle bound by a settlement which the settlor has executed,
even if the trustees are parties and have not executed it: Lady Naas v Westminster Bank [1940] AC
366.
11
Emmet on Title is a good starting point for research on this subject.

Backdating
10.6 “Even the gods cannot alter the past.”12 The same principle holds in
English law: a document cannot be back-dated. If it is back-dated it does
not alter anything that has happened in the past; the document can only
take effect from the date of execution.13 In this the law only reflects the
human condition, inconvenient though it may sometimes be.14 And yet the
clear spring of principle is muddied by many real or apparent exceptions.15
In view of the exceptions it is not surprising that the general principle itself
12
Agathon, cit. Aristotle, Nicomachean Ethics, Vol.6, Ch.2.
13
Many cases could be cited (as is usually the case for basic principles). For examples of private
agreements failing to alter the past see Waddington v O’Callaghan 16 TC 187; Bradshaw v Pawley
[1980] 1 WLR 10.
14
Thus, the non-judicial dictum of Edward Fitzgerald: “The moving fi nger writes; and, having
writ/ Moves on: nor all thy piety and wit/ Shall lure it back to cancel half a line/ Nor all thy
tears wash out a word of it.” The inconvenience extends beyond the law. “Reminded of the
President’s previous statements that the White House was not involved in the Watergate affair,
Ziegler [government spokesman] said that Mr. Nixon’s latest statement is the Operative White
House Position . . . and all previous statements are inoperative.” (Cited in the Oxford Dictionary
of Quotations, 4th edn).
15
There are seven categories of exception:
(1) Parliament can enact retrospective legislation.
(2) Parliament sometimes empowers private persons to make arrangements which are wholly
or partly retrospective. (Retrospectivity is not all or nothing, but a matter of degree.) One
example is s.142 IHTA 1984 (deeds of variation). A deed of variation which purports to
vary past dispositions does not do so for the general purposes of the law, but is treated for
some tax purposes as if it had that effect. Again, an election for hold-over relief and indeed
most tax elections have some retrospective fi scal effect.
(3) The courts sometimes have power to make orders which are wholly or partly retrospective.
For instance, the statutory powers to set aside transactions under insolvency or matrimo-
nial legislation. There are dicta suggesting that the jurisdiction for rectification is in this
category. There is a better argument of principle that rectification ought to fall in category
(4) below (this is the view expressed by Hill J in Davis v FCT (2000) 44 ATR 140 at [56]).
The issue will probably never be resolved.
(4) The courts have no general inherent jurisdiction to change the past: Morley Clarke v Jones
59 TC 567. But some judgments are effectively backdated: e.g. in Spence v IRC 24 TC 311
where a party to a contract exercised his right to set it aside for fraud. The restitutio in inte-
grum represented by the court order obtained some years later did not reconstruct history:
it recognised and declared that which had been the legal position before the judgment,
although until the order the parties were in a state of some uncertainty as to what their
rights were. So the court order in this case was not retrospective in the strict sense; but the
distinction requires a legal microscope. Likewise new judge-made law, such as the Ramsay
principle, is harshly retrospective in reality, if not in legal theory.
(5) A few legal acts have some retrospective effect at common law (without any court order).
Examples include disclaimers, assents, escrows (said to “relate back”); the exercise of a right
to render a voidable disposition void will sometimes make it void ab initio. Whether these
acts are retrospective for fi scal purposes has been decided on an ad hoc basis. A disclaimer
was held not to have retrospective fi scal effect but an assent does: Re Stratton [1958] Ch
42; IRC v Hawley 13 TC 327. In Spence v IRC 24 TC 311, T sold shares under a contract
completed in 1933. T rescinded the contract (for fraudulent misrepresentation) in 1936.
The House of Lords ordered the fraudulent purchaser to transfer the shares back to T in
1939. It was held that T was rightly assessed on dividends from the shares for the years 1936
to 1939. That was obviously correct: this is a category (4) case. More interestingly, it was
said that the effect of the exercise of T’s right of rescission was retrospective (for income

WHO SHOULD BE PARTIES? 169
is occasionally overlooked. A surprising number of practitioners do not

regard backdating as wrong. So it should be well-noted that the execution
of a backdated document with a view to mislead may involve criminal
offences, inter alia, forgery and fraud on HMRC.
Parties
This settlement is made [date] between 10.7

(1) X of [address] (“the Settlor”) of the one part and
(2) (a) Y of [address] and
(b) Z of [address]
(“the Trustees”) of the other part
The form is so standard that it is rare to stop to consider whether these

words are all necessary or indeed what they may mean. In fact the words
“of the one part” and “of the other part” have no significance in the
context of a deed of settlement.
Who should be parties?
It is not strictly necessary that the trustees should be parties to the trust 10.8
deed. All that matters is that the trust property is vested in the trustees.16
The only significance of making trustees a party is that (since they sign
the deed) (1) they cannot disclaim trusteeship; and (2) they cannot deny
that they have notice of the trust. It is, however, the standard practice to
include them. The practice in will drafting is a striking contrast: trustees
of a will trust are not made a party to the will.
Likewise it is not strictly necessary that a Protector should be a party to
the trust deed. However one would normally wish the protector to accept
their appointment in writing, and that can just as conveniently be done by
making them a party. It makes no difference and practice varies.
A beneficiary (of a bare trust or otherwise) need not be a party, and (the
rule being that a person who need not be a party should not be a party)
tax) back to the date of contract. (But this was obiter since dividends were only assessed
from after the date of the rescission.)
(6) Private persons may agree between themselves that a document should have effect from
an earlier date. But this is not true retrospectivity, and only parties to the agreement are
affected. For instance, HMRC will not be bound.
(7) Samuel Butler observed that although God cannot alter the past, historians can.
Accountants—fi nancial historians—enjoy some similar licence.
16
Re Chrimes [1917] 1 Ch 30. If trustees are made parties, it does not matter if they do not sign the
trust deed: see 10.5 (On what date does a trust take effect?).

it is better practice that the beneficiary is not a party, though no harm is

done if the beneficiary is a party.
All the parties should execute the deed (and if they do not they should
not be parties).
Describing the parties
10.9 Full names and addresses should be given so that there can be no doubt
as to identity. For the style of writing the address, see 3.13 (Addresses).
Further details should be given in unusual situations where ambiguity
may still remain (e.g. where an individual uses two names, where two
individuals in the same family share the same name or where someone has
changed their name).
The practice was formerly to specify the occupation and (for women
only) marital status of each party. This is now omitted as unnecessary and
(by contemporary standards) discriminatory. It would be convenient to
give former names, if a person is referred to in an earlier relevant docu-
ment by a different name, as this avoids confusion.
Each name should begin on a separate line.
Form where settlor is one of the trustees
10.10 The settlor is commonly one of the trustees. The use of a definition con-
veniently shortens the text:
This Deed is made the . . ... day of . . ... between
1. John Smith of [address] (“the Settlor”) of the one part and
2. (a) The Settlor and
(b) Peter Smith of [address]
(“the Trustees”) of the other part.
It was formerly the practice for the person to sign twice, once in each
capacity, but this is not necessary and not recommended.
Form where trust made by joint settlors
10.11 It happens occasionally that two settlors (usually husband and wife) con-
tribute funds to a single trust. (Two separate trusts may be advantageous for
tax,17 but the administrative convenience of a single trust may outweigh
any tax considerations.)
The form hardly needs to be spelt out:
This Settlement is made [date] between
17
Two separate trusts will qualify for two separate CGT annual exemptions.

NO NAMED SETTLOR 171
1. John Smith and Jane Smith both of [address] (“the Settlors”), etc.
Note that consequential amendments must be made elsewhere in
the trust. Amendments are usually needed for the following:
(1) The definition of Beneficiaries.

(2) The power to appoint new trustees.
(3) The settlor exclusion clause.
This seems, and indeed is, obvious; but it is easy to forget and therefore
not infrequently overlooked in practice.18
Form where settlor is sole trustee
The form is self-explanatory: 10.12

This Settlement is made [date] by [name] (“the Settlor”).
Whereas. . .
It is wrong to say:
This Settlement is made [date] between
(1) John Smith of [address] (“the Settlor”) of the one part and
(2) John Smith (“the Original Trustee”) of the other part
But no harm is done (save as to reputation) if this uncouth form is used.
No named settlor
It is possible for a settlor to convey property to trustees and for the trus- 10.13
tees then to declare appropriate trusts at the settlor’s direction19 : there
is then no need to name the settlor in the trust deed. This may be done
for confidentiality which may be desired for reasons proper or improper.
Bearing in mind the risk that an uncharitable or cynical court may infer
that the reasons are improper, it seems a wiser policy to name the settlor
in the trust deed. This is, however, a better course than to use a nominal
settlor.
18
Interesting questions can arise where this mistake is made. For instance: suppose there are two
settlors, Mr and Mrs X. The Beneficiaries are defi ned as “the children of the Settlor”. Y is the
child of Mr X but not of Mrs X. Is Y a beneficiary?
19
A written and signed direction would be needed in English law, or in a jurisdiction which has an
equivalent of the English rules concerning formalities: s.53(1)(c) LPA 1925.

Nominal settlor
10.14 It is the custom in some offshore jurisdictions to arrange for a lawyer or

trust company to settle an initial nominal trust fund.20 This is correctly
referred to as a nominal settlor;21 though others may use pejorative terms
such as dummy, puppet or stooge. The real settlor then adds the substan-
tial trust fund. It goes without saying that the person who provides trust
property directly or indirectly will be the “settlor” for tax purposes22 and
likewise for insolvency and matrimonial law purposes. This style of draft-
ing may have the pernicious result of leading a court to infer an intention
to mislead the reader into thinking that the nominal settlor is the only
and real settlor. (Though the true explanation may be that the parties are
seeking lawful confidentiality and mistakenly believe that every trust deed
ought to specify a named settlor; or the drafter adopted the common form
without any thought on the subject at all.)
Recitals
10.15 Before the operative part of the deed there are traditionally inserted a series
of statements known as “recitals”. Their function—in a trust context—is
to assist the reader of the deed by explaining its background and purpose.
They are not intended to have legal effect and do not normally have any.23
The use of recitals to instruct or entertain has fallen into sad decline.24
Recitals are traditionally introduced by the word “whereas”. Sometimes
the heading “Recitals” is used. A radical drafter might replace this with
the word “Background” which describes precisely the place and function
of the recitals.
A glance at different trusts encountered in practice or in precedent
20
This practice is recognised in Schmidt v Rosewood [2003] 2 AC 709.
21
This is the expression used in Schmidt v Rosewood [2003] 2 AC 709 para.8.
22
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.75 (“Who is
the Settlor”) accessible www.foreigndomiciliaries.co.uk.
23
Recitals occasionally serve a legal function, operating to supply evidence or to form an estoppel.
None of these are normally relevant to a deed of trust. In addition, of course, recitals will have
a legal effect if the context shows that that is the intention. The correct practice is to put such
material into the body of the deed. For a couple of examples of erroneous recitals disregarded,
see 12.12 (Drafting resolutions of advancement).
24
But note the preamble to A.P. Herbert’s Spring (Arrangements) Bill (which did not pass into the
statute book):
“Whereas on every lawn and bed
The plucky crocus lifts his head,
And to and fro the sweet birds go,
The names of which we do not know . . .”
(cited in the biography by R. Pround, Michael Joseph, 1976).

R ECITAL 2: NAME OF TRUST 173
books shows that a wide variety of recitals are used. The approach of this
book is to include recitals which will be of assistance to the reader or user
of the deed. These are as follows:
Recital 1: A list of the principal beneficiaries of the trust
The Settlor has two children, namely: 10.16

(i) Adam Smith, who was born on [date] and
(ii) Daniel Smith, who was born on [date]
The names and dates of birth will be convenient to later users of the deed.
The layout—each name on a separate line—adds greatly to the clarity of
the precedent. Dates of birth may be omitted if irrelevant to the trust; this
will usually be the case where the beneficiaries are adult.
Recital 2: Name of trust
This settlement shall be known as the John Smith Settlement 2012. 10.17
A trust does not need a name to be valid, but a name is necessary for con-
venient administration, e.g., as a designation for a trust bank account and
a heading in correspondence and tax returns. It seems appropriate for the
drafter to supply the name in the draft (though no harm can arise if this is
not done; the trust will be named in due course).
It is suggested that the name belongs logically in the recitals. The body
of the trust should contain the provisions which have legal effect.
The choice of name hardly matters. It is usually taken from the name of
the settlor and the year. Where the settlor creates a number of trusts in one
year, they may be distinguished by number, or by the type of trust (“John
Smith Grandchildren Settlement 1994”). Sometimes a trust is named after
the principal beneficiary, or the trust property (“the Green Farm Trust”).
Will trusts (which lack recitals) are not usually given a name in the will;
the trust will no doubt be called “the John Smith Will Trust” without the
benefit of an express name clause. If a will creates two separate trusts (not
a course adopted in this book), the drafter should provide two names.
Power to change name of trust
Occasionally trusts confer a power to change (by deed!) the name of a 10.18
trust; this is based on a misconception. A name is only a label and trustees
may name and rename a trust at their pleasure. Power to do so derives
not from the terms of the trust, but from the nature of human language.

Individuals commonly change their name by deed poll, but the deed is
merely evidence of the intention to change a name.25
Recital 3: Foreign domicile of settlor
10.19 It may be helpful to state in a recital where the settlor is domiciled (if not
in the United Kingdom).26
Useless recitals
10.20 Recitals are strictly unnecessary: they have no legal effect. The will drafter
manages without them. The justification for the recitals included in our
standard precedents is that they assist the reader. Others serve no purpose
whatsoever, in normal circumstances, and should be omitted. This
includes some quite common recitals. The following list is not exhaustive.
10.21 (1) Statement of purpose of the trust:

The Settlor wishes to provide for his family and others.
This is innocuous; but it must be admitted to be completely unnecessary.27

At any rate, this form would be preferable to grandiloquent forms such as:
The Settlor is desirous of making such provision as hereinafter appears for the benefit of the
persons hereinafter specified . . .
10.22 (2) Transfer of trust property to trustees
It is common to recite that the settlor has transferred the trust property
to the trustees. Thus:
The Settlor has transferred the property specified in the first schedule below to the Original
Trustees.
25
Halsbury’s Laws of England (4th edn, reissue), vol.35, para.1279. The form has also been seen:
“For the purposes of identifi cation this settlement shall be known as . . .”
One wonders what purposes a name can serve other than identification.
26
For precedents, see 18.26 (Best form of will for testator domiciled outside the UK).
27
The vacuity of this recital is illustrated by IRC v Botnar [1998] STC at 61. This records a submis-
sion that a recital in this form was relevant to the construction of a power to transfer to a new
trust. The submission (rightly) raised no ripple of response before the Special Commissioners or
on appeal.

TESTATUM 175
This may conceivably serve as a useful reminder to ensure that the trust
property is in fact transferred to the trustees.28 But would advisors who
need the reminder read or act on the recital? One frequently turns to the
schedule and finds a reference to a nominal sum. No harm is done if the
recital is omitted, and it is not used in this book.
There is certainly no point in elaborations; such as:
The Settlor has paid or caused to be transferred to or otherwise caused to be vested in the
joint names of the Original Trustees the investments and other property specifi ed in the
schedule hereto to be held on the trusts declared by this deed and for the purposes hereinafter
appearing . . .
(3) Intention to transfer additional property to trustees 10.23

It is apprehended that further moneys, property or investments may from time to time be assigned
delivered transferred to or otherwise vested in the name or control of the trustees to be held on the
trusts declared by this deed.
If the initial trust fund is a nominal sum this is obvious. If the trust fund
is substantial, and it is actually intended to increase the trust fund, then the
recital may serve some purpose. The recital serves no purpose in standard
precedents.
(4) Consent of Trustees 10.24

The trustees have consented to act as trustees of this settlement.
Would the trustees execute the deed if they did not consent?
(5) Irrevocability 10.25
On this see 10.47 (Irrevocability).
Testatum
Now this deed 29 witnesses as follows: 10.26
This introduces the body of the deed. It serves as a marker, and has no
other purpose. The radical would omit the phrase altogether, as meaning
no more than “this document says what it says”. Others modernise the
language and say “this deed therefore provides as follows . . .” or use the
28
See 30.10 (Transfers of trust property to trustees).
29
Some say: “this settlement witnesses. . . .”. The word “deed” is preferable: it is the document which
is doing the “witnessing”.

heading “Operative Provisions”. There is a lot to be said for this. At any

rate, the drafter should avoid embellishment such as:
Now in consideration of the premises 30 this deed witnesseth . . .;
Now this deed made in pursuance of the said desire 31 witnesseth . . .
Now this deed witnesseth and it is hereby declared as follows . . .
The additional words add nothing. If the drafters are tempted to add words
to the testatum, they should consider whether they should better be placed
in recitals or in the body of the deed.
Witnesseth is dying a surprisingly gradual death, but is now rare.
“Irrevocably witnesses” is a neologism based on a twofold misunder-
standing of the need to state that a deed is irrevocable, and the nature
of a witness, whose testimony can never be revoked (though it might be
contradicted). The form should not be used.
Beneficial provisions
10.27 Clauses appropriate to IP trusts and discretionary trusts are discussed in

the chapters on these topics.
It is common to preface the beneficial provisions with a general declara-
tion of trust such as this:
The Trustees shall hold the Trust Fund upon the trusts and with and subject to the powers and
provisions hereinafter declared concerning the same.
Sometimes this is followed by a direction that property added is held on

the same trusts.32
This is the drafter clearing their throat and politely requesting the
reader’s attention to what follows. The formula is omitted from the prec-
edents in this book.
In our precedents the beneficial provisions are normally contained
within three clauses:
(1) Trust Income

(2) Overriding Powers
(3) Default Clause
This division provides conceptual simplicity. It is better style not to mix

income and capital powers in one single clause such as:
30
“Premises” is an archaic term referring to the body of the deed before the “habendum”. The
reference is to a recital that the settlor intends to benefit their family.
31
This refers to the recited desire of the settlor to create the settlement.
32
21.6 (Power to accept additional funds or onerous property).

TESTIMONIUM CLAUSE 177
The Trustees shall pay the income of the Trust Fund to X during her life but with power to pay
or apply the capital thereof to or for her benefit during her life.
Testimonium clause
The practice is to make a lifetime trust by deed. There is no legal require- 10.28
ment to use a deed: any signed document would have the same effect; a
trust (except of land) can even be made orally. The formalities of a deed33
(signature, witness, delivery “as a deed”)—though unnecessary—are
appropriate; a deed being, in Blackstone’s words, “the most solemn and
authentic act that a man can possibly perform with relation to the disposal
of his property.”34
The form for an individual is:
Signed as a deed and delivered by
( full name of individual) Signature
in the presence of
Signature of witness ......................................................................

Name (in BLOCK CAPITALS) ...................................................
Address ...........................................................................................
.........................................................................................................
The precedent is based on that used in Land Registry forms, except that
we have retained the word “delivered”. This is not strictly necessary, for
delivery will be implied. But since a deed must be “delivered”, it seems
better to say so.
The two simplest ways for a company to execute a deed are:
(1) signature by two authorised signatories; authorised signatories are

the director(s) and the company secretary (if any); or
(2) signature by a director in the presence of a witness who attests the
signature.35
Accordingly there are two alternative forms for a company testimonium

clause. Either:
33
For individuals: s.1 Law of Property (Miscellaneous Provisions) Act 1989. For companies:
ss.44–48 Companies Act 2006.
34
Commentaries Book II (1st edn, 1766) p.297.
35
Section 44 Companies Act 2006. A deed could alternatively be executed with the company
seal, but we see no advantage in this. Where a document is to be signed by a person on
behalf of more than one company, he or she must sign it separately in each capacity: s.44(6) CA
2006.

Signed 36 as a deed and delivered by

(name of company) acting by
[a director and its secretary]
[two directors]
Signature
[Director]
Signature
[Secretary] [Director]
Alternatively:
Signed as a deed and delivered by

(name of company) acting by a director
Signature of Director ..........................................................................
In the presence of
Signature of witness ............................................................................
Name (in BLOCK CAPITALS) .........................................................
Address ...............................................................................................
Every party should execute the deed.

The Land Registry Guide 8 (Execution of Deeds)37 has useful prec-
edents for rarer execution clauses, including:
– person is physically unable to sign

– person sig ns in foreig n (i.e. non- Roman) character–
company executing has a corporate secretary/director
– foreign company
– execution by trustees of charities
– execution under power of attorney.
Schedule of trust property
10.29 It was conventional to set out a list of the original trust property in a sched-
ule to the trust deed. There is little point in this: the relevant information
will be provided in the trust accounts.
The old practice was to create an initial trust with a nominal sum of
36
The word “executed” is used in the Land Registry forms. However, we prefer the word “signed”.
Signature in accordance with s.44(1)(b) CA 2006 is the method by which the company is execut-
ing the document, so it is better to say so.
37
Practice Guide 8 accessible www1.landregistry.gov.uk/publications/practice-guides; see too Sch.9, Land
Registration Rules 2003 (Forms of execution).

DEFINITIONS 179
cash,38 and to transfer the real settled property to the trust immediately
afterwards. The original reason for this curious arrangement was the
avoidance of stamp duty on gifts. Stamp duty on gifts was abolished in
1985, and this practice should now be abandoned: the substantive trust
property should be transferred without a prior gift of a nominal sum. If
the trust is intended to be a pilot trust (i.e. to remain effectively dormant
until further gifts are made subsequently by will) then it would be appro-
priate to create the trust with a nominal sum of cash.39
Schedule of administrative provisions

The provisions set out in the schedule shall have effect.
The practice of placing administrative provisions in a schedule at the end

of a trust is a modern innovation and a welcome one. These provisions are
of some length, but are of secondary importance. This may assist the client
who will wish to understand the beneficial provisions, but who may be
content to rely on advisers to supply a suitable collection of administrative
provisions. The schedule allows the matters which are of no interest to the
lay client to be tucked away in decent obscurity; and has become estab-
lished practice. This book adopts a fairly rigorous policy here: all routine
provisions are excluded from the body of the trust. The draft is based on
standard statutory precedent.
Schedule of beneficiaries?
In some foreign jurisdictions drafters have the tiresome habit of defining 10.31
“Beneficiaries” as the persons listed in the third or fourth schedule, so the
reader has to stop and locate the schedule, only to find a few lines of text
which would be more conveniently placed in the definitions clause.
Definitions
Definitions are used in various ways. A definition may serve to identify 10.32
the status of an individual (“the Settlor”, “the Trustees”, “the Principal
38
Formerly £5; nowadays sometimes increased to £100 but the exact sum does not matter.
39
The date of commencement for the purposes of IHT 10 year and exit charges is the date that
property fi rst becomes comprised in the trust; s.60 IHTA 1984.

Beneficiary”). It may be used simply to avoid repeating a full name

(“Adam” or “Mr Smith” instead of “Adam Philip Newbury Smith”).
A definition may serve as a label for the complex concept (e.g. “the
Beneficiaries”). It is a useful tool for dividing text into pieces of man-
ageable size. The use of a definition may ease the adoption of a standard
precedent to its specific circumstances. The fi rst letter of defined terms
should be capitalised whenever used in the defined sense: “the Trustees”;
“the Trust Fund”. This reminds the reader that the term is defined.40 This
practice is generally adopted in lifetime trusts but often ignored in wills;
the distinction is not justifiable and only reflects the lower quality of will
drafting.41
A modish fad is to italicise or even capitalise every letter of defi ned
expressions wherever used. The result is rather messy typography.
A defined expression should only be used in its defined sense.42
Occasionally it may be convenient to breach this rule. The drafter should
signal this by using a small initial letter instead of the usual capital letter.
There is only one example of such latitude in this book. The expression
“the Trustees” is defi ned to mean the trustees of the trust for the time
being. This book nevertheless refers to:
a former trustee
a new trustee
the trustees of another settlement
In each case the small “t” is appropriate.

The words “said” or “aforesaid” are not used in this book. If they are
used, be it noted that they are not appropriate where an expression has
been defi ned. It is a solecism to say:
Hereinafter called “the said trustees”
It is generally undesirable to incorporate substantive provisions in a defini-

tion clause,43 but this is a rule of style and not inflexible.
40
This rule of construction was adopted without comment in Beautiland Co. Ltd v IRC [1991] STC
467 PC Lord Keith, at 471, said: “The context of the reference to ‘the properties’ (with a small
‘p’) . . . makes it clear that the defi nition of ‘the Properties’ is not imported.”
41
In drafting statutes, defi ned terms are not capitalised. But there the reader should be alert to the
use of defi nitions; and to capitalise every defi ned expression (there are so many) would irritate
rather than aid the reader. Moreover the reader will fi nd editions of the statutes which will direct
their attention to the defi ned terms at the end of each section. The reader of a private trust will
not have that aid.
42
City Inn ( Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156 and Sims v Majon [2005] 3
EGLR 67 are examples of the confusion which can arise if this rule is breached. In City Inn the
Court of Appeal held that if a term is defi ned in a document the courts will only depart from that
meaning if the consequences of not doing so would be “absurd”.
43
As the EU Joint Practical Guide on the drafting of legislation states: “defi nitions should not
contain autonomous normative provisions;” see http://eur-lex.europa.eu/en/techleg/index.htm.
Koonmen v Bender 6 ITELR 568 is an example of confusion caused by breaching this rule: see
28.6 (Exclusive jurisdiction clause).

HOW TO MAKE DEFINITIONS 181
The definite article, if applicable, should go within the quotation marks

in the definition. That is, one should say:
“The Settlor” means Mr Smith
Not:
The “Settlor” means Mr Smith
(If the latter style of definition is used, references to “the Settlor” would
expand into the ungrammatical expression “the Mr Smith”.)
How to make definitions
There are two common ways to make definitions. The first, one might call 10.33
“define as you go”; the second uses a formal definition clause.
“Define as you go”
This is established practice in the introductory paragraph of a trust. The 10.34

modern practice—sanctioned by Parliament44 —is to signify the definition
by use of quotation marks and brackets alone. Thus:
This Settlement is made on the 6th April 1991 between Mr. John Smith (“the
Settlor”) . . .
The traditional formula was grander:

Jack Spratt (hereinafter called “the Settlor”)
or the plural form:

Adam Smith and Barry Jones (hereinafter together45 called the “Trustees”)
“Hereinafter” is unattractive legalese. One could say:

“here called. . . .”
“in this Deed called . . .”
It seems safe enough to omit the tiresome word altogether. Indeed, the
time may come when even the quotation marks are abandoned.
44
e.g. s.10A TCGA 1992.
45
Of course it would not matter if the word “together” is omitted, as the sense is clear enough.

A definition clause
10.35 Except for the parties to a settlement (where the above form is well estab-
lished) it is helpful to assemble the principal defi nitions in a definition
clause at the beginning46 of the trust. A definition clause in a trust is a fairly
recent innovation though now standard practice.
The drafter has a variety of statutory precedents to choose from. The
form used in the 1925 property legislation is:
In this Act unless the context otherwise requires, the following expressions
have the meanings hereby assigned to them respectively, that is to say:
This wordy form is an abbreviation of even lengthier nineteenth- century

forms.47 It has been shortened to:
In this Act, except where the context otherwise requires: 48
Or concisely:
In this Act . . .49
The form used in this book follows this:

In this Settlement,50 “the Trustees” means . . .
It is kind on the eye to print the expression being defined in bold type.
There is, however, no need to embolden the word where used throughout
the document.
It is helpful to the reader for the defi nitions to be in alphabetical order.
“Means” and “includes”
10.36 Means is the appropriate word for an exhaustive definition. Includes is the
appropriate word for an inclusive, non-comprehensive definition.51 An
inclusive definition is usually imprecise and not generally appropriate in
trust drafting because a comprehensive definition is possible. To say “X
46
Curiously the general practice in drafting Acts of Parliament (though not statutory instruments
or in schedules to an Act) is to place the defi nitions at the end. Each practice, now established, is
best adhered to; the experienced reader will know where to turn.
47
Section 1 Wills Act 1837.
48
Section 272 IHTA 1984.
49
Section 15 PAA 1964; s.96 VATA 1994.
50
“In this Deed” would do just as well but the word “settlement” is better as the same form can be
used without amendment in lifetime settlements and will trusts. One occasionally sees the archaic
form, “in these presents . . .”.
51
Four cases on different nuances of “include” are summarised in Dunstan v Young Austen Young
[1987] STC at 721.

HOW TO MAKE DEFINITIONS 183
means and includes Y” is a contradiction in terms.52 Of course where the

wrong word is used the courts will allow the context to govern the sense.53
It is better to say:
X means . . .
not:
X shall mean . . .
In this context “shall” is purely ornamental. Its omission is more in accord-

ance with ordinary English usage; 54 it is also the more standard practice of
the parliamentary drafter.
Grammarians may debate whether the singular or plural verb is appro-
priate where the term being defi ned is in the plural. Does one say “the
Trustees” means . . . or “the Trustees” mean . . . ? The 1925 property
legislation employs the plural verb (with a slip in s.205(1)(xii) Law of
Property Act 1925). Since one is defining a single expression, the singular
seems more correct; this is now the practice in modern statutory and trust
drafting.
The word “comprises” is best avoided in a defi nition clause.
Unnecessary forms in a definition clause
The traditional form provides that definitions apply “except where the 10.37
context otherwise requires” or (more tentatively) “where the context so
permits”.55 A well-drafted trust will use defi ned terms in their defined
meanings. The form was included perhaps to cover the exceptional case,
or to allow for drafting oversights. In either case the words are unneces-
sary: the context will always govern the meaning.56 In the first edition of
this book these words were retained “to serve as a ritual confession of the
52
It can be proper usage to say:
X means ‘a’ but includes ‘b’; or
X means ‘a’ and includes ‘b’.
53
No authority is needed for this self- evident proposition, but the point is made in Dilworth v
Commissioner of Stamps [1889] AC 99 at p.105. For an example see Gibson v South American Stores
(Gath and Chaves) Ltd [1950] Ch 177 at 184: “the class of beneficiaries shall include . . .” held to
form a comprehensive defi nition.
54
7.6 (Other usage of “shall” and “may”).
55
Melville v IRC [2000] STC 628 at p.634 recognises the difference in nuance between the two
formulas; while linguistically this seems right, it is difficult to conceive (1) that any drafter ever
ponders carefully on the choice between the two wordings; or (2) that any case of construction
in practice is ever so fi nely balanced as to turn upon this distinction. Even the form “where the
context so permits or requires” has been seen.
56
This is self- evident but if authority is needed, see Knightsbridge Estates Trust v Byrne [1940] AC
613 at p.621 disregarding the omission of the phrase unless the context otherwise requires in a defi ni-
tion clause: “some such words are to be implied in all statutes where the expressions which are
interpreted by a defi nition clause are used in a number of sections with meanings sometimes of a
wide and sometimes of an obviously limited character.”

drafter’s fallibility” but the value of ritual confessions is perhaps open to

question. So this book now follows the example of more concise drafters57
and omits these words altogether.
It is plainly unnecessary to say: “the following terms have the following
meanings”. The heading “Defi nitions” is sufficient indication of what is
to come.
Some standard definitions
10.38 “The Settlor” should be defined by name. Trusts occasionally use this
form:
“The Settlor” means the Original Settlor and any person who shall make any addition to the
trust fund.
The consequence is that the settlor exclusion clause will exclude not only
the original settlor but all the contributor settlors. This form is not satisfac-
tory for the reasons set out in 13.15 (Exclusion of additional and indirect
settlors).
“The Original Trustees” are also defined by name.
Definitions of “Accumulation Period”, “Beneficiaries”, “Charities”,
“Interest in Possession” and “Trust Period” are considered elsewhere.58
If the term “Trust Corporation” is used it should be defined.59 We here
consider other commonly defined expressions.
Definition of “the trustees”
10.39 “The Trustees” means the Original Trustees or other the trustees or trustee 60 for the time being
of this Settlement.61
Until quite recently this appeared to be an almost universally adopted

form; so common, perhaps, that few drafters pause to ponder its signifi-
cance or syntax. The purpose may be: (i) to confirm the appointment of
the “Original Trustees” (defined by name) as the trustees of the trust;
57
e.g. the Law Society’s Standard Conditions of Sale. The parliamentary drafter occasionally omits
this form in a defi nition clause governing an entire Act. In providing defi nitions for a schedule
or a particular section, on the other hand, the form “unless the context otherwise requires” is
almost invariably omitted.
58
15.7 (Structure of discretionary trust); 5.18 (Defi nition of “Beneficiaries”); 5.36 (Charities as
beneficiaries); 16.19 (IP protection clause); 9.3 (Drafting).
59
7.14 (Two-trustees rule).
60
Note the use of the small “t” is appropriate.
61
More traditionally “hereof ” stood for “of this settlement”; or even, wrongly, “of this deed”.

DEFINITION OF “THE TRUSTEES” 185
(ii) to confi rm that the trustees’ powers are given to them ex officio, and
pass on to succeeding trustees. The clause is not strictly necessary: both
inferences would be made quite naturally in the absence of indications to
the contrary.62 The archaism in the traditional formula, “other the trus-
tees” is a particularly unhappy one: the expression is dismissed by laymen
as a typographical error.
In will drafting, a different formula is generally used to make these two
points:
I appoint X and Y to be the executors and trustees of my will (hereinafter called “my63 trustees”
which expression includes the trustees for the time being).
Some lifetime trusts use this approach too.64

Statute provides two precedents:
“The Trustees” means the trustees appointed by the Testator . . . and the persons who
by appointment by the court or otherwise become the trustees.65
The provisions of this Act referring to the trustees of a settlement apply to the sur-
viving or continuing trustees or trustee of the settlement for the time being.66
This is the basis for the definition used in this book:

“The Trustees” means67 the Original Trustees or the trustees of the settlement for
the time being.
The best approach would possibly be to abandon the defi nition alto-
gether, as Prideaux did a generation ago; 68 though it would be a bold
drafter who is prepared to step this far out of line with conveyancing
practice.
The draft needs amendment where the Settlor is the sole Trustee. The
term “Original Trustees” will not have been used. Thus:
“The Trustees” means the Settlor or the trustees of this Settlement for the time
being.
62
Re Smith [1904] 1 Ch 139; see also ss.18 and 36(7) TA 1925. LRT Pension Trustees v Hatt [1993]
PLR 227 at 257 (accessible www.kessler.co.uk) is a further authority that “the Trustees” will be
taken to mean the trustees for the time being. Wolstenholme and Cherry, Conveyancing Statutes
(13th edn, 1972) Vol.4, p.6 goes so far as to say that the defi nition is undesirable; though it does
not seem to do any harm.
63
It is a curious custom that the form “my trustees” is used in a will, while the form “the trustees”
is used in a lifetime trust. It is convenient to use the form “the trustees” generally.
64
e.g. Potter and Monroe, Tax Planning with Precedents (looseleaf ), contrast Kelly’s Legal Precedents
(20th edn).
65
Statutory Will Forms 1925, para.3(1)(iii), accessible www.kessler.co.uk. Extraneous material has
been omitted.
66
Section 94 SLA 1925.
67
“includes” is not the appropriate word here (it is occasionally used by confusion with the form
used in wills, set out above, where “includes” is the appropriate word).
68
Prideaux’s Forms and Precedents in Conveyancing (25th edn, 1959).

Definition of “the trust fund”
10.40 A common form is:

“The Trust Fund” means:
(i) the property specified in the First Schedule hereto; and
(ii) all accretions thereto by way of further settlement, accumulation of income or otherwise,69
and
(iii) all property from time to time representing the above.
This is another standard and self-evident defi nition. In this book, a simpli-
fied version is proposed:
“The Trust Fund” means:
(i) property transferred to the Trustees to hold on the terms of this Settlement;70
and
(ii) all property representing the above.
This definition is not necessary71 but it is included in deference to standard
practice and the reader’s expectation.
It is plainly not necessary to say that the trust fund includes property
which shall be added to the trust fund. If property is subsequently trans-
ferred to the trustees with the intent that it should be added to the trust
fund, then the trustees can hardly be heard to say the added property is
not held on the terms of the original trust. It is not necessary to refer to
accumulated income here, since the provision dealing with accumulation
states it is to be added to the trust fund.72
10.41 A further definition is also introduced here:
“Trust Property” means any part of the Trust Fund.
69
This is about as common as the grander form with the same meaning: “all other property invest-
ments or money [as if investments or money were not “property”!] hereinafter transferred or paid to,
or under the control of the Trustees as additions to the Trust Property.” This is plainly unnecessary; see
21.6 (Power to accept additional funds or onerous property).
70
This form avoids the unnecessary chore of specifying the trust property in a schedule: see 10.29
(Schedule of trust property).
71
This proposition is self- evident but support for it can be found if needed in statutory drafting prac-
tice and case law. The Parliamentary drafter often uses the terms “trust funds”, “trust property”
and “trust money” without defi nition. In Hume v Lopes [1892] AC 112 at p.115 Lord Watson said:
“the expression ‘trust funds’ . . . signifies funds belonging to the trust, including money invested
on security or otherwise, as well as uninvested cash. I do not doubt that such is the ordinary
and natural meaning of the words.” (When s.1 TA 1925 was re- enacted as s.1 of the Trustee
Investments Act 1961 (now repealed) the Parliamentary drafter preferred the word “property” to
“trust funds” but that is a stylistic change only.) Agnew v IRC [2001] 2 AC 710 at [42]–[47] raised
in another context the question whether an asset and its proceeds were to be regarded as separate
assets. The answer given, correctly, was that (1) they are separate assets but (2) the latter is merely
traceable proceeds of the former so (3) an attempt to separate the ownership of the two (even if
conceptually possible) will “make no commercial sense”.
72
See 21.6 (Power to accept additional funds or onerous property); 15.6 (Structure of discretionary
trust).

UNNECESSARY DEFINITIONS 187
The additional definition of “Trust Property” facilitates drafting the trus-

tees’ administrative powers, where references to “property comprised in
the trust fund” are otherwise very frequent. Former editions of this book
used “comprised in” but we prefer “part of ” as it is clearer while having
the same meaning.
Unnecessary definitions
“This Settlement” means the Settlement created by this Deed. 10.42

“The settlor”, and “the trustees” have the respective meanings hereinbefore assigned to these
expressions.
Comment seems unnecessary. Enthusiasm for definitions can be taken

to excess and, having already two redundant definitions in this text, the
authors are reluctant to admit more.
Where a word is used once or twice, a definition may be more trouble
than it is worth. Thus, in a straightforward trust for a named beneficiary
on attaining the age of 40, there is little advantage in providing that the
trust fund is held on trust for “the principal beneficiary” on attaining the
“specified age”, and then separately defi ning these expressions to be the
beneficiary concerned and the age of 40 years.
Definitions implied by law
The following definitions are implied by statute into every document73 : 10.43
(1) “Month” means calendar month.

(2) “Person” includes a corporation.
(3) The singular includes the plural and vice versa.
(4) The masculine includes the feminine and vice versa.
These definitions need not and should not be repeated by the drafter of
any particular document.
There is no need to introduce the anatomical curiosity that “references
to one gender include all genders”; the court will not infer from the use
of the masculine word “he” or “his” that the reference is intended to
exclude a company (even though a company is referred to by the neuter
“it” or “its”).74
73
Section 61 LPA 1925. See also 3.15 (Singular and plural); and 3.8 (Gender-neutral drafting).
74
In Re Carnarvon [1927] 1 Ch 138 a company was held to be entitled to powers conferred by s.20

Definitions to break up text
10.44 A definition may be used to break up text into manageable parts. In this
context a defined term may be used once only, and it may be more con-
venient to define the term where used, rather than to place the definition
in the definition clause.75
Drafting successive interests
10.45 The practice in this book is to employ a chain of clauses linked with the
words “subject to that”. Thus:
(1) The Trustees shall pay the income of the Trust Fund to John during his life.
(2) Subject to that the Trustees shall pay the income to John’s widow during her
life.
An alternative approach is to specify the starting point of each sub- clause

more precisely:
(1) The Trustees shall pay the income of the Trust Fund to John during his life.
(2) On the death of John, the Trustees shall pay the income to his widow during her life.
This is considered to be an inferior approach. Using the phrase “subject

to that”, each sub-clause forms, as it were, a slat which rests firmly on
that which has gone before. The structure will be sound: there can be no
gaps. If, however, each sub-clause stands independently, there is a risk of
an omission. What happens, for instance, in the example above, if John
should surrender or disclaim his interest? Who is then entitled to the
income during John’s life?76
10.46 “Subject to that” is adopted in this book as synonymous for the more
archaic “subject as aforesaid”. The form has the sanction of Parliamentary
usage.77 It is common to find grander forms with the same meaning, for
instance, following a power of appointment:
in default of and until and subject to any such appointment . . .78
or in a Default Clause:
SLA 1925 on a person “of full age”. The argument that the words “of full age” excluded com-
panies was rejected. A similar argument based on the words he or his must be rejected a fortiori.
75
3.5 (Must every clause be a single sentence?).
76
The answer is supplied by the presumptions of the doctrine of acceleration; like all the artificial
rules of construction this involves some difficult case law. Another advantage of this form is that it
avoids the rule in Phipps v Ackers, which turns a contingent into a vested interest, with unfortunate
consequences for income accumulated under s.31 TA 1925; see Re Mallinson [1974] 1 WLR 1120.
77
Section 204(8) IHTA 1984.
78
This form is used in Statutory Will Forms 1925, Form 9 accessible www.kessler.co.uk.

IRREVOCABILITY 189
in default of and subject to the trusts and powers hereinbefore declared and to the
extent that the same shall not extend or take effect. . . .
But the modest phrase “subject to that” is equal to them all.
Irrevocability
This settlement is irrevocable. 10.47
In the mid-nineteenth century a power of revocation was standard form.

(Of course the powers caused no tax problems in those days.) If the power
was, exceptionally, omitted, the court might set aside or rectify a settle-
ment unless the settlor had “distinctly repudiated and refused to have a
power of revocation”.79 This explains the origin of the recital that:
The Settlor has been advised that unless a power of revocation is reserved the Settlement will be
irrevocable but well understanding such advice he had decided to reserve no power of revocation
whatsoever and the settlement is irrevocable.
This is sometimes shortened to a recital that:

It is intended by the Settlor that this settlement shall be irrevocable.
This approach was reversed in the 1880s and the omission of a power of
revocation ceased to be a reason for setting aside a trust.80 Nowadays a
UK trust hardly ever has a power of revocation. A trust will therefore be
irrevocable unless it actually reserves a power of revocation.81
Irrevocability forms have accordingly been unnecessary in English law
for more than a century. They were not used in this book until the 6th
edition. However, in some American jurisdictions82 trusts are revocable
unless stated to be irrevocable. So it is (just) worthwhile to state the point
expressly, not because there would otherwise be any doubt, but because
some readers unfamiliar with the law might possibly misunderstand the
position.
The appropriate place to put this form is in the body of the deed, not
a recital.
79
Many cases could be cited, but since they are now obsolete it is sufficient to refer to Hall v Hall
(1871) LR 14 Eq. 365; James v Couchman (1883) 29 Ch D 212; Coutts v Acworth (1869) LR 8 Eq.
558; Wollaston v Tribe (1869) LR 9 Eq. 44.
80
Henry v Armstrong (1881) 18 Ch D 668; Dutton v Thompson (1883) 23 Ch D 278; Tucker v Bennett
(1887) 38 Ch D 1.
81
No authority is needed for this self- evident proposition (which is of course the basis on which the
cases in the two footnotes above were decided). See however, Farwell on Powers (3rd edn, 1916),
p.306: “A deed once executed cannot be revoked unless it reserves a power of revocation”.
82
Following the American Uniform Trust Code s.602; accessible www.nccusl.org.

CHAPTER 11
DRAFTING OVERRIDING POWERS

(APPOINTMENT, RE-SETTLEMENT AND
ADVANCEMENT)
Introduction
11.1 The fundamental desire of the settlor, in creating a trust, is this: to benefit
the beneficiaries of the trust in the most appropriate way. It is impossible
for the settlor or drafter to anticipate in advance exactly what that will be.
Drafts in this book are based on the premise that the trustees should be
trusted—as their name suggests—and they may be given wide powers to
achieve the settlor’s intention. This is the principal function of the over-
riding powers.
There is a further advantage: the existence of the overriding powers
effectively prevents a profl igate beneficiary from selling their interest in a
trust. They will not find a purchaser for an interest subject to the overrid-
ing power: the interest could and probably would be revoked the day after
the sale. This, in turn, has an incidental tax advantage. Any tax charge
based on the market value of the equitable interest is effectively avoided.
These powers raise questions of principle. The flexibility intended to
satisfy the wishes of the settlor may be used to frustrate them. The ques-
tion of who should exercise the powers, and with what constraints, is dis-
cussed at 7.12 (Guidance and control of trustees). This chapter is devoted
to the technical drafting issues.
Overriding powers may be divided into three categories.
Power of appointment: Power to create new trusts for the beneficiaries.
Power of resettlement: Power to transfer funds to a different settlement for the

beneficiaries (either a new settlement or one existing already).
Power of advancement: Power to apply capital for the benefit of a beneficiary.

POWER OF APPOINTMENT 191
Power of appointment
The power of appointment may take the form of a true power to ter- 11.2
minate existing provisions and create new ones; or it may take the
form of a discretionary duty, the trustees being (in theory) required to
appoint new provisions. The distinction is of little importance.1 In this
book the form used is a true power: this corresponds more closely to the
reality.
The clause must, obviously, specify the form of the new trusts which
may be created and the objects who may benefit. In this book the objects
are simply described as “the Beneficiaries” and the defi nition of the term
is considered at 5.18 (Definition of “Beneficiaries”).
The parliamentary drafter provides one influential precedent:
The capital and income of the trust fund shall be held in trust for all or any one or
more exclusively of the other or others of the Beneficiaries, and if more than one in
such shares, with such provisions for maintenance, education, advancement and oth-
erwise, at the discretion of any person or persons, and with such gifts over, and gener-
ally in such manner, for the benefit of such Beneficiaries, or some or one of them, as
the Appointor shall, by deed, revocable or irrevocable, or by will appoint.2
This precedent will be known to anyone familiar with trust deeds. Old
style precedents take this material, delete the punctuation, and expand it
in a single clause of extraordinary length. The single clause has become
unwieldy: Hallett led the way and divided the power into separate clauses,
with a view to greater comprehensibility. The clause used in our prec-
edents is a simpler version of the statutory precedent:
The Trustees shall have the following powers:
(1) Power of Appointment 3
(a) The Trustees may appoint that they shall hold any Trust Property4 for the
benefit of any Beneficiaries, on such terms as the Trustees think fit.
(b) An appointment may create any provisions and in particular
(i) discretionary trusts
1
7.2 (Duties and powers distinguished).
2
Statutory Will Forms 1925, Forms 7 and 9 (here slightly amended to stand in isolation), accessible
www.kessler.co.uk.
3
The words “appointment” and “appoint” are the appropriate technical term. Plain English
enthusiasts may prefer to call the power of appointment, a “power of variation” and substitute
“direct” or “declare” for “appoint”. Some old precedents use the formula “direct and appoint”.
Occasionally one sees: “appoint direct and declare”; pointless collecting of synonyms.
4
Until the 9th edition the text read “the Trust Fund”. This old wording follows the example of the
Statutory Will Forms. But the other overriding powers use the expression “any Trust Property”;
and experience showed that the inconsistency in the wording occasionally caused confusion.
The change does not make any difference in the meaning. In particular, just as the power in the
Statutory Will Forms could be used over part of the Trust Fund, so the power of appointment in
the wording formerly used in this book could be used over part of the Trust Fund.

192 DRAFTING OVERRIDING POWERS
(ii) dispositive or administrative powers

exercisable by the Trustees or any other person.
(c) An appointment shall be made by deed and may be revocable or irrevocable.
The draft refers to “such terms as the Trustees think fit”, which covers all
the various terms used in the Statutory Will Forms precedent.
It is usual to require an appointment to be made by deed. This is not
essential, but a deed is appropriate since an appointment is a formal legal
document.
The power of appointment can be used to alter administrative provi-
sions as well as beneficial provisions.5
Sub-clause (b) is essential. A stumbling block for older powers of
appointment was the court’s view that a power of appointment was (in the
absence of clear words) a power to create fi xed interests and could not be
used to create dispositive trusts and powers. This clause makes the posi-
tion clear.6
It is normal to state that an appointment may be revocable or irrevo-
cable, though strictly even without those words an appointment may be
made which is revocable within the time that the power of appointment
may be exercised. There is no particular reason why trustees need make
revocable appointments when they have a wide flexible power, but it may
be convenient to do this.
Unnecessary provisions in the power of appointment
11.3 Some drafters refer not just to “the Beneficiaries” but to

. . . all or any one or more exclusively of the other or others of the Benefi ciaries
This has been unnecessary since 1874.7

Some drafters do not refer to trusts for the benefit of the Beneficiaries,
but to:
Such trusts in favour or for the benefit of the Beneficiaries
It is considered that the extra words add no meaning. The expression

“favour or benefit” is a pointless use of synonyms.
Occasionally drafters use the word “respective” thus:
5
In the standard overriding powers in this book, this is stated expressly, though it would in prin-
ciple be implied: Re Rank [1979] 1 WLR 1242. In consequence, a power to add administrative
powers is unnecessary: see 21.5 (Power to add powers).
6
For the position in the absence of such a clause see 11.5 (The problem of narrow powers of
appointment).
7
Section 158 LPA 1925, re- enacting the Powers of Appointment Act 1874. See 3.14 (Singular and
plural).

POWER OF APPOINTMENT 193
The Trustees shall hold the trust fund on trust for the Beneficiaries . . . with such trusts
for their respective benefit . . . as the Trustees shall appoint.
In one case it was held that this word “respective” suggested that the crea-
tion of discretionary trusts was not permitted.8 In practice the trustees will
expressly be permitted to create such trusts. So the word “respective” is
either erroneous (if the court’s comments in Hunter are correct) or super-
fluous (if they are not.) Plainly no one who cares about accurate language
will use the word here.
It is common to add a requirement that any appointment must observe
the rule against perpetuities. This has no legal effect, and may be omitted.
(The form might conceivably serve as a reminder to the person who
drafts the deed of appointment; but a person who needs that reminder is
unlikely to be capable of drafting the necessary deed in any event.)9
Some drafters add a provision saying that to the extent that the power
of appointment is not exercised, the original trusts continue to apply. This
is implied in any case, and is unnecessary.10
Some drafters add a provision that the power of appointment cannot be
operated retrospectively. For instance:
No exercise of this power shall reduce the amount of any accrued benefit to which a benefi ciary
shall have become entitled under this settlement.
No appointment shall affect income payable to the Trustees before the date of that appointment.
A provision of that type will be understood by necessary implication and

is therefore unnecessary.11
Hallett12 added two further provisions not generally found in modern 11.4
powers of appointment, but which should be mentioned for completeness.
The Hallett precedent directed that the power of appointment may be
used to:
provide for the appointment or remuneration of trustees on any terms and conditions whatever.
8
Cross J. said that a discretionary trust is not for the respective benefit of the beneficiaries: it is a
trust for the collective benefit of all of them under which none has any separate benefit: Re Hunter
[1963] Ch 372. Is this convincing? The word “respective” is vacuous in this context. It does not
carry the inference which Cross J put upon it. But this makes no practical difference. Either the
power of appointment will expressly permit the creation of discretionary trusts; or else it will be
silent and (as the authorities now stand) discretionary trusts will not be permitted in any event.
See the excursus at 11.5 (The problem of narrow powers of appointment).
9
See 9.5 (Remaining within the perpetuity period). In one unfortunately worded trust (perhaps
drafted for an economically minded settlor) the overriding power was subject to “the rules against
excessive accumulations and gratuities”.
10
Re Hastings Bass [1975] Ch 25; Re Master [1911] 1 Ch 321 followed in Re Sharp [1973] Ch 331.
11
This was accepted without argument in IRC v Pearson [1981] AC 753 (confi rming the view taken
in the HMRC Press Release of 12 February 1976). It is apparent that the power of appointment in
that case contained no such proviso: see at fi rst instance [1980] Ch 1. This view is also supported
by Re Delamere [1984] 1 WLR 813; Re Master [1911] 1 Ch 321 followed Re Wellman [2001] JLR
218 accessible www.jerseylaw.je.
12
Hallett’s Conveyancing Precedents (1st edn, 1965), p.772.

There is no need to make an express provision here for remuneration of

trustees, since the normal trustee remuneration clause is sufficient.13
The Hallett precedent provided that the power of appointment may be
used to:
direct that the Trust Fund shall be transferred or paid to and held by any persons as trustees . . .
The power of appointment (as drafted in this book or in any common

form) cannot itself be used to transfer the fund to new trustees.14 However
there is the usual power to appoint new trustees, power to appoint separate
trustees of separate funds15 and (in precedents in this book) a separate
express power of re-settlement. That seems comprehensive enough.
The problem of narrow powers of appointment16
11.5 Modern powers of appointment are generally widely drawn and give rise
to no difficulty, but there are many older trusts with powers more nar-
rowly drawn. It is worth considering these in some detail. The reader who
is not familiar with the case law may go wrong here: if the old cases are
still good law, these powers of appointment do not have the effect which
a simple reading would suggest.
Let us start with an example. In Re Joicey,17 property was held on trust
for the beneficiaries:
for such interests in such proportions and in such manner in all respects as the appoin-
tor should appoint.
An appointment was made for children who attained a certain age.

Trustees were given power to transfer capital to them under that age (a
dispositive power). This power was void. This was said to follow from the
rule against delegation.
In the following discussion, powers of appointment which allow the
13
For good measure, the overriding power in the precedents in this book could be used to make
further provision for remunerating trustees. Such provision is an administrative provision. Of
course this could only be done if (i) this was for the benefit of the beneficiaries and (ii) there was
an independent trustee who did not benefit from the new remuneration clause. See 6.16 (Confl icts
of interest). It seems unlikely that this would ever need to be done.
14
This proposition is self- evident, but if authority is needed see Re Mackenzie [1916] 1 Ch 125.
Happily there is a solution to problems when such powers are lacking. A power of appointment
in common form will generally be wide enough to confer upon trustees a power of resettlement.
15
Section 37(1)(b) TA 1925.
16
See Oerton Trusts and Estates [1994] pp.317 and 402.
17
[1915] 2 Ch 115. In other cases the invalid power was a power of maintenance (which would
from 1926 be implied by s.31 TA 1925) and a power arising under a protective trust. This is just
an early example of a long line of cases, of which the most recent is Re Hay [1982] 1 WLR 202.
Here Megarry J took the principle to a new height of absurdity by holding that the trustees had
wrongly delegated their discretions to themselves.

THE PROBLEM OF NARROW POWERS OF APPOINTMENT 195
appointor to create dispositive powers are described as wider powers;

and powers which do not are called narrower powers. The effect of Joicey
therefore, is to hold that the power considered in that case was a narrower
and not a wider power.
It is considered that the law has taken a wrong turning here.
An issue of delegation. First, this line of cases has treated the matter as one
of delegation. It need not and (it is considered) should not be put that way.
The appointor is not delegating the existing power of appointment but
exercising it so as to create new dispositive powers.18
A matter of construction. The question whether a power of appointment is

narrower or wider is a question of construction. That is not in dispute. The
correct question to ask is not whether the power contains within it a right
to delegate, but whether it was to be construed widely enough to permit
the creation of new dispositive powers. The difference is one of nuance,
but it is a significant nuance.19
Let us return to the Joicey power, and consider whether it should
be construed as wider or narrower. Property was held on trust for the
beneficiaries:
for such interests in such proportions and in such manner in all respects as the appoin-
tor should appoint.
The phrase “in such manner in all respects” points to the wider construc-
tion. In the nineteenth century the courts would nevertheless give it the
narrower meaning; for flexible trusts were then unusual. In the present
time, a natural reading would apply the wider meaning; for flexible trusts
are common; it is most unlikely that a settlor now intends the power to
be so limited.20
What has happened is that the courts have followed the nineteenth
century approach—summed up in Joicey—to the present day. This is
why such powers are given such a limited meaning. This is a misuse of
precedent, which should not be regarded as binding in matters of con-
struction. Unfortunately the Court of Appeal missed the opportunity to
correct these errors in Re Morris.21 Evershed MR preferred to follow the
old authorities, more or less conceding that they were wrong, than to con-
strue the document according to its plain language. The complaint about
18
The point was accepted in Re Wills [1964] Ch 219 at 237 and in Re Weightman [1915] 2 Ch 205;
(A power of revocation “in no sense” a delegation of a power of appointment).
19
See Kain v Hutton [2007] NZCA 199 in particular [72] to [85]. The matter of delegation was not
in issue in the subsequent appeal to the NZSC.
20
Another way to reach the same conclusion is to rely on the phrase “for such interests”. The word
“interests” may be used to mean only fi xed equitable interests; nowadays it is more often used
to mean interests under true powers or trust powers: Leedale v Lewis 56 TC 501. But often the
wording of the power does not include that phrase.
21
[1951] 2 All ER 528.

the state of the law was repeated in Re Hunter.22 If the matter came to be
reviewed by the courts, it is considered that principle should take prior-
ity over precedent. This, indeed, is what precedent requires.23 Of course,
for the time being, one should act on the cautious view that the old cases
might still be followed.
Happily, there is a solution to the problems presented by these narrow
powers of appointment. Such powers can in principle be used to confer
on the trustees a power of advancement, being either the statutory power
(which is exercisable over half the trust fund) or a power of advancement
extended over the entire trust fund.24 Once that is done, of course, the
trustees can if appropriate use their power of advancement to achieve
results beyond the scope of their narrow power of appointment: see 11.8
(Power of advancement).
Power of resettlement

(1) The Trustees may by deed declare that they hold any Trust Property on trust to
transfer it to trustees of another settlement, wherever established, to hold on the
terms of that settlement, freed and released from the terms of this Settlement.
(2) The Trustees shall only exercise this power if:
(a) every Person who may benefit is (or would if living be) a Beneficiary; or
(b) with the consent of
(i) the Settlor, or
(ii) two Beneficiaries (after the death of the Settlor).
22
[1963] Ch 372.
23
See 4.10 (Precedent not the solution).
24
In Re Mewburn [1934] Ch 112 the Court approved of the exercise of a power of appointment (in
relatively standard narrower form) to create a power of advancement exercisable over one half
the trust fund. The judge noted that a power of advancement would (after 1926) be implied by
s.32 TA 1925 so it cannot exceed the power of appointment to create it. The case was approved
by the Court of Appeal in Re Morris [1951] 2 All ER 528 at 533 where the principle was held to
apply
“. . . at all events where the instrument creating the power [of appointment] enables any
appointment to be made ‘in such manner and form in every respect’ or ‘generally in such
manner for the benefit of ’ the objects of the power, as the donee of the power may appoint.”
If it is permissible to create a power of advancement over one half the trust fund, it must logi-
cally be permissible to create a power over the whole, especially since the extension of s.32 to
cover the whole is a standard form. The opposite conclusion was apparently reached in Re Joicey
[1915] 2 Ch 115. There an appointor tried unsuccessfully to use a narrower power of appointment
to create a power which (at fi rst sight) appears an ordinary power of advancement. But this case no
longer represents the law. That decision was based on the view that the (to modern eyes unexcep-
tional) power which the appointor attempted to create was not an ordinary power of advancement.
That view could not now be sustained in the light of (i) s.32 TA 1925 and (ii) current drafting
practice and (iii) the comments in Re Pauling [1964] Ch 303 at 333 (which contradict the view of
the power taken at [1915] 2 Ch 123).

POWER OF RESETTLEMENT 197
This may be used to transfer property to a new trust or to another trust

already in existence. The wording makes it clear that any new trust will
be a separate trust from the existing trust, as intended. The reported cases
indicate what is needed. The phrase “freed and released from the terms of
this settlement” could be omitted, but it spells out the effect of the transfer
clearly, and has judicial approval.25
Trustees are sometimes given power to transfer the trust fund to any
trust if only one beneficiary of the present trust happens also to be a
beneficiary of the new trust. That is equivalent to authorising trustees to
add beneficiaries; a serious proposition if the power is exercisable without
restraint. The form used here brings in the same safeguards as the power
to add beneficiaries; see 5.39 (Power to add beneficiaries).
Power of resettlement and power of appointment compared
A power of appointment can vary the terms of a trust. The power of 11.7
resettlement may effectively achieve the same result, but will also result in
trust property being held by a different trust (perhaps, but not necessarily,
with different trustees and a different governing law). As a matter of trust
law there may not be much difference between altering the terms of an
existing trust (in a power of appointment) and transfers to a new trust (by
a power of re-settlement), except in relation to trust liabilities. There are,
however, important differences for tax purposes:
(1) The transfer to another trust is a disposal for CGT purposes;26 an

exercise of a power of appointment does not normally involve a
disposal.27
(2) If only part of the trust fund is transferred to a new trust, the result
is two separate trusts. The trustees of one trust are not subject to
liabilities of the second, and that may obviously be more conven-
ient when different branches of a family wish to go separate ways.
It would then be possible to appoint foreign trustees for one trust
but not for the other.
(3) Some tax planning arrangements require transfers of funds to
new trusts. A discussion of such planning is beyond the scope of
25
Hart v Briscoe 52 TC 53. The leading cases are Roome v Edwards 54 TC 359; and Bond v Pickford
[1983] STC 517.
26
The position is different if the power is exercised by the executors during the administration
period: in which case there is no disposal and the new trustees acquire as legatees for CGT
purposes.
27
Section 71 TCGA 1992. This may be undesirable if a CGT charge would arise. For this reason
trustees will generally prefer the power of appointment to the power of resettlement if the aim is
only to vary the terms of the trust. However there will be occasions when trustees want a disposal
of trust property; for instance, to realise losses.

this book, but a well drafted trust should give scope to make such
arrangements in case it becomes appropriate.
Tax aside, this power may also be useful to combine trusts with similar
terms, so as to reduce administrative costs; or to split up one trust with
several sub-funds into separate trusts with separate classes of beneficiaries.
Power of advancement
11.8 The term “power of advancement” is used to describe a power to transfer

trust property to a person, or apply it for their “advancement or benefit”.28
The person for whose benefit the trust property may be applied (or to
whom the property may be transferred) is called the “object” of the power.
Trustees have a power of advancement by statute. The statutory power
is however subject to three important restrictions:29
(1) Only a beneficiary with some interest in trust capital is an object of

the power. Thus a life tenant is not an object of the power.
(2) The power only extends over one-half of the object’s share in the
trust fund.30
(3) The trustees can only exercise the statutory power with the consent
of any beneficiary with a prior interest.
It is standard practice to override the second of these restrictions, by a

form such as:
Section 32 TA 1925 (Power of Advancement) shall apply with the following modifi cation: the
words “one-half of” in section 32(1)(a) shall be deleted.31
28
This is the usage of the Parliamentary drafter, who describes the power conferred by s.32 TA 1925
as “the statutory power of advancement”; e.g. s.47(1)(ii) AEA 1925; likewise s.44(2) FA 1950 (an
estate duty provision).
29
And for completeness three minor restrictions:
(1) The power does not apply to Settled Land Act settlements (now obsolescent).
(2) The power does not apply where there is an expression of contrary intent; it seems that a
very shadowy one will suffice.
(3) Where the beneficiary is to become entitled to a share (and not the whole) of the trust
property, any advance is to be brought into account as part of that share (the hotchpot rule).
(Section 32 TA 1925.)
30
It is possible (if expensive) to apply to the Court to extend this power to the entire trust property.
The Law Commission propose to extend this power to the entire trust property: see Law Com
no 331 Intestacy and Family Provision Claims on Death (December 2011) para.4.72 and cl.9 of their
proposed Inheritance and Trustees’ Powers Bill. The enactment of the bill in its proposed form
will not have any effect on the precedents in this book.
31
This is the STEP standard provision. Some use the form:
s. 32 TA 1925 shall apply with the deletion of proviso (a) thereof.

POWER OF ADVANCEMENT 199
This book adopts a different approach. The form used in this book is:
The Trustees may pay or apply Trust Property for the advancement or benefit of any
Beneficiary.
None of the restrictions which inhibit the statutory power of advancement

apply:
(1) All beneficiaries are objects of the power.

(2) The entire trust fund may be advanced.
(3) Consents of beneficiaries are not needed.
This is in line with the approach of this book, that trustees should be
trusted with wide powers and that beneficiaries’ consents are not desira-
ble.32 The restrictions which apply to the statutory power raise some dif-
ficult questions of trust law.33 An advantage of our approach is that none
of these difficulties can arise.
The form adopts unabridged the statutory phrases “pay or apply”, and
“advancement or benefit.” The full form is used to display the clause’s
parentage, s.32 Trustee Act 1925, so as to suggest that the useful case law
giving a wide meaning to “benefit” should apply.
It is intended that trustees should be able to use their power of
advancement informally, so a deed is not required. No written docu-
ment is required at all. It may be appropriate for the trustees to record
their decision in a formal written resolution (particularly in larger or
more complex cases) but that is a matter for them. This rather simpli-
fies the administration of the trust. The statutory power takes the same
approach.
Where there is a wide power of advancement, as in our draft, there is
clearly no need for the statutory power. In the lifetime trusts in this book
it is therefore not necessary to provide that the statutory power should
apply (with or without amendment). In the Will Trusts it is also unnec-
essary, except that it might be useful in Wills 5 and 7, which contain an
absolute gift of residue. So the extended statutory power is included in
the administrative forms for wills but not for lifetime trusts. Although
Note that this is arguably wider than the STEP form. For example consider a trust for A and
B contingently upon attaining the age of 21 in equal shares. The statutory power of advance-
ment allows one- quarter of the trust fund to be used for the benefit of A and one- quarter for
the benefit of B. The STEP form allows one-half to be used for A and one-half for B. The form
set out in this footnote arguably allows the entire fund to be used for A or B.
32
See 7.23 (Giving powers of consent to beneficiaries).
33
How is the fraction of one-half to be calculated? What is a “prior” interest? (A question “of great
difficulty” according to Clausen J. in Re Spencer [1935] Ch 533; in IRC v Bernstein 39 TC 391 at
403 Lord Evershed M.R. was “glad” to follow authority which refrained from expressing a view
on the question. Such authorities are of more assistance to the Bench than to practitioners.) The
hotchpot rule does not work well since no account is taken of infl ation.

strictly only needed for Will forms 5 and 7, it does no harm in the other
will forms.
Other forms in powers of advancement
The statutory power of advancement is a power to pay or apply capital

money. However, the power nevertheless applies to trust funds not in the
form of money.34 In drafting a power of advancement it is more apt to refer
to trust property (or trust capital) than to “money”.
Older trust precedents gave trustees power to raise money and pay or
apply the trust money. This has been unnecessary since 1925.35
Another precedent gives power to raise a share in the trust fund and pay
or apply that share for the advancement or benefit of a beneficiary. Here
the word “raise” adds nothing but a puzzle of what it might mean.36
Power to pay or transfer to beneficiary
11.9 A common form in older trusts is:

The Trustees may pay or transfer trust funds to [a Benefi ciary] for his own use and benefit
absolutely.
This power is narrower than the common form power of advancement,

since it does not allow funds to be applied for the benefit of the benefici-
ary but only to be paid or transferred to them absolutely.37 The power is
34
Pilkington v IRC [1964] AC 612 at p.639. The Law Commission propose to amend this power to
state that expressly: see Intestacy and Family Provision Claims on Death (Law Com no 331, December
2011) para.4.72 and clause 9 of their proposed Inheritance and Trustees’ Powers Bill. The enact-
ment of the bill in its proposed form will not have any effect on the precedents in this book.
35
Section 16 TA 1925 (power to raise money by sale, mortgage, etc.). Hence the word “raise” is
not used in the statutory power of advancement. In a modern trust there would also be an express
power to borrow.
36
It has been said that “raise” in this context has “a broad sense” and means no more than identify
or set aside trust capital for the purpose of the exercise of the power: Re Wills [1959] Ch 1 at 14.
This does however give the word a sense which it does not normally have. When one talks in
ordinary usage of “raising funds”, “raising” means obtaining money, either by loan, or by issuing
shares for cash, or by any other method (as in charity “fundraising”). So another interpretation
is suggested. A power of advancement of this kind might be read with a comma after the word
“pay” so it empowers trustees to do one of two things:
(1) “Raise” trust capital (i.e. raise money, by borrowing, mortgage, or sale of trust assets) and
pay the money to or for the benefit of beneficiaries; or
(2) apply trust capital in specie (without “raising” money) for the benefit of beneficiaries.
Whichever is the right approach does not in practice matter: the trustees can exercise a power of
advancement without troubling themselves about any requirement of “raising” capital.
37
The words “pay or transfer to” do not in their normal sense mean “pay to or apply for the benefit
of ”. Of course the context may show that an extended sense is meant: for examples see the 7th
edn of this book at 14.7. But here the words “for his own use and benefit absolutely” require that

POWER OF ADVANCEMENT USED TO CREATE NEW TRUSTS 201
unnecessary where (as in the drafts in this book) there is a wide power of
advancement.
Power of appointment used to make advance to beneficiary
The power of appointment (or indeed the power of resettlement) may be 11.10
used so as to transfer trust capital to a beneficiary. But it may be easier to
use the power of advancement for this purpose, since no formal deed is
required. Trust money can simply be transferred by cheque or electronic
transfer.
Power of advancement used to create new trusts
The power of advancement in a trust may be used: 11.11
(1) to transfer trust property to a new trust where it may be held on

terms wholly38 or partly39 different from the original trust;
(2) to alter the terms of the existing trust so as to create new beneficial
interests which may wholly or partly replace the existing beneficial
interests;40 or
(3) to alter administrative provisions.41
Thus the power of advancement may be used broadly to the same effect as
powers of appointment or resettlement.
This is particularly important where a trust is drafted badly, or inflex-
ibly, because even badly drafted trusts generally contain a full power of
advancement, which should allow terms of the trust to be altered where
necessary.
the object becomes absolutely and beneficially entitled to the property paid or transferred to him.
If appropriate, the Court may extend a narrow power to “pay or transfer” into a wider power
to “apply for the benefit” under s.57 TA 1925; this may solve the problem of the narrow power.
Another solution is to transfer to the beneficiary and let the beneficiary resettle; but of course
that raises tax and property law issues.
38
As in Re Clore [1966] 1 WLR 955 (transfer to charity).
39
In Re Hastings-Bass the trustees transferred trust property to a new trust but created only a limited
beneficial interest in income and no exhaustive beneficial trust of capital of the funds advanced.
The new trustees held on the terms of the old trusts, which remained in effect to the extent that
the new trusts were not comprehensive. See [1975] Ch 25 at 42. In the leading case of Pilkington
v IRC 40 TC 416 the new trusts were nearly, but not quite, exhaustive.
40
In Re Hampden the new trusts were nearly but not quite exhaustive. This important case is
reported in [1977] TR 177 and also, belatedly, reported in [2001] WTLR 195 and accessible www.
kessler.co.uk.
41
Howell v Rozenbroek (14 December 1999, accessible www.kessler.co.uk).

In the following discussion:
(1) It is assumed that under a trust (“the Original Settlement”) trustees

have power to apply capital for the benefit of an object, “O”.
(2) The exercise of the power of advancement which results in a settle-
ment of the funds advanced is called a “settled advancement” and
the trusts created are called “advanced trusts”.
(3) The beneficiaries of the trusts created by the settled advancement
are called “Advanced Beneficiaries”.
A typical case is where trustees, having power of advancement for the

benefit of O, exercise that power by a settled advancement, in such a way
that the trust fund is held on trust for O for life, with remainder over to
O’s family.
The starting point is to note that the Advanced Beneficiaries include
persons other than the object, O—in this example, O’s family. The
advance must be for the benefit of O; but it is easy to see that this settled
advancement may be an application of the trust fund for the benefit of O,
since it will usually be for O’s benefit that there should be funds to main-
tain O’s family after O’s death. It is not relevant whether or not O’s family
are beneficiaries under the original settlement. They may be or they may
not be; but the reason they become Advanced Beneficiaries is because this
is for the benefit of O, and not because of their status under the original
settlement. O him or herself need not be an Advanced Beneficiary at all.
All that matters is that the settled advancement is for the benefit of O.42 But
the settlor cannot be an Advanced Beneficiary if there is a settlor exclu-
sion clause.43
A settled advancement can only create new trusts in a manner which
is specifically for the benefit (albeit “benefit” in the wide sense) of the
object, O.44 If there is a power to advance for the benefit of O, one cannot
normally create new45 trusts giving trustees a wide power of appointment
in favour of O’s siblings, or cousins, or more remote family, as that will
not normally be for the benefit of O. The test is whether the trustees
have O’s interest and O’s interest only, in mind. By contrast, the normal
power of appointment can be used to create any type of trusts so long as
42
Striking examples are Re Clore [1966] 1 WLR 955 — transfer to charity favoured by object of
power of advancement; Re Hampden [1977] TR 177, also belatedly reported in [2001] WTLR
195, accessible www.kessler.co.uk: transfer to trust for benefit of children of object of power of
advancement.
43
See 13.12 (What does a settlor exclusion clause cover?).
44
“Under such a power the trustees can deal with capital in any way which, viewed objectively, can
fairly be regarded as being to the benefit of the object of the power, and subjectively they believe
to be so.” Re Hampden, above.
45
It is different if such trusts already exist and the exercise of the power of advancement merely
preserves them.

the beneficiaries of the created trusts are objects of the power of appoint-
ment.46 Where it is not obvious that a proposed advance is for the benefit
of the object, a possible course may be to exercise the power of advance-
ment so as to confer powers of appointment which are exercisable by the
object or which are exercisable with their consent or for their benefit.
This brings out more clearly the benefit for the object. The next chapter
sets out some precedents.
The commonest examples are a settled advance:
(1) to make provision for O’s family; or

(2) to prevent O from becoming absolutely entitled to trust capital
because:
(a) O is immature and irresponsible as regards money so it is a
benefit to retain the capital in the trusts;47 or
(b) this avoids a tax charge on O becoming entitled to the trust
fund;
(3) to transfer to another trust for the reasons discussed at 11.7
(Resettlement and appointment compared).
It is considered that similar principles govern a common form power of

appointment. For instance, a power of appointment for the benefit of the
children of the settlor may be used to create trusts for the children for
life with remainder to the grandchildren (not objects of the power, but
assuming the provision for the grandchildren is regarded as a benefit to the
children who are objects).48
46
This is all that Upjohn J. meant in Re Wills [1959] Ch 1 at 14: “Trustees cannot under the guise of
making an advancement create new trusts merely because they think that they can devise better
trusts than those which the settlor has chosen to declare. They must honestly have in mind some
particular circumstances making it right to apply funds for the benefit of an object or objects of
the power.”
47
This was grudgingly accepted in Re T [1964] Ch 158 “only because a strong case on the facts is
made out for protection of this nature”. But attitudes have changed. In Jersey:
“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.”
See Re Gates [2003] 3 ITELR 113 accessible www.jerseylaw.je. This view would be accepted now
in England. Lord Eldon shared this sentiment: see Campbell’s anecdote of Lord Eldon accessible
www.kessler.co.uk.
48
The word “benefit” has two distinct meanings, a narrow meaning and a wide meaning:
(1) Direct Financial Advantage only In the narrow sense, “benefit” means only a direct pecuniary
benefit. In this sense it is not a “benefit”, say, to a person to pay their children’s school fees.
(2) Intangible Non-financial Benefit also In the wide sense, “benefit” includes not only direct
fi nancial advantage, but also intangible non-pecuniary advantages including mental satis-
faction. In this sense (only) it is for the benefit of a person:
(a) to pay their children’s school fees (assuming the person wishes to see their children
privately educated); or

Under the statutory power of advancement the trustees need the

consent of a beneficiary with a prior interest. The consent of O is not
needed however,49 though in practice trustees should take O’s views into
account and circumstances where the trustees can properly act contrary to
O’s views (if adult) will be rare.
O is not the settlor of the advanced trusts for any tax purposes.
The statutory power of advancement can only be used for the benefit of
an object or objects individually, and not for the benefit of two or more
objects as a class.50
(b) to provide a fund for their use (assuming the person wishes to see his children fi nan-
cially secure); or
(c) to make a contribution to a charity which that person wishes to support; or
(d) to avoid family disharmony: Re H [1990-91] CILR N.24; Re Q [2001] CILR 481.
A similar distinction is made in the law relating to a fraud on a power. An appointment with the
motive of securing a fi nancial benefit to the appointor is void: but an appointment satisfying an
appointor’s moral obligation is valid. See Palmer v Locke (1880) 15 Ch D 294 at p.303.
Confusion can be caused by failing to ask which of these meanings applies. The context must
decide which meaning is intended.
In tax legislation the narrow meaning is normal and the wide meaning is exceptional. For
instance, the word “benefit” in the context of the income tax or CGT settlement provisions or
the IHT gifts with reservation provisions has the narrow meaning and refers to direct fi nancial
benefits only. No- one has ever suggested that a payment to a person’s minor children is a “benefit”
to the parent, so as to bring those sections into application.
In the context of a power of advancement, a power to apply for the advancement or “benefit” of
O, the word “benefit” bears the wide meaning and includes any intangible non-fi nancial advan-
tage. This construction is perhaps supported by the phrase “advancement or benefit” showing
that a wider sense of “benefit” is intended; but in any event it is long settled by the authorities
cited above.
In the context of a common form power of appointment, a power to appoint on trusts for the
“benefit” of O, it is considered that the word “benefit” has the same wide sense. This was accepted
without argument in Re Leigh (1980) belatedly reported [2005] TLI 109; [2006] WTLR 477. The
position is the same if the power of appointment refers to “trusts in favour or for the benefit of the
Beneficiaries”, i.e. the words “in favour of ” are mere synonymy and do not extend the width of
the power.
In the context of a common form power to apply income for the benefit of a beneficiary, it is
again suggested that the word “benefit” has the same wide sense. A little support for this view
might be gained from the old case of Allen v Coster (1839) 1 Beav 202, accessible www.commonlii.
org. In this remarkable case a fund of £6,000 was held (in short) for the benefit of two minors. The
parents “were in a state of great indigence, and kept from the parish by a person who charitably
allowed them 10s. a week”. Lord Langdale said: “I think this is a case in which the Court can
increase the maintenance of the children for the support of their parents . . . I may give to the
infants the benefit of the property, so as to assist the parents: To do so is evidently for the benefit
of the infants themselves.”
In any particular case, regard must be given to the exact wording of the power concerned.
49
“It is no bar to an exercise of the power of advancement that the primary object neither requested
nor consented to it”; Re Cameron [1999] Ch 386 at [77]; Pilkington v IRC 40 TC 416 at p.439.
50
Suppose a trust fund is held on trust for A and B contingently upon attaining the age of 25 in equal
shares; and the trustees have the statutory power to apply capital for the benefit of “any person
contingently entitled to the capital”. They can apply half the trust fund for the benefit of A; and
they can apply the other half for the benefit of B separately. They cannot create discretionary trusts
for the class of A and B; or create a trust of the whole fund for A for life with power to appoint to
B. This is an application of capital for the benefit of A and B, collectively, as a class. Even applying
the Interpretation Act principle that the singular includes the plural, it does not seem correct to
construe the section to mean that this is permissible.

The statutory power of advancement can only be used in favour of

living beneficiaries, and not in favour of unborn beneficiaries.51
There has been some debate whether, under the statutory power of
advancement, the terms of the Advanced Trusts can include any disposi-
tive powers for the trustees or others. That is said by some to amount to a
delegation of the power of advancement, and so prima facie not permit-
ted. After some disagreement in the lower courts, this view was rejected
by the House of Lords and does not represent the law.52 In the precedents
in this book, however, the question does not arise since trustees have a
wide power of delegation.
The advanced trusts are governed by the perpetuity and accumulation
rules as they apply to the original trust.53
One conclusion to draw from all this is that the drafter should include
in a trust all three overriding powers: powers of appointment, resettle-
ment and advancement. They should not rely on one to do the work of
the others.
A narrowly drafted trust will generally include a power of advancement
but no power of appointment or resettlement. In such a case the trustees
still have some scope to alter the terms of the trust, or to transfer to a new
trust, by use of the power of advancement. This is a matter of considerable
practical importance.
It is considered that the wide power of advancement in the form in this book could be exercised
in favour of a class of Beneficiaries.
51
In relation to the statutory power this is clear. An unborn beneficiary cannot be said to be “enti-
tled” to trust property, even contingently, and so is not an object of the statutory power. It is
considered that the wide power of advancement in the form used in this book could be exercised
in favour of unborn beneficiaries.
52
The view that the power of advancement is restricted in this way was championed by Lord
Upjohn. He expressed this view in Re Wills [1959] Ch 1. The view was criticised in strong
language by Dankwerts J. in Pilkington v IRC (“I am not quite sure what the learned Judge had
in his mind . . .”) but repeated by Lord Upjohn in Pilkington in the Court of Appeal. The law
was settled by the House of Lords in Pilkington 40 TC 416. For the terms of the advanced trusts
approved by the House of Lords included protective trusts, i.e. they included discretionary trusts.
This is absolutely right in principle, it is respectfully considered, because any powers exercised
by the trustees of a new trust are not the powers of advancement, delegated; they are new powers
created by the exercise of the powers of advancement. See 11.5 (The problem of narrow powers of
appointment). Many of the other cases also authorised settled advances with dispositive powers of
some kind. Lewin on Trusts agrees: (18th edn, 2008) para.32–20. The contrary view must neces-
sarily involve the conclusion that the decision of the House of Lords was per incuriam.
53
However, where a common law perpetuity period applies, the advanced trusts can include
an appropriate “Royal Lives” period even if this was not found in the original trust. See 12.5
(Appointment creating royal lives clause).

CHAPTER 12
EXERCISING OVERRIDING POWERS
Who should draft deeds of appointment?
12.1 The drafting of deeds of appointment (and other documentation

supplemental to existing trusts) is more difficult than drafting a new
trust. Save for more straightforward deeds, such as absolute appointments
to a beneficiary, or appointments of new trustees, the practitioner who
does not have considerable experience of trust documentation should
delegate the work to specialist Chancery Counsel.1 The same applies to
the drafting of new trusts in non-standard form. In the words of a leading
practitioner:
The reality is that the use of defective or inadequate trust instruments produces
far more work for the specialist Bar, when things go wrong (or, rather, when
it is appreciated that they are going wrong) than if a suitable trust instrument
had been settled in the fi rst place.2
Drafting is deceptively difficult: an inexpert drafter skates on thin ice, the

more innocent of danger, the more at risk.
How to instruct counsel
12.2 Where counsel is instructed it is almost always best to send the relevant
information and instruct counsel to prepare the draft. It is more time-
consuming, more costly and ultimately less satisfactory for counsel to settle
another person’s draft than to start afresh.
1
A list can be obtained from the Chancery Bar Association www.chba.org.uk.
2
Venables, Non-Resident Trusts (8th edn, 2000), para.3.1.1.

DRAFTING DEEDS OF APPOINTMENT 207
Drafting deeds of appointment
Parties
The trustees jointly form one party to the deed. The drafting may need to 12.3
distinguish between (1) the trustees who make the appointment and (2)
the trustees from time to time (i.e. including future trustees). The prec-
edents in this book refer to the former as “the Present Trustees”. The more
cumbersome title is “the Appointors”. There will not usually be any other
party to the deed except where a consent is needed to the appointment.
If a Deed of Appointment has only one party it is said to be made “by”
that party. If two or more, it is said to be made “between” the parties. It
is a solecism to say:
This appointment is made [date] between A, B and C (“the Trustees”) . . .
Useful recitals
The recommended practice is to give recitals setting out the following: 12.4
(1) The appointment is supplemental to:

(a) the settlement (or the will and relevant codicils);
(b) relevant deeds of appointment (but not irrelevant ones such as
those which have been revoked or absolute appointments of
capital).
The form is as follows:

This deed is supplemental to the following:
(1) The settlement (“the Settlement”) made [date] between (1) . . . and (2)(a) . . .
(b) . . .
(2) The Deed of Appointment (“the 1994 Appointment”) 3 made [date] between,
etc.
(Add the numbering for ease of reading and avoid the words “one
part” “other part”.) When there are a large number of supplemental
deeds, it is easiest to set out the list in a schedule.
(2) The power being exercised. This saves readers from looking back,
concentrates the drafter’s mind on what he or she is doing and satis-
fies the requirement of showing intention to exercise the power.4
3
It is a matter of style whether to describe earlier deeds as “the 1994 Appointment”, etc., or “the
First Appointment”, etc.
4
Of course “An express reference to the power, though much to be preferred, is not essential,

208 EXERCISING OVERRIDING POWERS
(3) The identity of the trustees. It is not necessary to recite all the
deeds of appointment and retirement of trustees.
(4) If s.11 TLATA 1996 (consultation with beneficiaries) applies,
which is unusual,5 that the trustees have acted in accordance with
its requirements—copy the statutory wording.
Useless recitals
Do not bother to say:

The Trustees wish to exercise the power of appointment in the following manner.
It is not usually necessary or useful to set out a schedule of the assets of

the trust fund. (In complex cases it is not uncommon to find an asset
accidentally omitted, thus raising an obvious question of the extent of the
appointed fund.)
The deed is not subject to stamp duty, SDRT or SDLT.6
Appointment creating royal lives clause
12.5 A full discussion of perpetuities is outside the scope of this book. One
common question arises where a power of appointment or advancement
is exercised under a pre-PAA 2009 trust governed by the common law
perpetuity period (either a pre-1964 settlement or a post-1964 settlement
which did not specify a fi xed perpetuity period of up to 80 years).7 It is
sometimes desired to create a new perpetuity period consisting of “royal
lives” in being at the date of the original settlement. This is plainly per-
missible.8 On the other hand, where a trust made between 1964 and 2009
failed to specify a fi xed perpetuity period, it is not possible to specify a
provided that an intention to exercise that power is manifested in substance”; Thomas on Powers
(2nd edn, 2012), pp.357–9.
5
This arises in relation to an interest in possession trust whose trust property includes land:
(1) If the trust is made on or after 1 January 1997 and s.11 is not excluded. It is usually excluded:
see 7.18 (Consultation with beneficiaries).
(2) If the trust is made before 1 January 1997 and the settlor has directed s.11 to apply. (But this
never happens in practice.)
6
See 30.15 (Stamp duty and SDLT).
7
A single fi xed 125 year period now applies, whether or not specified in the trust. For a general
discussion see Ch.9 (The rule against perpetuities).
8
(1) The common law rule is that every interest must vest within 21 years after the determination
of lives in being at the date of the trust. The “royal lives” will satisfy this because they were in
being at that time. It is not the case that the lives in being must be specified at the date of the trust
and an appointment or advancement could not bring in other lives in being. That is often done
with other lives and “royal lives” can be no different. See, generally, Maudsley, The Modern Law
of Perpetuities, 1979, pp.94ff. (2) Even if that were wrong, the appointment or advancement is valid
under the so- called “second look” principle: see Thomas on Powers (2nd edn, 2012) para.5.37. (3)

POINTS TO WATCH IN DRAFTING DEEDS OF APPOINTMENT 209
fi xed perpetuity period by an appointment. That could only be done in

the original settlement.9
If it is difficult for the trustees to ascertain whether the lives have
ended (and therefore whether the perpetuity period has ended), the
rustees may opt for a fi xed 100-year period by executing an irrevoca-
ble deed to that effect10 (but in practice we doubt if that will ever be
useful).
Power of revocation
It is usual to provide that “The Trustees irrevocably appoint . . .” but 12.6

only for clarity, as an appointment is irrevocable unless expressed to be
revocable.
If a power of revocation is desired, there should be an express clause to
specify who may exercise the power, the appropriate formalities for exer-
cise of the power, and the time limits (which must fall within the trust
period). For instance:
The Trustees may revoke this appointment wholly or in part by deed executed
during the Trust Period.
It is not sufficient to say “The Trustees revocably appoint . . .” without

specifying more. That seems obvious, but we mention the point as this
mistake is sometimes made.
Points to watch in drafting deeds of appointment
These include: 12.7
(1) Time limits imposed by the trust.11

(2) The rule against perpetuities and (for pre-PAA 2009 trusts) the
rule against accumulations.
This is the general practice of conveyancers. See e.g. Re Wills [1964] Ch 219 where a “royal lives”
clause was inserted without criticism from the judge.
We add for completeness that the Law Commission Report No.251 (Rules against Perpetuities
and Excessive Accumulations) accessible http://lawcommission.justice.gov.uk para.4.30 does describe
this issue as never having been “fi nally settled”. However that is only because no one has seriously
argued the contrary view.
9
Section 1 PAA 1964.
10
Section 12 PAA 2009
11
Is this unnecessary to say? It is not. A time limit was overlooked with the consequence of invalid-
ity despite ingenious arguments in Breadner v Granville-Grossman [2001] Ch 523.

(3) In discretionary will trusts, appointment within three months of

death.12
(4) Self-dealing rule, if appointment may benefit the trustee.
(5) Fraud on a power, if a non-beneficiary may benefit directly or
indirectly.
(6) The width of the power: see 11.5 (The Problem of narrow powers
of appointment), check there are no restrictions tucked away, e.g.
in a settlor exclusion clause13 or confl ict of interest clause.14
(7) Inheritance tax:
(a) the burden and incidence of IHT on any transfer of value
made by the appointment; loss of life tenant’s NRB;
(b) insurance against IHT;
(c) notice under s.57(3) IHTA 1984 (to use transferor’s annual
IHT exemptions);15
(d) if the trust holds business or agricultural property, the effect
of s.113A and s.124A IHTA 1984 on earlier transfers of value
within the last seven years.
(8) CGT: possible charge under s.71 TCGA 1992; possibility of hold-
over relief. Claims for holdover relief must be made by the trustees
and the transferees beneficiary. Claims are made on the official
form, which is found in Help Sheet 295 (Relief for Gifts and
Similar Transactions).
(9) Trustee liabilities:
(a) if the appointment transfers assets to a beneficiary absolutely,
consider the need for (i) expressly preserving a trustee lien;
12
See 18.11 (Best form of will for testator who is married or a civil partner).
13
See 13.15 (Exclusion of additional and indirect settlors), 13.17 (Extending the settlor exclusion
clause to exclude trustees).
14
See 6.16 (Confl icts of interest). If the STEP Standard Provisions (2nd edn) apply, note the confl ict
of interest rule in cl.9.
15
HMRC practice is set out in the IHT Manual 14170:
“The form for giving the notice is form 222. It does not have to be sent to this office, but the
trustees are instructed on the form to retain it in case it is subsequently required by HMRC
IHT.”
The former CTO Advanced Instruction Manual continued:
“You should not ask for the notice unless you suspect abuse — e.g. where the annual exemption
is claimed twice for the same year. Although the notice should be given within six months of
the transaction, you need not check this. You should not disallow the exemption solely for the
reason that it was given out of time.”
This is no doubt the text which in the published IHT Manual “has been withheld because of
exemptions in the Freedom of Information Act 2000”. Accordingly, it should be safe in practice
not to complete this form in straightforward cases.

EXAMPLE DEED OF APPOINTMENT 211
(ii) an indemnity from the beneficiary; and (iii) perhaps,

security for that indemnity;16
(b) if the appointment creates separate sub-funds, and the trustees
have existing liabilities, consider how the separate funds are
to share the burden of the liabilities; this arises especially in
appointments in the course of administration of an estate of a
deceased person.
(10) If a living person has made a gift to the trust by will, a codicil to
the will is needed: see 17.13 (Gift by will to existing trust).
(11) Any additional formalities required by the trust deed.17
It is good practice to send a draft to the settlor and principal beneficiaries,

to give them the opportunity to comment or clarify misunderstandings.18
Example deed of appointment
This is an example of an appointment with the following characteristics: 12.8
(1) it divides a trust fund into two shares each held on IP trusts
(2) the trustees retain a wide power of appointment.19
It is assumed the power of appointment is wide, as in the forms in this book.

This deed of appointment is made [date] by
(1) [Name] of [address] (“the Settlor”) 20 and
(2) [Name] of [address]
(together called “the Present Trustees”).
16
See Ch.32 (Indemnities for executors and trustees).
17
Such as notarisation and delivery to the trustees. These kinds of requirements are so frequently
overlooked that they cause far more difficulties than the perceived problems they are intended to
solve. They are best avoided when drafting new trusts. As to some of the difficulties which can
arise, see Al-Ibraheem v Bank of Butterfi eld International (Cayman) Limited [1999] CILR 436. Another
trap for the unwary, which was the case in Al-Ibraheem, is the use of terms such as “written instru-
ment” as a defi ned term incorporating additional formalities without any indication that it is
defi ned.
18
This might have avoided the problem which arose in Abacus v Barr [2003] Ch 409 at [27] where
“the trustees perhaps surprisingly failed to seek from the settlor an expression of his wishes
in documentary form or provide him with a copy of the proposed appointment before it was
executed”.
19
See 14.11 (IP forms for two life tenants).
20
It is assumed in this draft that the settlor is one of the two trustees: the defi nition of settlor is used
in recital A(1). Contrast the draft resolution at 12.12 which concerns a will trust and at 12.13
(where the settlor is not one of the trustees).

WHEREAS:
(A) This deed is supplemental to the following:

(1) A settlement (“the Settlement”) made [date] between (1) the Settlor and
(2) (a) the Settlor (b) [name of other original trustee].
(2) An appointment (“the First Deed of Appointment”) made [date] by the
Present Trustees.
(B) Clause . . . of the Settlement confers on the Trustees the following power (“the
Power of Appointment”):
[set out power]
(C) The Present Trustees are the present trustees of the Settlement.
Now this deed witnesses as follows:
1. In this deed:
(1) “Gillian” means [name] of [address].
(2) “Giles” means [name] of [address].
(3) Words defi ned in the Settlement have the same meaning in this deed.
2. In exercise of the Power of Appointment 21 the Present Trustees irrevocably
appoint 22 that they hold the Trust Fund on the following terms.
3. Subject to the Overriding Powers conferred below the Trustees shall divide the
Trust Fund into two equal shares (“Gillian’s Fund” and “Giles’ Fund”).
4. Gillian’s Fund
Subject to the overriding powers conferred below:
(1) The Trustees shall pay the income of Gillian’s Fund to Gillian during her life.
(2) Subject to that, if Gillian dies during the Trust Period, the Trustees shall
pay the income of Gillian’s Fund to her widower during his life.
(3) Subject to that, during the Trust Period, the Trustees shall pay or apply the
income of Gillian’s Fund to or for the benefit of any Beneficiaries as the
Trustees think fit.
5. Giles’ Fund
[Repeat clause 4 with appropriate modifications]
6. Overriding Powers
[set out the standard overriding powers in this book]
7. This appointment shall carry all the income payable after the date of this deed
and no apportionment shall be made.23
8. Subject to that the Settlement as amended by the First Deed of Appointment
shall stand.24
In witness etc
21
Do not add: . . .or any other power enabling them. . . . The trustees should usually know which power
they are exercising! Where there is doubt these words may be appropriate; but a power will in
appropriate circumstances be taken to be exercised by implication, so even then it makes no dif-
ference whether these words are added or not; see e.g. Re Pennant [1970] Ch 75.
22
Do not say: “. . . appoint and declare”; or “. . . appoint and direct”, this is pointless synonymy.
23
This clause is not strictly necessary if the trust excludes the statutory apportionment rule, which
is usually the case: 21.54 (Statutory apportionment) but it is better to make it plain.
24
This would of course be implied, but it is better to make it plain.

POINTS TO WATCH IN DRAFTING TRANSFERS 213
Points to watch in drafting transfers to another settlement
The points at 12.6 (Points to watch in drafting deeds of appointment) apply 12.9
here, but in addition:
(1) It may be necessary first to alter the terms of the transferor or trans-
feree settlement in order:
(a) to avoid a breach of the rule against perpetuities and (for pre-
PAA trusts) the rule against accumulations,25
(b) to satisfy a settlor exclusion clause of the transferor settlement,
or
(c) to satisfy restrictions on the power of transfer (see the draft
below for an example).
(2) Especially for pre-1970 settlements, watch out for illegitimate/
adopted beneficiaries who may not be beneficiaries under the old
settlement and may easily and unexpectedly be beneficiaries under
the transferee settlement.
(3) The transfer will govern trust capital (including accumulated
income) but some income of discretionary trusts may be received
and not yet distributed or accumulated. There are two ways to deal
with such income:
25
Where trustees exercise a power to transfer property from one English law trust (trust 1) to
another English law trust (trust 2), the perpetuity and (if applicable) accumulation periods of trust
1 continue to apply even after the transfer of the property to trust 2. See Pilkington v IRC [1964]
AC 612 at p.641; Trennery v West, 76 TC 713 at p.768.
What is the position if the transfer is from an English law trust to a foreign law trust? The
foreign law is not concerned with what restrictions may have been imposed by the law of the
transferor settlement. E.g. if the foreign law has no restrictions on perpetuities, then it will not
impose restrictions in relation to property transferred from an English law settlement. (The only
question is whether the English law restrictions on perpetuities are such that one cannot have a
power in an English law settlement to transfer funds to a settlement governed by a foreign law
where no (or different) foreign law perpetuity rules apply. We do not think that anyone has seri-
ously doubted that. It is accepted that English law accepts the validity of a power to change the
governing law: Hague Convention, art.10 envisages such a power, and this view was adopted in
Chellaram v Chellaram (No. 2) [2002] 3 All ER 17. The power to transfer to a new trust governed
by a foreign law is now a standard form. Once one accepts that an English domiciled settlor can
create a settlement governed by foreign law, or an English law settlement with power to change
the governing law, there is nothing surprising in a conclusion that this can be done so as to avoid
the English law rules against perpetuities. It is the governing law which governs these matters:
see art.8(f ) of the Hague Convention on the Law Applicable to Trusts implemented by the
Recognition of Trusts Act 1987.
It is an interesting question how the rules against perpetuities would apply on a transfer from a
foreign law to an English law settlement. In this case, English law does impose restrictions on the
transferee settlement. The solution may be that periods run from the date of the creation of the
transferor trust, but the point has never been decided. (In practice such transfers are not likely to
be made very often and the question will never be resolved.)

(a) The trustees may resolve to accumulate the income just

before executing the transfer (so the accumulated income
passes with the rest of the trust capital).
(b) The income may be distributed (before or after the execution
of the transfer) under the terms of the old settlement.
The trustees of the transferee settlement need not be parties to the
deed.
Example exercise of power to transfer to another settlement
12.10 This deed illustrates a transfer of funds from one settlement (conveniently defined in
the draft as “the Old Settlement”) to another.
This deed is made [date] between
(1) [name] of [address] (“the Settlor”) of the one part and
(2) (a) the Settlor and
(b) [name] of [address]
(“the Trustees”) of the other part.
WHEREAS:
(A) This deed is supplemental to a settlement (“the Old Settlement”) made etc
(B) The Trustees are the trustees of the Old Settlement.
(C) Under clause 1.6 of the Old Settlement “the Beneficiaries” includes:
“1.6.4 Any Person or class of Persons nominated to the Trustees by:
1.6.4.1 the Settlor or
1.6.4.2 two Beneficiaries (after the death of the Settlor)
and whose nomination is accepted in writing by the Trustees.”
(D) Clause 3.2 of the Old Settlement confers on the Trustees the following power
(“the Power of Resettlement”):
“The Trustees may by deed declare that they hold any Trust Property on trust
to transfer it to trustees of a Qualifying Settlement, to hold on the terms of that
Qualifying Settlement, freed and released from the terms of this Settlement.
“A Qualifying Settlement” here means any settlement, wherever estab-
lished, under which every Person who may benefit is (or would if living be) a
Beneficiary of this Settlement.”26

1. In this deed
(1) Terms defi ned in the Old Settlement have the same meaning in this deed.
(2) “The 1996 Settlement” means the settlement made etc
26
This is the form used in the fi rst five editions of this book. The form in subsequent editions is
slightly wider.

WHO SHOULD DRAFT SETTLED ADVANCES? 215
2. In exercise of the power conferred by clause 1.6 of the Old Settlement the Settlor
nominates and the Trustees accept as Beneficiaries the class of beneficiaries of
the 1996 Settlement (so far as not already Beneficiaries).
3. In exercise of the Power of Resettlement the Trustees declare that they hold
the Trust Fund on trust to transfer it to the trustees of the 1996 Settlement, to
hold on the terms of the 1996 Settlement as one fund for all purposes, freed and
released from the terms of the Old Settlement.
In witness etc
Variant form where same person is trustee of each settlement
Suppose it is desired to transfer funds from one settlement to another, and

the same person is trustee of both. The following wording is proposed:
In exercise of the Power of Resettlement the Trustees declare that they hold the Trust
Fund in their capacity as the trustees of the 1996 Settlement, on the terms of the 1996
Settlement as one fund for all purposes, freed and released from the terms of the Old
Settlement.
We have seen a deed in which the parties were expressed to be (1) the
Trustee in its capacity as trustee of the Old Settlement and (2) the Trustee
in its capacity as trustee of the transferee settlement. That is a mistake. A
person who is trustee of two trusts is not two separate persons. It is not
correct for a person who is trustee of two trusts to be described in a docu-
ment as two parties in two capacities; or for there to be a covenant between
itself in one capacity and another.27 However the mistake does not make the
document invalid as all that matters is that the intention is clear.
Who should draft settled advances?
The point made at 12.1 (Who should draft deeds of appointment?) applies 12.11
even more to the drafting of settled advances:
It cannot be sufficiently stressed that this is highly technical work which

requires the advice of a trusts and tax expert. The penalty for failing to take
such advice could well be nullity.28
Quite true; but the heavier penalty is likely to be a fiscal one.
27
Contrast Ingram v IRC [1999] STC 37 where the issue arose in another way, and The Nature and
the Constitution of Trusts (Scots Law Com Discussion Paper no 133, October 2006) paras 2.29–2.45
accessible www.scotlawcom.gov.uk/download_ file/view/128.
28
Venables, Non-Resident Trusts (8th edn, 2000), para.10.6.3.

Drafting resolutions of advancement
12.12 The exercise of a power of advancement in the standard form does not
need a deed. In the case of a simple advance of capital, all that is needed is
a cheque (or transfer of an asset) though a written trustee resolution would
be good practice. In the case of a settled advance, a trustee resolution is the
appropriate form. The content will be similar to a deed of appointment.
It is good practice to say for whose benefit the power is being exercised.29
The points at 12.7 (Points to watch in drafting appointments) and
12.9 (Points to watch in drafting transfers to another settlement) apply
here too. In addition, consider whether it is desired to transfer funds to a
new settlement for CGT, and review SP 7/84 to ensure the draft has the
desired effect.
Example resolution of advancement used to alter terms of trust
12.13 The following example was drafted for a trust under which a share was held for John
for life, with remainder to his children absolutely. This poor form would leave John’s
widow unprovided for, incur an IHT charge on his death which could be deferred or
avoided if he left a widow, and give the children absolute interests at too young an
age. There was fortunately a power of advancement for the benefit of John which is
used here to give John power to create more appropriate trusts.
The form illustrates the slight variants appropriate to a will trust.
This Trustee Resolution is made [date] by
(1) [Name] of [address] and
(“The Present Trustees”).
Whereas:
(A) This Resolution is supplemental to the will (“the Will”) made [date] by [name]
(“the Testator”).
(B) The Testator died on [date] and probate was granted on [date] by30 the [name]
registry.
29
In Re Hampden [1977] TR 177 also belatedly reported in [2001] WTLR 195 accessible www.
kessler.co.uk the advance contained a “slightly unfortunate” recital stating that the trustees
intended to benefit A. In fact they intended to benefit A’s father. The Judge accepted affidavit
evidence to this effect and (correctly) disregarded the erroneous recital. For another example
see Osborne v Steel Barrel Co Ltd 24 TC 293 at p.305: “As between the Crown and the Appellant
company neither is bound by an untrue recital”.
30
Some say “granted out of the [name] registry”, but that is clumsy if not archaic, and the plain
English equivalent was used by the Parliamentary drafter in the precedent in form 4 in Sch.5 LPA
1925.

R ESOLUTION OF ADVANCEMENT USED TO ALTER TERMS OF TRUST 217
(C) The Present Trustees are the present trustees of the Settlement constituted by
the Will.
(D) Clause 6(6) of the Will confers on the Trustees the following power (“the Power
of Advancement”):
“The Trustees may in their uncontrolled discretion from time to time during
the lifetime of John by mortgage or sale of the share or any part thereof or assets
comprised therein raise any monies (up to the total value of the share) and pay
or apply the same to or for the benefit of John in such manner as the Trustees
shall think fit”.
(E) The Present Trustees now wish to exercise the Power of Advancement by apply-
ing John’s Share for the benefit of John so as to enable John to make the most
appropriate provision for John’s family.
The Present Trustees hereby resolve as follows:
1. In this Resolution:
(1) Terms defi ned in the Will have the same meaning in this Resolution.
(2) “John” means [full name]
(3) “The Family of John” means
(a) the descendants of John.
(b) the Spouses of the descendants of John
(c) the Surviving Spouses of the descendants of John and
(c) the Surviving Spouse of John.
(4) “Spouse” includes a civil partner within the meaning of section 1
Civil Partnership Act 2004 and a person is a “Surviving Spouse”
whether or not they have remarried or entered into another civil
partnership.
(5) “John’s Share” means the share of the Trust Fund the income of which is
payable to John under the terms of clause 6 of the Will.
2. In exercise of the Power of Advancement, the Present Trustees apply John’s

Share for the benefit of John by declaring that they hold John’s Share in their
capacity as the Trustees on the terms of the Settlement, but as if clause 6(2) of
the Will provided as follows:
“From and after the death of John the capital and income of the said share
or so much thereof respectively as shall not have become vested or been paid
or applied under any trust or power affecting the same shall be held upon
trust for all or any one or more of the Family of John at such time and if
more than one in such shares with such provision for maintenance education
advancement and otherwise at the discretion of the Trustees or any persons
and with such gifts over and generally in such manner for the benefit of the
Family of John or some or one of them as John shall by deed or deeds revoca-
ble during the Trust Period or irrevocable or by will or codicil taking effect
during the Trust Period appoint and it is declared for the avoidance of doubt
that this power extends to the creation of discretionary trusts and powers for
the benefit of the Family of John and in default of and subject to any such
appointment upon trust for all or any the children of John born within the
Trust Period who shall attain the age of twenty one or who (without attaining
that age) shall be living at the expiration of the Trust Period if more than one
in equal shares.”
This is emphatically not the “plain English” form which would have been preferred. It

is however the wording used elsewhere in the documentation of this trust, and it is probably
better in supplemental documentation to use consistent forms throughout.
3. Subject to that, the Will shall stand.
Signed by the Present Trustees
. . .. . ...
. . .. . ...
Example resolution of advancement used to transfer property to

two separate settlements
12.14 This resolution illustrates a power of advancement used to transfer separate funds
to two separate settlements. The terms of the new settlements would need careful
consideration to ensure that the transfer was for the benefit of the objects of the power
of advancement.
This Trustee Resolution is made [date] by
(“the Present Trustees”)
Whereas
(A) This Resolution is supplemental to a settlement (“the Old Settlement”) made

[date] between (1) [name of settlor] and (2) [name of trustees].
(B) Clause 6 of the Old Settlement confers on the Trustees the following power
(“the Power of Advancement”):
“NOTWITHSTANDING anything to the contrary hereinbefore con-
tained the Trustees may at any time in their absolute discretion apply for
the benefit of any Beneficiary the whole or any part of the capital of his or
her share (and any accumulations added thereto) freed and discharged from
the provisions of this Deed . . .”
(C) The Trustees now wish to exercise the Power of Advancement by applying each
Beneficiary’s share for his benefit by transferring that share to a settlement in
which that Beneficiary shall be entitled to an interest in possession.
The trustees hereby resolve as follows:
1. Defi nitions
In this Resolution:
1.1 Terms defi ned in the Old Settlement have the same meaning in this
Resolution.
1.2 “Adam” means [full name].
1.3 “Danny” means [full name].
1.4 “The Adam Smith Settlement 2012” means the settlement of that name
made the same date as this resolution by [parties].

PROCEDURE AFTER EXECUTION OF DEEDS 219
1.5 “The Danny Smith Settlement 2012” means the settlement of that
name made the same date as this resolution by [parties]. 31
2. Advancement
2.1 In exercise of the Power of Advancement the Trustees resolve to apply
Adam’s Share for the benefit of Adam by declaring that they hold the
same on trust to transfer it to the Trustees of the Adam Smith Settlement
2012 on the terms of that Settlement as an accretion to the Trust Fund
of that Settlement freed and discharged from the terms of the Old
Settlement.
Danny’s Share for the benefit of Danny by declaring that they hold the same
on trust to transfer it to the Trustees of the Danny Smith Settlement 2012
on the terms of that Settlement as an accretion to the Trust Fund of that
Settlement freed and discharged from the terms of the Old Settlement.
Signed by the Trustees [etc]
Example resolution of advancement used to transfer property

from one settlement to another
The difference between this form and the above is that the trust funds 12.15
become held as separate sub-funds of a single new settlement. Replace
clause 2 above with the following:
2 Advancement
Adam’s Share for the benefit of Adam by declaring that they hold the same
on trust to transfer it to the Trustees of the William Smith Grandchildren
Settlement 2012 to hold as an accretion to the share of Adam under that
Danny’s Share for the benefit of Danny by declaring that they hold the same
on trust to transfer it to the Trustees of the William Smith Grandchildren
Settlement 2012 to hold as an accretion to the share of Danny under that
Procedure after execution of deed of appointment/resettlement/

advancement
The following is a checklist of possible issues (which will all not arise in 12.16
every case):
31
“Adam’s Share” and “Danny’s Share” would also need to be defi ned unless those terms are already
defi ned in the Old Settlement.

(1) Transfer legal title to beneficiaries/new trustees (if appropriate).

(2) Insurance against IHT risk (if appointment is a PET).
(3) Arrangements for loss of NRB in case of death within seven years:
see 30.13.
(4) Returns and other matters:
(a) IHT account if appointment is a chargeable transfer.
(b) CGT claim for holdover relief or for losses.
(c) Inform beneficiaries. Concealment may be taken as evidence
of a fraud on a power.32 Contrast 30.14 (Returns and other
matters).
32
As in Duke of Portland v Topham (1864) 11 HLC 32.

CHAPTER 13
SETTLOR EXCLUSION AND DEFAULT

CLAUSES
Why exclude the settlor and spouse/civil partner?
The position is complicated, because there are at least three different sets 13.1
of anti-avoidance provisions to consider. The rules are inconsistent and
sometimes irrational. The following sets out the main points for the trust
drafter, but is not comprehensive.
(1) If the settlor has an “interest in the settlement” (for income tax
purposes) trust income will in effect be taxed at the settlor’s
rates.1 This rule may increase the IT due. It is usually desired
to avoid this rule, so it is necessary to exclude the settlor (and
the settlor’s spouse/civil partner) from benefit under the trust.2
However, trusts which accumulate income pay income tax at
the top rates (for 2012/13, 42.5% for dividend income and 50%
for other income; in 2013/14 to be reduced to 37.5% and 45%).
So this rule may make no difference (except for deductible trust
expenses) or if the settlor is not a top rate taxpayer, the rule will
decrease the tax rate. Further, dividend income of discretionary
trusts which is distributed to higher rate taxpayers effectively
bears tax at more than the settlor’s top rate, so if the trust receives
dividend income the application of this rule will often reduce tax
rates.
(2) If overriding powers may benefit the settlor, the settlor may be
subject to IHT on the settled property as if they had never given it
away.3
1
See s.624 ITTOIA; Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012),
Ch.26 (Settlor-interested trusts) accessible www.foreigndomiciliaries.co.uk.
2
See 5.31 (Settlor and spouse/civil partner as beneficiaries).
3
See s.102 FA 1986.

222 SETTLOR EXCLUSION AND DEFAULT CLAUSES
(3) If the settlor has an interest in the settlement (for IT purposes) the
pre-owned assets rules need consideration. However, in practice a
problem here would be exceptional.4
None of these problems arise for a will trust; a testator cannot benefit
under their own will.
CGT hold- over relief
13.2 Further restrictions may be necessary if it is desired to claim CGT hold-

over relief on the gift to the trust. This relief is not available if the settlor
has an “interest in the trust” for CGT purposes.5 A settlor has an interest
in the settlement (for CGT purposes) if they, their spouse/civil partner,
or dependent children may benefit. The daft rule excluding hold-over relief
if dependent children may benefit was introduced in the FA 2006. It is
supposedly justified by a (misconceived) analogy with s.626 ITTOIA, but
it rests, perhaps, on a general desire to discriminate fiscally against the use
of trusts. But there it is.
The position depends on whether or not the settlor has any dependent
children.6
Settlor has dependent children
It is necessary to exclude the settlor, spouse/civil partner and dependent

children of the settlor. The dependent children need only be excluded
while they are dependent: they can benefit once they reach the age of 18.7
Settlor has no dependent children
The position is different if the settlor does not have dependent children
and is not expected to have any dependent children shortly. Here there is
a choice:
4
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.72 (Pre-
owned Assets) accessible www.foreigndomiciliaries.co.uk.
5
Section 169B TCGA 1992.
6
We adopt the terminology of the TCGA, under which “dependent child” means a child or step-
child who:
(a) is under the age of 18 years,
(b) is unmarried, and
(c) does not have a civil partner.
7
Or (for completeness) if they become married/CPs under 18, but in practice that is almost wholly
academic. Out of 235,000 marriages in 2007, 350 bridegrooms and 1444 brides were under
the age of 18; (National Statistics Series FM2, no.35, Marriage Divorce and Adoption statistics
table 3.18, 3.19), accessible www.statistics.gov.uk.

EXCLUDING THE SETTLOR: DRAFTING 223
(1) Exclude all future dependent children (while they are dependent
children).
(2) Not to exclude future dependent children.
The second course is more trouble, but more flexible. If, adopting the
second course, the settlor actually acquires dependent children within six
years, CGT hold-over relief is lost.8 However, if the children are acquired
later, no tax problem arises.9 A settlor may acquire dependent children in
one of two ways:
(1) Becoming a parent.

(2) Becoming a step-parent of a dependent child (marrying the actual
parent).
In either case, the settlor will have notice of what is about to happen.
Provided the trustees act before the settlor acquires a dependent child, by
excluding the dependent child (during dependency), no claw-back charge
arises.
Excluding the settlor: drafting
The exclusion of the settlor is not as straightforward as one might have 13.3
thought. There are five ways by which a settlor may benefit under their
trust; each requires separate means to counteract it.
(1) Direct benefit
The trust may make express provision for the benefit of the settlor. This 13.4
should be easy enough to avoid. The following should be noted.
Trustees to pay the costs of setting up the trust. This is not permitted. These costs
will usually be liabilities of the settlor; a provision of this kind operates for
the benefit of the settlor. Until the costs are paid, income tax, CGT and
IHT anti-avoidance provisions may apply.
Trustees to pay tax on gift to trust. A gift to a disabled trust is a PET and so 13.5
an IHT charge may arise if the donor does not survive seven years. This
tax charge is primarily the liability of the trustees.10 Accordingly it is
unnecessary to say that the trustees shall pay the tax. The same applies
8
See s.169C(2)(b) TCGA 1992.
9
It is assumed that there is no arrangement within s.169C(2)(b) TCGA 1992.
10
See 30.12 (Arrangements for payment of IHT on gift in case of death within seven years).

to the additional IHT payable on a chargeable transfer (such as a gift to a

discretionary trust) which may arise if the donor dies within seven years
of the gift.11
A provision that the trustees may pay the IHT if the donor dies within
seven years raises a number of difficulties and is not recommended.
The trustees should not be directed or empowered to pay CGT arising
on the transfer to the trust; HMRC take the view that this allows the
settlor to benefit from the trust.
(2) Resulting trust
13.6 The settlor may benefit under a resulting trust. This is prevented by an
effective Default Clause: see 13.23 (Default clause).
(3) Power to benefit settlor
13.7 The settlor may benefit if the trustees have any powers which may be used
to benefit them. It does not matter whether the power is in fact exercised
so as to benefit the settlor; the mere possibility of benefit is disastrous.
This possibility is averted by a settlor exclusion clause: see 13.10 (Settlor
exclusion clause).
(4) Actual benefit
13.8 The settlor may benefit directly or indirectly from trust property, despite
everything in the trust, by the consent of beneficiaries or through breach
of trust. No feat of draftsmanship can prevent this: this problem must be
dealt with through careful trust administration.
(5) Reciprocal arrangements
13.9 The settlor may be excluded from their own trust, but may benefit from
another trust under a reciprocal arrangement. The solution of this problem
does not lie in the trust drafting; but in the careful avoidance of arrange-
ments which have an element of reciprocity.
It sometimes happens that spouses (or other members of one family)
make trusts at the same time, and each settlor may benefit under the other’s
trust. It is considered that these are not (normally) “reciprocal settlements”
because (normally) one trust is not made in return for the other.12
11
The position is more complicated for IHT immediately payable on a gift to a discretionary trust
(which is a chargeable transfer). This is discussed in the fi rst edition of this book at para.4–071.
However, the point is academic: in practice a well advised settlor will not normally make gifts
which give rise to an immediate charge to IHT.
12
There is an interesting discussion of reciprocity from a sociological perspective in Zygmunt
Bauman, Postmodern Ethics (1993), pp.56–58, accessible in the DTWT archive, www.kessler.co.uk.
There is no discussion in the cases, but it is suggested that Bauman is right that the essential

WHEN IS A SETTLOR EXCLUSION CLAUSE APPROPRIATE? 225
Settlor exclusion clause
Notwithstanding anything else in this settlement, no power conferred by this settle- 13.10
ment shall be exercisable, and no provision shall operate so as to allow Trust Property
or its income to become payable to or applicable for the benefit of the Settlor or the
spouse or civil partner13 of the Settlor in any circumstances whatsoever.
This “settlor exclusion clause” is a convenient drafting technique to help

to ensure that the requirements of the settlement provisions are satisfied:
(1) Trustees might have some power which could be used to benefit
the settlor (or spouse or civil partner) as well as others. If all the
powers are made subject to the settlor exclusion clause, it is unnec-
essary to exclude the settlor (or spouse) from benefit specifically
under each individual power.
(2) If by some error any clause in a settlement directs that a benefit
be provided to the settlor (or spouse or CP), the settlor exclusion
clause should prevent the erroneous clause from taking effect.14
When is a settlor exclusion clause appropriate?
A settlor exclusion clause is usually needed whether the settlor is single, 13.11
married or a civil partner; it is of course unnecessary in a will trust. Where,
exceptionally, the settlor (or their spouse or civil partner) are intended to
benefit under a trust it is essential to amend or omit the settlor exclusion
clause as appropriate.15
element of reciprocity is that it affects motive. The distinction is between disinterested generosity
on the one hand and conduct inspired by considerations of self interest on the other. Reciprocity
(like so much in life) offers delicate shades of grey, matters of fact and degree, which the tax system
must resolve into black or white.
HMRC do not take a GWR point in these circumstances. See IHT Manual para.14453:
“Example 6
A husband and wife jointly settle an insurance policy on trusts under which there is an imme-
diate interest in possession. The trustees have a power of appointment over the whole fund in
favour of a number of persons including the settlors but each settlor is specifically excluded
from benefiting from the part which (s)he settled.
The inclusion of each settlor’s spouse or civil partner as an object of the trust affecting the
settlor’s share would not of itself make either gift a GWR.”
13
The shorter form “Spouse” is used in our book to include civil partners: see 5.30 (Spouses and
civil partners of beneficiaries: drafting points).
14
At least if it is clear which clause is erroneous: see 13.11 (When is a settlor exclusion clause
appropriate?).
15
It happens occasionally that a settlor exclusion clause is accidentally retained in a trust intended
for the principal benefit of the settlor; so in one clause the trustees are directed to pay the income
to the settlor; and in another clause they are prohibited from doing so. Which clause prevails?
Applying a literal construction the answer would be the settlor exclusion clause, which is stated

What does a settlor exclusion clause cover?
13.12 The words of the common form settlor exclusion clause “are so wide that
everyone agrees there must be some limitation placed upon them”.16 There
are a number of situations where it has been held not to apply.
An obvious case is where the benefit to the settlor is “a mere voluntary
application of income by a beneficiary to the settlor, outside the provisions
of the trust itself ”.17 For the same reason, a settlor exclusion clause does
not prevent trustees paying capital to a minor child of the settlor, even
though the settlor would benefit on the intestacy of the child (and indeed
the child could not make a will to prevent this).
The clause does not exclude the settlor’s right to reimbursement for tax
paid by them on trust income or gains, under the settlement provisions.18
This is because that right does not arise under the settlement: it arises
under the statute. The settlement cannot exclude a right which does not
arise under the settlement.19 (Suppose, for instance, that the trustees owed
money to a creditor, and the creditor assigned that debt to the settlor.
No-one would suggest that the settlor could not (as a matter of property
law) enforce the debt, just because there was a settlor exclusion clause.) It
may also fairly be said that reimbursement is not a “benefit” for the settlor
because (looking at the matter broadly) the settlor has gained no advan-
tage.20 Likewise the clause does not exclude the right of a settlor-trustee
to reimbursement of expenses under s.31 TA 2000.21 For similar reasons it
to apply “notwithstanding anything else in the Settlement”. It is suggested that a literal con-
struction should not be applied, see 4.4 (Meaning of words v meaning of document). A similar
argument was accepted in Padmore v IRC (No. 2) [2001] STC 280. Here it was rightly held that
the context showed that one provision overrode a second, even though the second provision was
stated to apply “notwithstanding anything in any enactment”. Rectification may be available to
put matters right, if construction cannot do so.
16
Glyn v IRC 30 TC 321 at p.329.
17
Glyn v IRC 30 TC 321 at p.329; West v Trennery [2003] STC 580 at [51] (point not discussed on
appeal). HMRC accept this. Helpsheet 270 for 2011/12 provides:
“There are a number of circumstances where you are not treated as retaining an interest in the
property of a trust or settlement you have made. These are:
• making an outright gift of money to another person with no strings attached; in other
words you give up any rights or control over that money. The person receiving the gift
may choose of their own accord to give the money back to you but you are not treated as
retaining an interest in that money. This is because that other person has complete freedom
to do what they want with that money”
18
HMRC accept this: SP5/92 paras 8–10.
19
Contrast C v C [2005] Fam 250 at [30] also reported under the name Charalambous v Charalambous
[2004] WTLR 1061: power to vary a nuptial settlement not excluded by Jersey proper law and
exclusive jurisdiction clauses because “the power to vary is derived not from the settlement but
from the matrimonial regime of the state”.
20
See (if authority is needed) IRC v Lactagol 35 TC 230 and Wilson v Clayton [2005] STC 157. A
third reason for reaching this conclusion is that the payment is merely administrative and the
settlor exclusion clause applies only to dispositive matters: see 16.2 (Significance of administra-
tive/dispositive distinction).
21
West v Trennery [2003] STC 580 at [41]–[44]. The point was not discussed on appeal.

DRAFTING THE SETTLOR EXCLUSION CLAUSE 227
is considered that the clause does not exclude the settlor’s right to trustee
remuneration.22
A common form settlor exclusion clause does not prevent trustees
benefiting beneficiaries who are dependants of the settlor (e.g. school fees
for the settlor’s children). One reason is that such a payment is generally
merely an intangible, non-financial benefit to the settlor, not a “benefit”
within the sense of the clause (a direct fi nancial benefit).23
The same applies where the settlor is under a direct legal obligation
to maintain and pay school fees for their children (such as may arise on a
divorce or in other family law proceedings). Here, there is a benefit to the
settlor but the benefit is not prohibited by a standard form settlor exclu-
sion clause because it is unintended, merely incidental.24 Likewise the
clause does not prevent trustees making a payment to a divorced spouse
of the settlor, even though an incidental and unintended effect may be to
increase the settlor’s claim for financial relief in divorce proceedings. In
these cases special consideration must be given to the doctrine of fraud on
a power.
The settlor exclusion clause prohibits trustees from applying property
for the benefit of beneficiaries by conferring a financial benefit on the
settlor (e.g. in a situation where the parents were in need of assistance and
the children recognise a moral obligation to help them).25
Drafting the settlor exclusion clause
The draft echoes the relevant statutory provisions.26 The words “not- 13.13
withstanding anything else in this settlement” are traditional, though
unnecessary; Potter and Monroe’s Tax Planning with Precedents (looseleaf )
omits them.
22
See 6.57 (Can the settlor charge if he is a trustee but there is a settlor exclusion clause?).
23
On the two meanings of the word “benefit” see 11.11 (Power of advancement used to create new
trusts). “Benefit” in a settlor exclusion clause is to be construed consistently with the tax sense of
the word, in s.624 ITTOIA, on which it is based; it means a fi nancial benefit.
24
Fuller v Evans [2000] 1 All ER 636, [2000] WTLR 5, accessible DTWT archive, www.kessler.
co.uk. It is interesting (and relevant, because some have doubted the correctness of Fuller v Evans)
to note that the courts reached the same conclusion two centuries ago in relation to comparable
wording in the Mortmain Acts: A-G v Munby (1816) 1 Merivale 327, accessible www.commonlii.
org.
25
Fuller v Evans [2000] 1 All ER 636, [2000] WTLR 5, accessible DTWT archive, www.kessler.co.uk.
26
For an example of a (perhaps deliberately) botched settlor exclusion clause see IRC v Botnar
[1999] STC 711. Botnar turns on the trust’s unusually worded settlor exclusion clause, It has no
general importance. This is obvious but if authority is needed see West v Trennery [2003] STC
580, at [45]–[51]. The point was not discussed on appeal. However, Botnar illustrates the danger
of not following the wording of a statutory provision, where it is intended to satisfy that statutory
provision.

Joint settlors
13.14 Where one trust is made by joint settlors (most commonly husband and
wife), each must be excluded (together with their spouses or civil partners
and, if hold-over relief is desired, dependent children). See 10.11 (Form
where trust made by joint settlors).
Exclusion of additional and indirect settlors
13.15 Our draft assumes the term “the Settlor” is defi ned elsewhere in the trust,
and excludes only the person so defi ned.
However, for tax purposes, any person who (in short) provides funds
for the purposes of a settlement is a “settlor”. To avoid the income tax and
CGT settlement provisions every such “settlor” must be excluded from
benefit under the settlement. Some drafters therefore extend the settlor
exclusion clause so as to exclude not only the settlor named in the trust,
but also any other person who provides any funds, directly or indirectly,
and their spouses/CPs. This has the attraction of possibly27 defeating
HMRC arguments that a beneficiary has provided property indirectly for
the trust and so is taxed under the income tax settlement provisions.
The drawbacks, however, are considerable. There may be uncertainty
as to whether a person has “provided funds” for the purposes of the set-
tlement. The concept of “providing funds” is difficult and has generated
a substantial case law.28 Perhaps it is necessary to use vague language in
anti-avoidance provisions. The trust drafter should hesitate to follow that
lead. There may be substantial tax charges and disastrous practical con-
sequences if any funds were inadvertently “provided” by a beneficiary or
spouse/civil partner. Paying trustees’ fees, or some minor expenditure on
trust property, may suffice. An interesting (one hopes theoretical) ques-
tion arises if the default beneficiary provides funds for the trust. Does the
default trust then fail, and if so, is there a resulting trust to the settlor or
bona vacantia? 29
A variant is to exclude anyone who “adds” property to the trust fund.
This raises the same problems, with the further problem of what is meant
by “adding”. Does it mean the same as the statutory wording (“provid-
ing property directly or indirectly”), or is it narrower? There is plenty of
scope for litigation on that point.
This book does not extend the settlor exclusion clause to exclude
anyone who adds or provides funds. If such a clause is used, it is recom-
27
Whether or not this argument will be valid depends on the circumstances. The point is too theo-
retical to justify a full discussion here, but the conclusion of any detailed analysis must be that in
many, if not most, cases an extended settlor exclusion clause would not avail the taxpayer.
28
This is discussed in detail in Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn,
2012), Ch.75 (Who is the Settlor?) accessible www.foreigndomiciliaries.co.uk.
29
See 13.21 (“No resulting trust for the settlor”).

UNNECESSARY PROVISIONS IN SETTLOR EXCLUSION CLAUSE 229
mended that each settlor is only excluded from the property they actually
add or provide. Otherwise a trivial provision of property to the trust may
have drastic repercussions. The drafting becomes complex and is rarely
attempted.
Reference to “spouse” in settlor exclusion clause
It is necessary to refer to the “spouse” or “civil partner” of the Settlor in 13.16

the settlor exclusion clause30 and wrong to identify the individual who is
the spouse/CP by name. This is for two reasons. First, so that after the
death of the settlor, the surviving spouse/CP, no longer a “spouse/civil
partner”, falls outside the clause. The widow may then benefit under the
trust.31 Secondly, in case the settlor should remarry or enter into a new civil
partnership: it is necessary to exclude future spouses/CPs.
The standard settlor exclusion clause before 1995 provided simply that
the trust property should not be used to benefit:
The settlor or the spouse of the settlor.
This form was apt to exclude the settlor’s wife or husband. It did not
exclude the settlor’s widow or widower, since a widow or widower was
not a spouse.32 Nor would it exclude a divorcee or a civil partner.
Since the FA 1995 the term “spouse” in the settlement provisions is
defined: see 5.32 (Meaning of “spouse”/“civil partner” of settlor). This
will not affect the construction of the standard form settlor exclusion
clause because the statutory definition will not apply for the purposes of
the trust.
Unnecessary provisions in settlor exclusion clause
Extending the settlor exclusion clause to exclude trustees
In the days of estate duty, some practitioners extended the settlor exclusion 13.17
clause to exclude trustees, but even then this was “unnecessary and overly
restrictive”.33 See 6.3 (Beneficiaries as executors and trustees).
30
We refer to the shorter form “Spouse” in our book to include civil partners: see 5.30 (Spouses
and civil partners of beneficiaries: drafting points).
31
See 5.33 (Settlor’s surviving spouse/civil partner as beneficiary of lifetime trust).
32
Vestey v IRC 31 TC 1; Guardian v. Bermuda Trust Co. (Bermuda, 1 December 2009) accessible
DTWT archive, www.kessler.co.uk.
33
Tankel v Tankel [1999] 1 FLR 679; [1999] Fam. Law 93 accessible www.kessler.co.uk. In this amusing
(except to those concerned) case the clause excluding trustee-beneficiaries from benefit was later
overlooked and subsequent appointments were void. An attempt to rectify the clause rightly failed
on the facts.

No reservation of benefit
13.18 Some drafters provide that:

The Trust Fund shall be possessed and enjoyed to the entire exclusion of the Settlor and of any
benefit to him by contract or otherwise.
This echoes the IHT Gift with Reservation provision.34 There is no

advantage in this form: the drafting cannot determine whether the settlor
actually enjoys any direct or indirect benefit from the trust fund. The con-
ventional form, excluding entitlement to benefit, does all that documenta-
tion can do. This particular form does not even accurately reproduce the
IHT rules (unless a further clause is put in to incorporate the rules in FA
1986, Sch.20, para.6 but that is never done in practice).
13.19 The effect of the standard settlor exclusion clause is to prohibit the trus-
tees making a loan to the settlor (or spouse or civil partner) on beneficial
or favourable terms. In the drafts in this book, it remains possible for trus-
tees to lend money to the settlor on commercial terms as an investment.
Some drafters prohibit this. This course is not taken here: the existence of
the power to make the loan has no adverse tax consequences (though tax
problems may arise if such a loan is actually made).35
13.20 One occasionally sees this form:
If any person who enjoys any benefit hereunder or under any exercise of any power conferred
by this settlement should marry the Settlor then this settlement and any appointment made
pursuant to any power hereby conferred shall upon such marriage take effect as if such person
were dead.
It is considered that the standard settlor exclusion clause would in principle

exclude any beneficiary who married the settlor. So a provision of this kind
is not necessary to satisfy the tax requirements. Moreover the possibility
that the settlor should marry a person who enjoys some benefit under the
trust seems exceedingly remote. Accordingly this provision is unnecessary.
“No resulting trust for the settlor”
13.21 Some drafters provide in the settlor exclusion clause that:

There shall be no resulting trust to the Settlor; or
Under no circumstances shall any interest be taken under this deed by the Settlor.
34
Section 102 FA 1986. This is a different rule than that adopted by the Income Tax settlement
provisions.
35
In brief:
(1) If the trust has “undistributed income”, s.633 ITTOIA 2005
(2) If the trust is non-resident: s.727 ITA 2007.
(3) The loan may not be deductible from the settlor’s estate for IHT: s.103 FA 1986.

DEPENDENT CHILDREN EXCLUSION CLAUSE 231
The correct way to avoid a resulting trust is to use an effective default

clause; see 13.23 (Default clause). If this is done there can be no resulting
trust, and it is not necessary or appropriate to exclude one. Accordingly
this form is not used in this book.
If a badly drafted trust does not have a proper default clause, and does
exclude resulting trusts with a form like the above, what (to the extent
that the validly declared trusts do not take effect) is the result? Some
say that there is nonetheless a resulting trust and a form of words simply
purporting to prevent a resulting trust do not take effect. So the form is
totally ineffective.36 Another view is that the clause takes effect as it says,
and the trust property becomes property of the Crown as bona vacantia.37
That might or might not suit the settlor, depending on the attitude of
the Crown, the value of the property forgone, and the tax position. It is
tentatively suggested that neither extreme view should be adopted, but
the question should be regarded as one of construction, turning like all
questions of construction, on the circumstances of the individual case.38
Dependent children exclusion clause
If it is desired to exclude dependent children of the settlor, to obtain CGT 13.22

hold-over relief,39 the draft should be based on s.169F TCGA 1992:
(1) Notwithstanding anything else in this settlement, no power conferred by this
settlement shall be exercisable, and no provision shall operate so as to allow Trust
Property or its income to become payable to or applicable for the benefit of a
36
This is the view taken by Chambers, Resulting Trusts (1997) pp.64–66 and supported by Air
Jamaica Ltd v Charlton [1999] 1 WLR 1399. See also the Jersey case of Re A Trust [2010] JRC 013
where the purported trust contained a provision by which the settlor undertook to resettle any
trust property arising to it under a resulting trust “on like trusts to those established by the trusts
elsewhere declared in this Deed”.
37
Davis v Richards & Wallington Ltd [1990] 1 WLR 1511 at 1538; Westdeutsche Landesbank Girozentrale
v Islington LBC [1997] AC 669 at 708.
38
Faced with inconsistent case law, it is helpful to stand back and ask what the law should be (as
opposed to what it actually is). It is suggested that the answer to this question is as follows:
(1) The law ought to permit a person to abandon property if they wish. “Abandonment”
meaning that the property passes to the Crown as bona vacantia. After all, any person can
give their property to the Crown (subject of course to a disclaimer). It would be foolish
to draw a distinction which gives effect to words of assignment and not to words of
abandonment.
(2) A fortiori the law ought to permit a settlor to abandon an interest under a resulting trust.
(3) Effect should only be given to a desire to abandon property if expressed in clear words. One
does not lightly abandon. The words must be especially clear if the property abandoned is
of considerable value, and if the settlor would not have appreciated the value of what they
are said to have abandoned.
It is further suggested that this sensible position is more consonant with the authorities than either
extreme; but a full discussion is beyond the scope of this book.
39
See 13.2 (CGT hold- over relief ).

Dependent Child of the Settlor, at a time when the child is a Dependent Child
of the Settlor, in any circumstances whatsoever.
(2) In this clause “Dependent Child” means a child or stepchild who—
(a) is under the age of 18 years,
(b) is unmarried, and
(c) does not have a Civil Partner.
(3) This clause does not apply at any time when the Settlor has no Dependent Child.
It would also be necessary to ensure that a dependent child is not a default

beneficiary.40
Default clause
13.23 The clause used in this book is as follows:

Subject to that, the Trust Fund shall be held on trust for
[a named living individual] absolutely.
or [two or more named living individuals] in equal shares41 absolutely.
or [a named charity] absolutely.
or such charities as the Trustees shall determine.42
The default clause (sometimes called a “longstop provision”) has a general

purpose and a specific tax funct ion.
The general purpose is to specify who should become entitled to
the trust property, should the other terms of the trust fail (e.g. if all
beneficiaries die or if the trustees fail to select beneficiaries in exercise
of their overriding powers during the trust period). The trust should
state how the trust property should pass in that event (even though it is
unlikely or almost inconceivable that the default clause will ever come
into effect.)
The tax function relates to the settlement provisions.43 In the absence
of a default clause, on the death of all the beneficiaries, the trust fund
would revert to the settlor under a resulting trust. It is usually desired to
exclude the settlor from all benefit under the trust to avoid the settlement
provisions. The drafter must provide that the trust property will have a
clear destination in all circumstances, so the trust fund cannot revert to
the settlor. (The tax function does not apply to a will trust, but it is better
40
See 13.23 (Default clause).
41
The words “in equal shares” are significant: they ensure that the individuals hold as tenants in
common and not as joint tenants (so there is no right of survivorship).
42
This trust could not fail since it would be administered by the court in default of the performance
of the trustees’ duty to select objects. Authority is scarcely needed but see IRC v Schroder [1983]
STC 480 at 489; the Crown quite rightly did not appeal on that point. A defi nition of “charity”
is usual but not strictly necessary: see 5.36 (Charities as beneficiaries).
43
Section 624, ITTOIA 2005.

DEFAULT CLAUSE 233
to have a default clause even in a will trust, if only for tidiness, to avoid a
remote possibility of a partial intestacy.)
Drafting the default clause
The usual practice is to direct that the property should pass to named 13.24
children or grandchildren of the settlor or more distant relatives. If these
have died, the trust property will then pass according to the terms of their
wills or intestacies.44 An alternative is that the trust property should pass to
charity or a more distant relative. The person who receives the trust prop-
erty in these circumstances is sometimes called “the Default Beneficiary.”
The following clauses fail to satisfy the tax requirement:
Subject as aforesaid the trust property shall be held on trust for X if he is then living.
This fails to satisfy the tax function: X may not then be “then” living; so
the trust fund may revert to the settlor.
Subject to that, the Trust Fund shall be held upon trust absolutely for such of them the
Benefi ciaries45 as shall then be living.
This is no better. It is possible that none of the “Beneficiaries” may then

be living.
Subject as aforesaid the trust property shall be held on the trusts of [another] settlement.
This is only satisfactory if the second trust has an adequate default clause,
and entirely excludes the settlor (and spouse or civil partner). Where the
second trust is made later than the first, care must be taken that the arrange-
ment does not breach the rules against accumulation or perpetuities.
Unnecessary provisions in a default clause
It is unnecessary to say that the trust fund should be held on trust for: 13.25
[a named individual] or his/her estate or assigns absolutely.
or [a named individual] or his/her personal representatives absolutely46
The clause is sometimes expanded to read:
44
It is then possible that the property will revert to the settlor, under the will or intestacy of the
default beneficiary. That does not matter for the purposes of the settlement provisions. This has
never been judicially decided, but only because it has never been challenged: see Barr’s Trustees v
IRC 25 TC 72 (where this was assumed without argument) and Glyn v IRC 30 TC 321 at 329.
45
Assume this is a defi ned term.
46
Authority is not needed for this proposition, but see Commissioners of Stamp Duties v Bone [1976]
STC 145. For an example of a case where this was held to be the correct construction, see Barclays
Bank v McDougall [2001] WTLR 23.

Subject to that, and if and so far as not wholly disposed of by the above provisions the capital
and income of the Trust Fund shall be held on trust for X absolutely
The italicised addition is harmless but plainly unnecessary.
Correcting errors in a default clause
13.26 Where a default clause in a lifetime trust is not exhaustive, it is possible to

set the matter right for the future. The settlor may assign their interest to
some other person or the trustees may exercise their overriding powers.
An unnecessary default clause
13.27 Where the provisions of a trust are exhaustive, a default clause is not
strictly needed; but if the clause is included, no harm is done (save as to
the reputation of the drafter). Barclays Bank v McDougall47 rightly rejected
a fanciful construction intended to give effect to an obviously redundant
default clause.
47
[2001] WTLR 23.

CHAPTER 14
LIFETIME INTEREST IN POSSESSION

TRUSTS
Introduction
The Interest in Possession (IP) trust is one where trustees are to pay trust 14.1
income to a particular beneficiary. In the discussion below that beneficiary
is called “the life tenant”; in the drafting the life tenant is usually identified
by name or given the title of “the Principal Beneficiary”.
For IHT purposes there are two categories of IP trust:
(1) Estate-IP: These are:

(a) IPDI trusts
(b) disabled actual estate-IP trusts
(c) pre-22 March 2006 IP trusts and
(d) transitional serial interests.
(2) Non-estate IP trusts (IP disregarded for IHT and taxed as standard
IHT trusts).
Why use interest in possession trusts?1
The reason may simply be that it is desired to pay all the income to the life 14.2
tenant: but the following outline tax points may also be noted here. For
IHT there is from 22 March 2006 no difference between a discretionary
trust and a non-estate IP trust. However, IP status remains important
for IT purposes. An IP trust is not subject to IT at the rate applicable to
trusts.
1
See also 15.2 (Why use discretionary trusts?); 22.2 (Why use bare trusts?). The existence of an
interest in possession is occasionally relevant for trust law purposes, e.g. s.36(9) TA 1925; ss.9, 11,
12 TLATA 1996, but these will not concern the drafter.

236 LIFETIME INTEREST IN POSSESSION TRUSTS
The administration of an IP trust is therefore much easier and unless the

amounts involved are large this should be a significant factor. IP trusts are
also much more tax-efficient for beneficiaries who pay tax at the basic rate
when the trust receives dividend income.
Interest in possession income clause
14.3 The income clause of an IP trust must give the life tenant the right to trust
income as it arises.
Drafting the income clause seems a straightforward matter. Statutory
precedents provide a choice of forms:
The trustees shall stand possessed of the trust fund upon trust to pay the income
thereof . . .
. . . to X during his life2
. . . to X for life3
The trust fund shall be held on trust . . .
. . . for X during his life.4
. . . for Z during the residue of his life.5
The form adopted in this book is:

The Trustees shall pay the income of the Trust Fund to X during his or her life.6
The drafter must also omit provisions inconsistent with an IP: see Chapter
16 (Provisions inconsistent with IP and IHT special trusts).
Structure of lifetime interest in possession trust
14.4 The form proposed in this book is as follows:
(1) income is paid to the life tenant for life;

(2) income is then paid to the spouse or surviving civil partner for life
(unless the disabled person trap applies);
(3) there is then a discretionary trust over income;
2
The Statutory Will Forms 1925, Form 7 accessible www.kessler.co.uk.
3
The Statutory Will Forms 1925, Form 9 accessible www.kessler.co.uk.
4
Section 46(2) Administration of Estates Act 1925.
5
Section 46 AEA 1925 (original form). The word “residue” was omitted when the section was
re-written in 1952.
6
The form is loosely derived from s.31 Trustee Act 1925.

STRUCTURE OF LIFETIME INTEREST IN POSSESSION TRUST 237
(4) the trustees have the standard overriding powers which may over-
ride any of the above;
(5) lastly there is a standard default clause.
These five limbs are contained in three clauses. The first deals with trust
income. The second contains the overriding powers. The third is the
default clause.
1. Trust Income
Subject to the overriding powers below:
(1) The Trustees shall pay the income of the Trust Fund to the Principal
Beneficiary7 during her life.
(2) Subject to that, if the Principal Beneficiary dies during the Trust Period,
the Trustees shall pay the income of the Trust Fund to the Principal
Beneficiary’s surviving spouse or surviving Civil Partner during her life.
income of the Trust Fund to or for the benefit of any Beneficiaries as the
Trustees think fit.
[Here set out the standard Overriding Powers of this book.]
3. Default Trusts
Subject to that, the Trust Fund shall be held on trust for the Principal Beneficiary
absolutely.
Income to the principal beneficiary for life
The settlor may prefer that the beneficiary should become absolutely 14.5
entitled to the trust property on attaining the age of (say) 25, 30, 40; as to
which see 14.15 (Life tenant becomes absolutely entitled at specified age).
Provisions after death of the principal beneficiary
What should happen after the principal beneficiary dies? This section con- 14.6
siders the position for non-estate IP trusts (IHT standard trusts). (Entirely
different considerations apply to an estate-IP trusts; we discuss that under
Will Trusts8 because the most common type of estate-IP trust (from 22
March 2006) will be an IPDI, though the discussion there would also
apply to estate-IP disabled trusts).
The main choices are:
(1) Discretionary trusts.

(2) Life interest to the widow, surviving civil partner or children.
7
The “Principal Beneficiary” will be defi ned in the defi nition clause. Where the Principal
Beneficiary is female, replace “his” with “her” as appropriate in this clause.
8
See 17.3 (IPDI trusts: qualifying conditions) and 17.5 (Terms of IPDI trust after death of life
tenant).

From an IHT viewpoint (for standard IHT trusts made after 22 March
2006) it makes no difference.9 If the life tenant relies on the income from
the trust for their living expenditure, or resides in trust property, then their
surviving spouse/CP usually needs a similar interest after the survivor’s
death; otherwise they will face some fi nancial difficulty.
The drafts in this book provide that the surviving spouse/CP takes a
life interest.
The reversionary interest of the spouse/CP in the trust fund is actu-
ally a precarious one. It need confer no real or valuable rights as it may be
revoked at any time before or after the death of the original life tenant, the
principal beneficiary. The trustees can respond to the beneficiaries’ needs
and changes in tax law.
An alternative: beneficiary’s power to appoint to widow/civil partner
14.7 There is an alternative course which is quite common in practice. This is to

give the principal beneficiary a power to confer (technically “to appoint”)
a life interest on the surviving spouse/CP of the principal beneficiary. This
is well enough in theory. The principal beneficiary can review the posi-
tion and give the interest, or refrain from doing so, as thought best. This
solution is less satisfactory in practice. The power is as likely as not to be
overlooked. Assuming it is not overlooked the power will in most cases be
exercised with concomitant expense. It is easier all round to start off as one
means to go on: give the reversionary interest to the principal beneficiary’s
surviving spouse/CP and not merely empower the principal beneficiary to
do so. This alternative course might be adopted when a particular settlor
has a rooted objection to giving the spouse or civil partner an interest
directly under the trust.10
It is said that this power gives the life tenant a measure of power over
his or her spouse or civil partner. So it does; but just how conducive that
may be to family harmony must be open to question.
Describing the widow
[Subject to the Principal Beneficiary’s life interest] the Trustees shall pay the income
of the Trust Fund to his or her surviving spouse or surviving Civil Partner during his
or her life.
14.8 In the event of divorce or dissolution of civil partnership during the

lifetime of the principal beneficiary, the ex-spouse/CP will not take any
9
Provided that the surviving spouse/CP is not disabled (in the IHT sense) on the death of the
principal beneficiary: see 27.6 (Actual estate-IP for disabled beneficiary).
10
For a precedent see Statutory Will Forms 1925, form 7(6) accessible www.kessler.co.uk.

DESCRIBING THE WIDOW 239
interest under this clause. However a person who is the spouse/CP of the
principal beneficiary at the time of their death acquires an IP and will
continue to receive the income even if the spouse/CP later remarries or
enters into a new civil partnership.
Three bad forms
The drafter should not identify the spouse/CP of the principal beneficiary
by name, saying:
[Subject to Mr Jones’ interest] the trustees shall pay the income of the Trust Fund to
Mrs Pauline Jones during her life.
For then, if Mr Jones (the principal beneficiary) should divorce and

remarry, the first Mrs Jones will still receive a life interest after his death;
which will not at all be the intended result.
The use of the word “wife” (rather than “widow” or “surviving
spouse”) can introduce an element of doubt where the beneficiary remar-
ries. Consider:
[Subject to the Principal Beneficiary’s life interest] the trustees shall pay the income
to his wife during her life.
It may be doubtful whether a first or second wife is intended to benefit.11

What is the position if the drafter combines the two forms above, and
says:
[Subject to Mr. Jones’ life interest] the trustees shall pay the income to his wife Mrs
Pauline Jones during her life.
If the Principal Beneficiary should divorce and remarry and then dies,
there are three theoretical possibilities:
(1) Mrs Pauline Jones, the first wife, receives the income: since she is
expressly named in the clause.
(2) The second wife receives the income, since she is the “wife” at the
time of the Principal Beneficiary’s death.
(3) The clause does not take effect, since there is no person who satis-
fies the description “his wife Mrs Pauline Jones” at the time of the
death of the Principal Beneficiary.
There are rules of construction which can resolve such questions, but it is
better that the drafter should not require beneficiaries (and their lawyers)
to consider them.
11
For a case where such confusion arose, see Re Drew [1899] 1 Ch 336.

A perpetuity problem
14.9 The reversionary life interest also causes a theoretical perpetuity prob-
lem.12 Consider:
[Subject to L’s life interest] the trustees shall pay the income to L’s surviving spouse or surviving
Civil Partner during his or her life.
If L dies after the expiry of the perpetuity period, then the reversionary
interest will breach the rule against perpetuities.
It is inconceivable that L should still be living in 125 years’ time when
the perpetuity period ends! So it is tempting to ignore the problem.13
However, rather than rely on the statutory “wait and see” rule, it is better
in our view to deal with the matter expressly in the trust. The form
adopted in this book is to say:
. . . If L dies during the Trust Period, the trustees shall pay the income of the trust
fund to the surviving spouse or surviving Civil Partner of L during his or her life.
The interest of the spouse/CP must vest within the perpetuity period.
Note that it is not appropriate to say:
During the trust period:
(1) The trustees shall pay the income of the trust fund to L during his life.
(2) Subject to that, the trustees shall pay the income of the trust fund to the surviving spouse
or surviving Civil Partner of L during her life.
This form would terminate both interests on the expiry of the perpetuity
period, which is unnecessary: the requirement is that the interests must
vest (begin) within that period.
Position after death of surviving spouse/civil partner
14.10 The drafter must lastly make appropriate provision for the time after the
death of the principal beneficiary and spouse/CP. This is to look far into
the future; it is impossible to decide what form the trust should best take.
For trusts made after 22 March 2006, it usually makes no difference for
IHT.
12
For a general discussion of the perpetuity rule, see 9.1 (The rule against perpetuities).
13
If L is married or a civil partner at the time the trust is made, one could avoid the problem by
naming his wife or civil partner expressly, e.g.:
[Subject to L’s life interest,] the trustees shall pay the income to Mrs Pauline L during her life. . . .
But this is unsatisfactory for the reason already mentioned: L may divorce.

IP FORMS FOR TWO LIFE TENANTS 241
A traditional solution is to direct the trust property to pass absolutely to

the children of the principal beneficiary who attain 21. That course is too
inflexible; it should be rejected out of hand. A refinement which allows
some flexibility is to give the principal beneficiary power, during their
lifetime, to appoint appropriate trusts for their children and remoter issue.
But this course would vest an important power in the beneficiary which
is considered undesirable.14
A discretionary trust over income offers the best solution. This—
combined with the overriding powers in the trust—gives the trustees
complete flexibility to do what seems best at the time. The drafting is
pleasingly simple.
Alternatively the trust may provide that after the death of the life tenant
and the spouse/CP of the life tenant, the trust property is held on trust for
the children who reach the age of (say) 18, absolutely, but subject to the
trustees’ overriding power of appointment. This is likely to be perfectly
satisfactory, at least for smaller funds. It may be easier for clients to accept
than the discretionary trusts preferred here.
IP forms for two life tenants
The settlor may wish to make an IP trust for the benefit of two or more life 14.11
tenants. One course is to create a separate trust, one for each; but it may
be more convenient to create one trust for all the life tenants.
A straightforward and flexible form
The following is the structure of a straightforward and flexible form of

trust:
(1) trust fund to be divided into shares;

(2) income of each share to be paid:
14
7.22 (Giving powers of appointment to beneficiaries personally). If for some specific reason such
a form is desired, the following form is proposed (to be inserted after the sub- clause giving the
life tenant his interest and before the sub- clause giving his widow a reversionary life interest:
(1) Subject to that, the Principal Beneficiary may appoint that the Trustees shall hold the Trust
Fund for the benefit of any Beneficiaries other than the Principal Beneficiary, on such terms
as the Principal Beneficiary thinks fit.
(2) An appointment may create any provisions and in particular:
(a) discretionary trusts;
(b) dispositive or administrative powers;
exercisable by any Person.
(3) An appointment shall be made by deed during the Trust Period and may be revocable or
irrevocable.

(a) to each life tenant for life,

(b) subject to that, to his or her surviving spouse/civil partner for
life,
(c) subject to that, there are discretionary trusts over income;
(3) the trustees have the standard overriding powers which may over-
ride any of the above.
The central parts of the draft are as follows. The two life tenants are here
called Adam and Danny.
1. Subject to the overriding powers below the Trustees shall divide the Trust Fund
into two equal shares “Adam’s Share” and “Danny’s Share”.
2. Adam’s Share
Subject to the overriding powers below:
(1) The Trustees shall pay the income of Adam’s Share to Adam during his
life.
(2) Subject to that, if Adam dies during the Trust Period, the Trustees shall
pay the income of Adam’s Share to his surviving spouse or surviving Civil
Partner during his or her life.
income of Adam’s Share to or for the benefit of any of the Benefi ciaries as the
Trustees think fit.
3. Danny’s Share
[Text same as Adam’s Share substituting “Danny” for “Adam”.]
[Here come the overriding powers in this book: see 11.1 (Drafting and under-
standing overriding powers (appointment, resettlement and advancement)).
The objects of the Overriding Powers will be Adam and Danny and their
families.]
Commentary on straightforward flexible form
14.12 In the following discussion the two life tenants are called A and B.
Under the straightforward flexible form, as the italicised words make
clear, A’s share could be used (if the trustees think fit) to benefit B and
B’s family; and vice versa. This may happen by exercise of the overriding
powers, or after the death of a life tenant and spouse, when the discre-
tionary trusts of income take effect. It may be the intention of the settlor
that the trustees should have this flexibility. If not, a letter of wishes will
guide the trustees against that course; but the wishes do not bind the
trustees. This is a theoretical rather than a practical problem. In practice,
trustees may be expected to act in accordance with the settlor’s wishes so
far as it is appropriate to do so. If that is thought to be insufficient then
A’s family and B’s family may be represented as trustees, or a protector
may be used.

IP FORMS FOR TWO LIFE TENANTS 243
An inflexible form
An alternative approach is to provide that A’s share cannot be used for the 14.13
benefit of B and B’s family, and vice versa. The drafting is rather more
complicated and the flexible form set out above is better. But it can be
done. The central parts of the draft are as follows:
1 Defi nitions
In clauses [2] to [5] below
(1) “Adam’s Fund” means:
(a) Adam’s Share and
(b) all property from time to time representing the above.
(2) “Trust Property” means any property comprised in Adam’s Fund.
(3) “Adam’s Family” means:
(a) Adam and his descendants;
(b) The Spouses of (a) above;
(c) The Surviving Spouses of (a) above;
(d) Any Person or class of Persons nominated to the Trustees by:
(i) Adam, or
(ii) two members of Adam’s Family (after the death of Adam)
and whose nomination is accepted in writing by the Trustees.
(e) At any time during which there are no members of Adam’s Family within
(a) above:
(i) Danny and his descendants;
(ii) the spouses and former spouses of (i) above; and
(iii) any company body or trust established for charitable purposes only.
(4) “Spouse” includes a civil partner within the meaning of section 1 Civil
Partnership Act 2004 and a person is a “Surviving Spouse” whether or not
they have remarried or entered into another civil partnership.
(5) “Adam” means [full name].
(6) “Danny” means [full name].
(7) “Person” includes a person anywhere in the world and includes a Trustee.
2 Division of Trust Fund into Shares

The Trustees shall divide the Trust Fund into two equal shares (“Adam’s Share” and
“Danny’s Share”).
3 Trust Income
Subject to the Overriding Powers below:
(1) The Trustees shall pay the income of Adam’s Fund to Adam during his life.
(2) Subject to that, if Adam dies during the Trust Period, the Trustees shall pay the
income of Adam’s Fund to Adam’s surviving spouse or surviving Civil Partner
during his or her life.
income of Adam’s Fund to or for the benefit of any of Adam’s Family as the
Trustees think fit.

4 Overriding Powers
[Here set out the standard overriding powers.]
5 Default Clause
Subject to that, Adam’s Fund shall be held on trust for Adam absolutely.
6 Danny’s Fund15
Clauses [1] to [5] shall apply to Danny’s Share with the following modifications:
(1) “Danny” shall replace “Adam” wherever it occurs except in clause [1(4)] (defi ni-
tion of “Adam”)
(2) “Adam” shall replace “Danny” wherever it occurs except in clause [1(5)] (defi ni-
tion of “Danny”)
Objection to simple accruer clause
14.14 A common form where there are two life tenants is to provide:
(1) A’s share to be held on trust for A for life, then A’s widow/civil
partner for life, then for A’s descendents;
(2) B’s share to be held on trust for B for life, then B’s widow/civil
partner for life, then for B’s descendents;
(3) In default each share will accrue to the other share.
It is better to have a simple discretionary trust on the death of the spouse/

CP of A and B. Appropriate trusts can then be appointed, either before or
after the time of the deaths, in the light of the then circumstances.
Life tenant becomes absolutely entitled at specified age
14.15 A trust should usually be drafted so that it may continue for as long
as possible. It is far preferable to arrange that beneficiaries need not
become absolutely entitled to the trust property. This offers many
advantages. Trust property is safe in the trust. It should be secure
from creditors in the event of insolvency; and secure from a spouse in
15
There are three ways to deal with the drafting of trusts containing multiple funds for different
primary beneficiaries. (1) One can set out each fund at length. That is best if the total length is
not too great to bear. (2) One can use a substitution clause like the clause set out in the text. That
becomes complicated if the beneficiaries are of both sexes as “his” and “her” becomes messy. (3)
One can set out a single standard anonymised form:
1. The Primary Beneficiaries means [specify]
2. The Trust Fund shall be divided into one share for each Primary Beneficiary.
3. Subject to the Overriding Powers below:
(1) The Trustees shall pay the income of the share of the Primary Beneficiary to the
Primary Beneficiary during his life, etc.

LIFE TENANT BECOMES ABSOLUTELY ENTITLED AT SPECIFIED AGE 245
the event of divorce. The trust property may be better administered by

the trustees than by the beneficiary, were the beneficiary to become
absolutely entitled. The termination of a trust will often lead to tax
difficulties.16
On this point the views of the client may be far from those of the pro-
fessional adviser. The client may prefer their children or grandchildren to
become absolutely entitled to the trust property on attaining the age of
25, or 35 or 40. It should be pointed out that the trustees may transfer the
trust fund to the beneficiaries at the desired age. There are many methods
of controlling trustees to comfort a nervous or reluctant settlor. See 7.12
(Guidance and control of trustees). If that course is not acceptable to the
settlor, one may resort to the following precedent.
1. Trust Income
Subject to the following clauses:
(1) The Trustees shall pay the income of the Trust Fund to the Principal
Beneficiary17 until he attains the age of 40.
(2) Subject to that, if the Principal Beneficiary dies before attaining the age of
40, the Trustees shall pay the income of the Trust Fund to his Surviving
Spouse18 during her life.
income of the Trust Fund to or for the benefit of any Beneficiaries19 as the
Trustees think fit.
2. [Here come the standard overriding powers of this book: see 11.1 (Drafting
overriding powers (appointment, resettlement and advancement).]
3. Principal Beneficiary to receive Trust Fund at 40
Subject to any prior exercise of the overriding powers, the Trustees shall transfer
the Trust Fund to the Principal Beneficiary when he attains the age of 40 free
from the terms of this settlement.
4. Default Trusts
Subject to that, the Trust Fund shall be held on trust for the Principal Beneficiary
[OR: specify default trusts as appropriate] absolutely.
The purpose of this form is that the trustees can review the position before
the principal beneficiary attains the age of 40. If they consider that tax or
other considerations make it desirable to do so, they can take action to
prevent the principal beneficiary becoming entitled by exercising their
overriding power.
16
One possible problem is the CGT disposal on the termination of the trust: s.71(1) TCGA 1992.
Hold- over relief is not always available. Also, if income has been accumulated, termination
of the trust may lose a valuable “tax pool” of credit which could be utilised under s.496 ITA
2007.
17
The “Principal Beneficiary” will be defi ned in the defi nition clause. Where the principal benefi-
ciary is female, replace his/her and he/she as appropriate.
18
The term “Surviving Spouse” would be defi ned to include spouses/civil partners whether or not
they have remarried or entered into another civil partnership.
19
The term “Beneficiaries” would of course be defi ned.

Life tenant a minor
14.16 For child beneficiaries, the normal course was to use A&M or discretion-
ary trusts, i.e. to direct that the income may be accumulated or applied for
the child’s benefit. But now that undistributed income is taxed at the top
rates, this is a very unattractive course. It is usually better to give a minor
an interest in possession.20 This is better for will trusts as the interest will
be an IPDI.
To give a minor an interest in possession, the following form is
proposed:
The Trustees shall pay or apply the income of the Trust Fund to or for the benefit of
[Georgina] during her life.21 Section 31 of the Trustee Act 1925 shall not apply to this
Settlement.22
No other amendment is needed to the standard IP form.
Interest in possession for settlor
14.17 There are various reasons why a settlor might transfer their assets to a trust
under which they have an IP, rather than retaining them in their absolute
ownership:
20
Where the trust produces a very substantial income, this may be unwise for practical (non-tax)
reasons: any income not applied for the child’s benefit will be retained and paid to him on his
18th birthday; that may not be a satisfactory state of affairs. In the normal case the annual trust
income will be consumed on the child’s education and maintenance; so this difficulty does not
arise.
21
This clause confers on a minor beneficiary an interest in possession for income tax and IHT
purposes because income applied for the benefit of a beneficiary is regarded as income of the
beneficiary: Gascoigne v IRC 13 TC 573, IRC v Stanley 26 TC 12, Stevenson v Wishart 59 TC 740
at 757. HMRC rightly accept this: see (for income tax) Tax Bulletin 26 (“Trusts—liability at
the rate applicable to trusts”) and discussion paper on Trust Management Expenses (Sept 2004)
para.9–25 ff; (for IHT) Press Notice 12/2/1976, reprinted in HMRC Booklet IHT 16, and IHT
Manual 16068. See also 21.56 (Power to retain income of child).
22
The second sentence is arguably unnecessary since the fi rst sentence by implication excludes the
operation of s.31 TA 1925. There are arguments to the contrary. The section applies to vested
annuities “as if the annuity were the income of property held by trustees in trust to pay the income
thereof ” to the annuitant. This (arguably) suggests that s.31 is intended to apply to trusts to pay
income to a minor and that the words “to pay the income” are insufficient to exclude the opera-
tion of that section. It has also been held in Fine v Fine [2012] EWHC 1811 (Ch) that the words
“notwithstanding that such person had a vested interest in such income” in s.31(2)(ii) makes it
clear that the mere fact that there is a vested interest in any income accumulated during minority
cannot suffice as an implicit exclusion. On any view, it should be included for the avoidance of
doubt. “The draftsman may be well advised out of caution either expressly to provide that section
31 is to apply, or expressly to exclude its application altogether”: Re Delamere [1984] 1 WLR 813
at 823.

IMPEACHMENT FOR WASTE 247
(1) Anticipation of mental incapacity of the settlor (avoiding the need

to invoke the Court of Protection or the rather more restricted
regime under the Mental Capacity Act 2005).
(2) For those who plan well ahead, the trust allows the ability in the
future to make a gift without CGT.
(3) Avoidance of the Inheritance (Provision for Family and Dependants)
Act 1975.
In practice the main use is for foreign domiciled settlors.23 In other contexts
these settlements have always been rare; except for property qualifying for
100% BPR/APR, the FA 2006 has made them impractical.
The trust will take the form set out above; appropriate amendments
will be made in the definition of “the Beneficiaries”, and the settlor exclu-
sion clause.24 Part 2 of this book has a precedent.
Impeachment for waste
Occasionally one sees trusts where the interest of a life tenant was 14.18
expressed to be “without impeachment for waste”. The form related to
SLA Settlements25 and so is now obsolete.
23
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012) accessible www.
foreigndomiciliaries.co.uk. Outside England and Wales there are other uses. One is to avoid Scots
forced heirship rules (a well- established practice which was another accidental victim of the 2006
reforms). Another is to ease administration of US estates (Grantor trusts).
24
See 13.10 (Settlor exclusion clause).
25
See s.47 SLA 1925 discussed at 21.34 (Rent: income or capital receipt?) and s.66 SLA 1925. The
formula only makes sense in the context of a SLA settlement, where the life tenant had power to
commit “waste”. In Re Boulton [1928] Ch 703 at 708 Eve J. admitted disarmingly, “I cannot see
what those words (‘without impeachment for waste’) mean”.

CHAPTER 15
DISCRETIONARY TRUSTS
Meaning of discretionary trust
15.1 A discretionary trust is one where trust income and capital may be paid
to one or more of a class of beneficiaries, as the trustees think fit.1 The
discretionary trust is simple in concept and there are no exacting tax
requirements to satisfy. The drafting is relatively easy.
Why use discretionary trusts? 2
15.2 The simple reason may be that it is desired to give trustees the flexibility
to pay income to different beneficiaries (or accumulate it). In practice tax
considerations are often paramount. The following outline tax points may
also be noted here:
IHT advantages There is no tax charge on the death of any beneficiary.

Instead the trust will be subject to the IHT discretionary trust regime; for
small trusts (in particular those under the nil rate band) this is not harsh.
CGT advantages Gifts to the trust may qualify for CGT hold-over relief.
Income tax It is unattractive to use discretionary trusts to receive and dis-

tribute dividend income (except to beneficiaries who pay IT at the top
rate); IP trusts are preferable.3
1
For a fuller discussion, see Trust Terminology.
2
See also 14.2 (Why use interest in possession trusts?); 22.2 (Why use bare trusts?).
3
There is a full discussion of discretionary trust taxation in Kessler, Taxation of Non-Residents and
Foreign Domiciliaries (11th edn, 2012), Ch.24 (Discretionary Trusts: Income Tax) accessible www.
foreigndomiciliaries.co.uk.

ACCUMULATION LIMB 249
Discretionary trust: income clause
In the discretionary trust the trustees may have power either to distribute 15.3
income to any beneficiaries, or to retain and accumulate it.4
Income clauses in discretionary trusts therefore contain two limbs: dis-
tribution and accumulation. These are very much bound together, and are
often to be found in the same clause. In this book, they are placed in two
separate sub-clauses. We shall discuss the distribution limb before turning
to the question of accumulation.
Distribution limb
Distribution of income under a discretionary trust is simple. There is a 15.4

statutory precedent:
The income shall be held upon trust for the application thereof for the maintenance or
support, or otherwise for the benefit of, all or any one or more exclusively of the other
or others of the [Beneficiaries].5
The form used in this book says the same more simply:
The Trustees shall pay or apply the income of the Trust Fund to or for the benefit6 of
any Beneficiaries.
A traditional form prefers:

. . .such one or more of the Benefi ciary or Benefi ciaries exclusive of the others or other of them.
That clumsy syntax has been unnecessary since 1874.7
Accumulation limb
How should one draft the second part of the income clause, dealing with 15.5
accumulation? There is a statutory precedent:
4
There are, strictly, three possibilities: (i) a power to distribute the income with a duty to accumu-
late any undistributed income (ii) a power to accumulate and a duty to distribute unaccumulated
income (iii) a duty either to distribute or to accumulate. There is little practical difference. See
7.2 (Duties and powers distinguished).
5
Section 33(1)(ii) TA 1925.
6
On the wide meaning of “benefit”, in this context, see 11.11 (Power of advancement used to
create new trusts).
7
Section 158 LPA 1925 re- enacting the Powers of Appointment Act 1874. See also s.61(c) LPA
1925: the singular includes the plural and vice versa.

250 DISCRETIONARY TRUSTS
The trustees shall accumulate all the residue of the income [by investing it and any
profits of so investing it] 8 from time to time in authorised investments, and shall hold
those accumulations . . . as an accretion to the capital of the trust fund, and as one
fund with such capital for all purposes, . . . but the trustees may, at any time . . . apply
those accumulations, or any part thereof, as if they were income arising in the then
current year.9
This is often adopted verbatim (but with the punctuation deleted!). That
it is not necessary to do so can be seen by comparing another statutory
precedent:
The Trustees shall . . . accumulate the profits from the capital money by investing
them and the resulting profits under the general power of investment in section 3 of
the TA 2000 and shall add the accumulations to capital.10
The basic form used in this book is as follows:

The Trustees may accumulate the whole or part of the income of the Trust Fund. That
income shall be added to the Trust Fund.
This draws on the statutory language, but considerably simplifies it. It is,
of course, unnecessary to direct the trustees to invest the accumulated
income: the trustees will have a power of investment, and no one expects
that they will place accumulated income in a current account.11 The power
to deal with accumulated income as income is important; but it is best
relegated to the schedule of trustees’ powers.
For trusts taking effect after 6 April 2010, and wills executed on or after
that day, accumulations are permitted throughout the 125-year perpetuity
period.12 This has considerably simplified the drafting. It is still necessary
to ensure that the trust does not permit accumulations in breach of the
rule against perpetuities.13 This requires amendment to the basic form as
follows:
The Trustees may accumulate the whole or part of the income of the Trust Fund
during the Trust Period. That income shall be added to the Trust Fund.
Structure of discretionary trust
15.6 This is the structure of the discretionary trusts in this book:

8
Words inserted by the TA 2000 to replace “in the way of compound interest by investing the same and
the resulting income thereof”. The only purpose of the change seems to be to modernise the language.
The old words will remain familiar as they are found in many precedents.
9
10
Section 39(2) SLA 1925 as amended by the TA 2000.
11
This was recognised by the drafter of Trusts ( Jersey) Law 1984, art.38.
12
Section 13 PAA 2009. For a discussion of the rule, see 9.9 (The rule against accumulations)
13
For a general discussion of the perpetuity rule, see 9.1 (The rule against perpetuities).

“BENEFICIARIES” 251
(1) There is the income clause already discussed: the trustees

have a power to accumulate income during the trust period and
the trustees are directed to pay income to any beneficiaries they
wish.
(2) The trustees have the standard overriding powers which may over-
ride the above.
(3) Lastly, there is a standard default clause.
This is contained in three clauses. The first deals with trust income.
The second contains the overriding powers. The third is the default
clause. The draft is as follows:
1. Trust Income
(1) The Trustees may accumulate the whole or part of the income of the Trust
Fund during the Trust Period. That income shall be added to the Trust
Fund.
(2) The Trustees shall pay or apply the remainder of the income to or for the
benefit of any Beneficiaries, as the Trustees think fit, during the Trust
Period.
2. Overriding Powers14
[Here follow the standard overriding powers in this book.]
3. Default Clause15
Subject to that, the Trust Fund shall be held on trust for [specify name]
absolutely.
“Beneficiaries”
For the definition of “Beneficiaries”, see 5.18 (Defi nition of “Beneficiaries”). 15.7
Some discretionary trusts specify two classes of beneficiaries: a narrow
class to whom income is to be distributed: and a wider class who may
benefit under the overriding powers.16 There was once a good reason for
this. To satisfy the requirement of certainty, it was once thought that the
objects of the discretionary trust over trust income had to be a narrow
class: a class of whom a complete list could be drawn up. The object of a
power of appointment (over capital) could be a wider class. It was worth
having two classes, a narrow one for the discretionary trust of income,
and a wide one for the power of appointment over trust capital. In 1970
the House of Lords decided that the broader test applied to discretionary
14
For a discussion of this clause see 11.1 (Drafting and understanding overriding powers: appoint-
ment, resettlement and advancement).
15
For a discussion of this clause see 13.23 (Default clause).
16
These might be called “the Beneficiaries” and “the Appointed Class”.

252 DISCRETIONARY TRUSTS
trusts as well as to powers.17 Accordingly, it has long been unnecessary to

create two separate classes of beneficiaries.
Powers of discretionary trusts
15.8 There is no restriction on the powers of discretionary trusts. One may

include powers not permitted in IP trusts. The additional powers include
the following:
Power to pay insurance premiums out of income
The following form is used in this book:

The Trustees may pay premiums of any insurance policy out of income.
Waiver of income
The following form is used in this book:

The Trustees may waive the payment of income before it becomes due.
There may from time to time be situations where it would be convenient

or tax efficient for trustees to waive the payment of rent, interest or divi-
dends. In the case of the discretionary trust, this could only be possible if
the trustees were expressly authorised.
17
McPhail v Doulton [1971] AC 424. Another solution to this trust law difficulty would have been
to confer on trustees a mere power over trust income, not a discretionary trust in the strict sense.
(On the distinction see 7.2 (Duties and powers distinguished).) But this was not possible for estate
duty reasons.

CHAPTER 16
PROVISIONS INCONSISTENT WITH IP AND

IHT SPECIAL TRUSTS
Administrative, dispositive, beneficial: terminology
The provisions of a settlement may be classified as: 16.1
(1) “administrative” (sometimes called “managerial”);

(2) “dispositive” (sometimes called “beneficial” or “distributive”).1
The distinction is broadly as these labels suggest: administrative provi-

sions relate to trust administration; dispositive provisions deal with ben-
eficial ownership.
Significance of administrative/dispositive distinction
The administrative/dispositive distinction arises for a number of purposes 16.2

of trust law.2 These are interesting, but only rarely of concern to the trust
practitioner.
1
A note on terminology. The word “beneficial” when applied to powers is ambiguous and may mean:
(1) the power is dispositive (not merely administrative) or
(2) the power is neither fiduciary nor semi-fiduciary (on this terminology see 7.33 (Nature of
powers of consent and appointment)) so the appointor is not subject to any legal restraint
in the motive or purpose for which the power is exercised, and may exercise the power to
suit him or herself.
Accordingly it is best not to describe powers as “beneficial” but to use some more precise descrip-
tion. For an example of the ambiguity see Von Brockdorff v Malcolm (1885) 30 Ch D 172: “All
the real and personal estate . . . over which at the time of my decease, I shall have any benefi cial
disposing power by this my will”—held in context to include a power of appointment which the
testator could not exercise for the benefit of him or herself or their estate.
Underhill and Hayton, Law of Trusts and Trustees (18th edn, 2010) para.5.1(3) prefer “distributive”
but the use of the word “dispositive” in this sense is well- established and should not cause confusion.
2
This common thread is slightly disguised as different statutory provisions use different expressions

254 PROVISIONS INCONSISTENT WITH IP AND IHT SPECIAL TRUSTS
The distinction is of considerable importance for tax purposes, and

especially for the drafting of IHT Special Trusts.
Existence of interest in possession. A beneficiary has an IP where (in short) he

or she is entitled to trust income as it arises. Yet it is rare for a beneficiary
to receive all the income of a trust. Some is spent on “administration”, for
instance, trustees’ and accountancy fees. The fact that income may in fact
be withheld from a beneficiary by virtue of administrative provisions is
ignored in deciding whether an IP exists.3
Special trusts. The income condition of a disabled deemed IP trust or an Age

18-to-25 trust requires that income must be applied for the beneficiary or
accumulated. Again, it is rare that all the trust income is so applied. Income
may be spent on “administration” for instance, trustees’ and accountancy
fees. Such income is not necessarily spent for the benefit of the benefici-
ary and is certainly not accumulated. These matters of administration are
ignored in deciding whether the income condition is satisfied. The capital
condition of an Age 18-to-25 trust requires that the beneficiary must
become entitled to the trust property. Here too administrative powers are
ignored in deciding whether this condition is satisfied. A striking example
is the old statutory power to transfer some trust land to charity.4 If this
power is used, the beneficiaries will not become entitled to all the trust
property. The Court of Appeal have said that this power did not breach
the capital condition formerly applicable to an A&M trust because it is
administrative.5
to describe the administrative/dispositive distinction (although the underlying concept is the

same or substantially the same).
(1) Perpetuities. The rule against perpetuities does not affect a power to do any act in the
administration (as opposed to the distribution) of any trust property: s.1 PAA 2009.
(2) Jurisdiction of Court. The inherent jurisdiction of the Court to secure the proper administra-
tion of the trust fund is said to allow the Court to deal with administrative matters, but
not to deal with beneficial interests: Re Duke of Norfolk [1982] Ch 61. Likewise jurisdiction
under s.57 TA 1925 applies only to “management and administration.”
(3) Section 15 Wills Act 1837. A “beneficial interest” given to a witness of a will (or their spouse)
is (generally) void.
(4) Power of delegation. Trustees do not have power to delegate “any function relating to whether
or in what way any assets of the trust should be distributed”; s.11(2)(a) TA 2000.
(5) Insolvent estates. Funeral, testamentary and administration expenses have priority over other
debts: Administration of Insolvent Estates of Deceased Persons Order 1986.
(6) Construction of particular trust. If any particular trust document refers to administrative or
dispositive powers, it then becomes necessary for the purpose of understanding that docu-
ment to decide which is which. Such clauses are unnecessary and slightly imprecise.
3
Pearson v IRC [1980] STC 318; Lloyds Private Banking v IRC [1998] STC 559.
4
The power was formerly conferred by s.55 SLA 1925. (Since the TLATA 1996 the power is not
expressly conferred on trusts of land, but it is suggested it can be spelt out of s.8(3) TA 2000. The
power is rarely used but this does not spoil the force of the example.)
5
See fn.7.

WHEN IS A PROVISION ADMINISTRATIVE OR DISPOSITIVE? 255
Tax law generally
These are only two instances of a broader principle. Tax law lays down
rules or exemptions which apply if income or capital are treated in a
particular way under a trust. In general, one should ignore “merely”
administrative provisions in deciding whether these rules or exemptions
apply.6
When is a provision administrative or dispositive?
The administrative/dispositive question arises most commonly in connec- 16.3

tion with trustees’ powers, but it may also be applied to other provisions
of the trust.
In general it is clear whether a provision is dispositive or administrative.
For example:
(1) A direction to pay income to a beneficiary is a dispositive provi-

sion; a power to accumulate income is a dispositive power.
(2) A provision that trustees are not required to supervise companies is
an administrative provision; a power of investment is an adminis-
trative power.
Yet there are borderline cases. Provisions may be administrative in

character even though they impinge on or affect beneficial interests.7 In
6
The administrative/dispositive distinction arises in many tax contexts. Sometimes the statute sets
out rules which expressly depend on whether an expense is administrative. There are too many to
give a complete list, but for example, see: s.484 ITA 2007 (referring to “expenses”); s.65(5) IHTA
1984 (“costs or expenses”), Sch.5, para.9(3) TCGA 1992 (“expenses relating to administration
and taxation”). Often the rule to ignore merely administrative matters is left to be implied. For
instance for the purpose of:
(1) s.479 ITA 2007: Income which is retained under an administrative provision is not subject
to the tax charge on income which is “accumulated”. This (it is considered) is the basis
of the HMRC practice (see RI 163) that income from mineral rents and timber crops,
capitalised under ss.47, 66 SLA 1925, is not regarded as “accumulated” for the purposes of
s.479 ITA 2007.
(2) IHT exemptions: A gift of a residuary estate by will qualifies for the IHT charity or spouse
exemption in whole, even though part of the estate is spent on administration and never
reaches the spouse or charity.
(3) CGT private residence relief: “If trustees allow a beneficiary to occupy a trust property,
by the use of their discretionary [i.e. dispositive] power, private residence relief may be
due . . . If the trustees allow any third party to occupy trust property, by exercise of their
managerial [i.e. administrative] powers, the relief is not due.” (CG Manual 65454.)
7
Inglewood v IRC [1983] STC at 139:
“Some administrative powers (e.g. the power conferred by s.55 of the SLA 1925 to give away
small parts of the trust land for public purposes or a power to trustees to apply income for capital
purposes) do affect beneficial interests but they are not truly dispositive in nature.”

such cases it is not obvious whether the provision should be regarded as

administrative or not. “The boundary between administrative action and
rewriting the trusts . . . is incapable of precise definition.”8 The approach
of the courts may be summed up as pragmatic.
In general, the same line is drawn in all the areas where the distinc-
tion is relevant. A provision which is administrative for the purposes of
the perpetuity rule is administrative for the purposes of deciding whether
a beneficiary has an interest in possession. However, this is not invari-
ably the case, and provisions may be classified as administrative for one
purpose and not for another. So they should: different policy considera-
tions may apply in the different cases.9 A provision for trustee remunera-
tion is in this special category.10
In a borderline case, how does one categorise a provision as administra-
tive or dispositive? It has been said that “what is decisive is the substance of
the provision and not the clothes or label which it wears”.11 That observa-
tion, while undoubtedly true, does not take us very far.
There is no single test to determine the question; but a number
of relevant factors. Powers conferred by general trust law (except for
powers of maintenance and advancement) are administrative. Another
consideration is whether a power could consume all the income —
no matter how much income there is; if so it is a dispositive power.
Provisions which can only affect limited amounts of income are likely
to be administrative. On this basis the following are all to be considered
as administrative.
Power to pay capital expenses out of income
16.4 This is an administrative power permitted in IP and special trusts.12 This

power is a very useful one. Trustees often find that they cannot easily
realise trust capital to pay capital expenses. (In practice trust income is
Russell v IRC [1988] STC 195 at 203:

“. . . a power of appropriation is only ancillary and administrative although its exercise can,
in times of fluctuating values, have a considerable impact on beneficiaries’ rights inter se.”
8
Re Blackwell [1952] 2 All ER 647. This part of the judgment was approved on appeal in Re
Downshire Settled Estates [1953] Ch 218.
9
Further, of course, the terms of the relevant statutory provisions are all slightly different. In
the same way, the question whether a power is to be classified as “general” or “special” may be
answered differently for different trust law purposes.
10
6.55 (Trustee remuneration clause: dispositive or administrative?).
11
IRC v Lloyds Private Banking [1998] STC 559 at 566. Street v Mountford [1985] AC 809 at 819
contains a felicitous and often cited statement of the Courts approach to categorisation issues:
“The manufacture of a five-pronged implement for manual digging results in a fork even if the
manufacturer, unfamiliar with the English language, insists that he intended to make and has
made a spade.”
12
Pearson v IRC [1980] STC 318 at p.325. HMRC accept this: ICEAW Guidance Note, 14
December 1992: “If the trust deed contains a power to pay capital expenses out of income, exer-
cise of this power will not cause the trust to lose interest in possession status for inheritance tax
purposes.” See 21.30 (Power to pay capital expenses out of income).

WHEN IS A PROVISION ADMINISTRATIVE OR DISPOSITIVE? 257
often used for the purpose, in conscious or unconscious breach of trust.)

Trustees can and should be given power to pay capital expenses out of
income.
Retention of income to provide for liabilities or depreciation of a capital asset
This power is administrative and so permitted in IP and special trusts.13 16.5
On the other hand the following powers are not merely administrative: 16.6
Power to:
- apply income in the purchase or subscription of partly paid shares

...
- use income to pay life assurance premiums . . .
- apply income in purchasing any annuity . . .
- apply income to improve or develop trust property.
Capital/income and apportionment provisions
A second general point: trust law lays down various prima facie assump- 16.7
tions sometimes—somewhat arbitrary—which regulate the thorny ques-
tion of whether a receipt is income or capital; or whether it accrues at
one moment of time or another. These assumptions take effect subject
to contrary provisions in the trust. Such provisions are administrative,
not dispositive, if the drafter has merely adopted a different definition of
the amorphous concept “income” (or “accrual”), which in principle is as
legitimate as the general trust law definition. Here are common examples.
Exclusion of the statutory apportionment rules is a matter of administra-
tion.14 This is an important provision and should not be omitted out of
a super-abundance of caution. The exclusion of the equitable apportion-
ment rules is also an administrative provision.15 A provision that a dividend
in the course of an exempt demerger is capital is likewise an administrative
provision.16
13
Miller v IRC [1987] STC 108.
14
The arguments to this effect, which are overwhelming, are set out in detail in Kessler, “Should the
trust draftsman exclude the Apportionment Act 1870?” (1992/92) PTPR 2(3), p.171 accessible
www.kessler.co.uk. This view was evidently shared by the drafter of Form 8 of the Statutory Will
Forms LPA 1925 accessible www.kessler.co.uk who described such forms as “administration trusts”.
For the drafting of the provision, see 21.62 (Statutory apportionment).
15
See 21.63 (Equitable apportionment).
16
See 21.33 (Demergers).

Power of appropriation
16.8 It is considered that the power of appropriation should be regarded as

administrative.17 In practice it rarely matters.18
IP trusts: “departure” v “disqualifying” powers
16.9 Any administrative provision can be included in an IP trust. We can now

turn to consider what non-administrative powers may safely be included
in IP trusts. Non-administrative (i.e. dispositive) powers must themselves
be divided into two categories:19
(1) Trustees may have some power which allows them to withhold
trust income from the beneficiary as it arises. The beneficiary
cannot then have an interest in possession. This is here called a
“Disqualifying Power”. An example is a common form power of
accumulation.
(2) Trustees may have some power which may allow them to with-
hold trust income from the beneficiary at some time in the future.
The beneficiary has an interest in possession until that time comes.
17
It has been held to be administrative for the purposes of s.57 TA 1925: Sutton v England [2011]
EWCA Civ 637 (reversing the High Court, as predicted in the 10th edition of this book; Re
Thomas [1930] 1 Ch 194. Likewise Russell v IRC [1988] STC 195 at p.203. In Re Freeston’s Charity
[1978] 1 WLR 741, the Court of Appeal did say the opposite, at p.752, but this comment was
obiter and that view was rejected in Sutton v England. In Hughes v Bourne [2012] EWHC 2232 (Ch),
Henderson J held that the words “in or towards satisfaction . . . of any other interest or share in his
property” in s.41 AEA 1925 (statutory power of appropriation) were, if imported into the trust,
wide enough to permit trustees to replace a beneficial interest in part of the income of the whole
with an interest in the whole of the income of an appropriated part. It seems clear however that
the judge considered the power to be an administrative one. It was argued and the judge did not
disagree that the power was not a dispositive power: [40]–[41]. The judge said (at [41]) that it
was desirable in principle that the section should be broadly construed in a way which promotes
practical and convenient trust administration.
18
The question arises where one beneficiary becomes entitled to a share of a trust fund, (the other
shares being held on continuing substantive trust). According to HMRC CG Manual 37530,
there is in principle no CGT disposal, under s.71 TCGA 1994, if the trustees have a power of
appropriation which is not exercised. The position is different if the power is exercised, since the
beneficiary becomes entitled to the assets appropriated to their share: see, e.g., Hughes v Bourne
[2012] EWHC 2232 (Ch), at [32]. The commonest case is a trust for a class of beneficiaries abso-
lutely at 25; and one beneficiary reaches 25, but others are younger. If HMRC’s view is right it is
best regarded as an exceptional case where the power of appropriation, an administrative provi-
sion, has substantial tax consequences; (or else perhaps the power is not merely administrative:
see the above footnote). If HMRC’s view is right, it will very often prevent a claim for hold- over
relief under s.260 TCGA 1992. It is considered that HMRC’s view is right, though the arguments
are fi nely balanced, and despite the terms of the Manual, HMRC do not seem to take that view
in practice.
19
This important distinction was fi rst clearly drawn in Oerton “Safety Net Clauses” (1992) Trusts
& Estates 66.

IP TRUSTS: “DEPARTURE” V “DISQUALIFYING” POWERS 259
For the beneficiary is in the meantime entitled to trust income as

it arises. This is here called a “Departure Power”. Standard form
powers of appointment, advancement and resettlement are clear
examples of departure powers.20 Such powers are consistent with
an interest in possession: the life tenant is entitled to all income
until the power is exercised.
Thus an IP trust may include departure powers. It may not include dis-
qualifying powers. Whether a power is a disqualifying power or a depar-
ture power is sometimes difficult to discuss in the abstract: a great deal
depends on the words used in each case.
Power to pay insurance premiums out of income
There are two types of policy. Administrative policies (our terminology). 16.10
For instance:
(a) a term policy used to cover an IHT liability;

(b) a policy used as a sinking fund against a wasting asset.
Power to pay premiums on an administrative policy out of income is

administrative.21
Investment policies (purely investments). A power to pay premiums on

such policies out of income is a dispositive power. This power may be
framed as a departure power, or a disqualifying power, depending on the
words used. The actual effect of old common form clauses is uncertain.22
The drafter should avoid these problems by ensuring that the interest in
20
See 11.3 (Unnecessary provisions in power of appointment).
21
HMRC accept this: IHT Manual 16067 provides:
“Examples of administrative powers include . . . a power to pay premiums on a life assurance
policy designed to cover any claim to IHT on the fund. These expenses are capital expenses,
but if the trust deed permits them to be paid out of income then the trustees may do so. Such
payments do not defeat an interest in possession although, as a practical matter, there will be
less income to give to the beneficiary.”
22
Older trusts often provided that trustees may pay life assurance premiums out of trust income.
What is the effect of this if included in an ordinary interest in possession trust? At least three views
are possible:
(1) The power is exercisable at any time. In this case, the power is in principle a disqualifying
power and the beneficiary does not have an interest in possession.
(2) The power is only exercisable if the trustees hold a life assurance policy, and only to the
extent that there are premiums payable under the policy. In this case, the beneficiary has
an interest in possession until the trustees acquire a life assurance policy. Thereafter their
interest in possession will be restricted in part or in whole.
(3) The power is only exercisable if the trustees hold a life assurance policy, and only in respect
of income arising after the trustees have resolved to make payments out of income. In this
case, the beneficiary has an interest in possession until the trustees resolve to use the power.

possession trust does not contain a wide power to pay life insurance pre-
miums out of income.
Power to permit beneficiary to occupy or use trust property rent free
16.11 A power to allow a beneficiary to reside in trust property rent free is obvi-
ously a dispositive power. It is a departure power rather than a disqualify-
ing power. Suppose X is entitled to an IP, and the power is then exercised
so as to allow Y to occupy property rent free:
(1) X’s IP will normally come to an end; and

(2) Y may acquire an IP.23
The best course, in drafting an IP trust, is to restrict the power so only the
life tenant can be allowed rent free occupation of trust property. Then no
difficult questions arise.
The same considerations apply to powers to allow beneficiaries to enjoy
chattels or other trust property in specie.
Power to lend money interest free
16.12 A power to lend money interest free is not a disqualifying power. It is

probably a departure power and arguably may be exercised so as to confer
an interest in possession on the borrower. The best course in drafting an
IP trust is to restrict the trustees’ powers so that they can only lend interest
free to the life tenant. Then no difficult questions can arise.
Power to waive income
16.13 Trustees sometimes have power to waive income before that income
falls due. It is suggested that this should in principle be construed as an
administrative power.24 However, for safety’s sake, it is recommended that
The point is not covered by authority. In practice, according to the old CTO Advanced Instruction
Manual E.61ff, HMRC officially take view (2) but might be persuaded not to take the point. This
would normally benefit the taxpayer and so it will not often be challenged. The new IHT Manual
seems to shift to view (1): para.42810. But some text has been withheld (supposedly) because of
“exemptions in the Freedom of Information Act 2000” and it is very likely that the text formerly
published in the CTO Manual survives as a secret instruction to HMRC staff in the IHT Manual.
23
However Y may not acquire an IP, either because the rights conferred on Y are too precarious to
count as an interest in possession (so the position is analogous to a common form discretionary
trust), see SP 10/79; or because the formalities required by s.53 LPA 1925 are not met (the creation
of an interest in land must be in writing and signed by the person creating it). On the position
where the trustees have a share in the land, see 19.4 (Appropriation of share of family home). The
issue in IRC v Lloyds Private Banking [1998] STC 559 was one of construction, whether the words
used in the will had the effect of conferring a right to occupy.
24
In Scotland, a similar power is conferred by statute: s.4(1)(m) Trusts (Scotland) Act 1921 and the
statutory power would not be construed to be exercisable in a dispositive manner. An example of

“DEPARTURE” V “DISQUALIFYING” POWERS 261
such a power should not be included in an IP or other special trust. The

omission should not cause difficulties. Trustees could of course waive the
income with the consent of the life tenant.
IHT special trusts
Any administrative power may be included in an IHT special trust. We 16.14

can now turn to consider what non-administrative (i.e. dispositive) powers
may safely be included in special trusts.
“Departure” v “disqualifying” powers
The same terminology can be used: dispositive powers in a special trust

can be divided into two categories:
(1) A departure power is one which, if exercised, will cause the trust
to cease satisfying the relevant conditions.
(2) A disqualifying power is one the existence of which, whether or
not actually exercised, prevents the trust from satisfying the rel-
evant conditions.
Power to permit beneficiary to occupy or use trust property rent free
We have already noted that a power to permit beneficiaries to use or 16.15

occupy trust property is dispositive. The power raises difficulties for
special IHT trusts.
It is often a condition that the income of the settled property is applied
for the benefit of the beneficiary (or accumulated). So long as trust
property is enjoyed in kind, it will not produce income. How does the
condition operate then? It is considered that the word “income” in the
income condition should be taken to refer to the use or enjoyment of trust
property rent free; for such use and enjoyment is analogous to income.25
an administrative exercise of the power might be the waiver of rent in one year in order to make
it more likely that the tenant will be able to pay rent in subsequent years.
If the particular power is dispositive, the power is arguably consistent with an IP. It is not a
power to withhold income: it is a power to prevent income arising. This is consistent with the
scheme of the Act: s.15 IHTA 1984.
25
As Lord Oliver said in City of London Building Society v Flegg [1988] AC 54 at 83: “The benefici-
ary’s possession or occupation is no more than a method of enjoying in specie the rents and profits
pending sale in which he is entitled to share” (in relation to a beneficiary under a trust for sale).
An economist would regard the right to occupation as “income”: Kay and King, The British Tax
System, (5th edn, 1990). While of course legal and economic concepts of income do differ, it is

If this is correct, the effect of the income condition is that trust property
may only be enjoyed in kind by the beneficiary. A power to allow other
beneficiaries to enjoy trust property on favourable terms is a disqualifying
power and breaches the condition.
Similar considerations apply to powers to allow beneficiaries to use
chattels, and powers to make interest free loans; and to a power to charge
property as security for debts and liabilities of beneficiaries.
Power to use income to pay life insurance premiums
16.16 Suppose trustees have power to pay life insurance premiums out of
income. Textbooks record a theoretical argument that this power may
breach the income condition but nobody believes it.26 Nevertheless the
safer course is that trustees should not be given power to pay life insurance
premiums out of income. The absence of this power is not significant in
practice.27
Protection clauses
16.17 In an ideal world a drafter would know exactly what provisions were
permitted in a trust which was intended to qualify as an IP or an IHT
special trust. In practice there are inevitably a few doubtful areas. This
has led to “protection clauses” (or “safety net” clauses) intended to restrict
the terms of a trust so as to satisfy the relevant tax conditions. These
clauses have become common since the introduction of capital transfer
tax in 1975.
It goes without saying that a protection clause is no substitute for ana-
lysing the statutory provisions and framing the trust accordingly. A pro-
tection clause is not an essential drafting technique. In the drafts in this
book the clauses are not relied upon: their omission would not affect the
operation of any of the trusts. However, there is perhaps a possibility that
HMRC might argue that some provision (which the drafter had judged to
be satisfactory) breached the relevant conditions. The practice in this book
suggested that the law may have regard to economists in this situation at least. HMRC agree:
IHT Manual 16066.
26
The argument is that:
(1) The payment of a life insurance premium out of income will not (usually) be the application
of income for the exclusive benefit of the beneficiary; and
(2) the payment of a life insurance premium does not amount to the “accumulation” of
income.
Support for this view could be drawn from Bassil v Lister (1851) 9 Hare 177, 68 ER 464 discussed
in Carver v Duncan 59 TC at 166, but it is not convincing.
27
The same result can generally be achieved by fi rst accumulating the income, turning it into
capital, and then investing the capital in the insurance policy.

PROTECTION CLAUSES 263
is to include the clause in all types of trusts except standard discretionary

trusts.28
Drafting and construction of protection clauses
One sometimes sees in practice a wide protection clause which if literally 16.18
construed has an extremely restrictive effect which was certainly unin-
tended by the drafter. The question whether such clauses should be literally
construed is therefore one of general importance—though of course in any
particular case, much will depend on the exact wording. As an example
consider this clause:
None of the trusts, powers and discretions conferred upon or vested in the Trustees shall be
capable of exercise in any way such as will or may directly or indirectly prevent Section 71A
[or 71D] of the Inheritance Tax Act 1984 from applying or continuing to apply to the Trust
Fund.
Literally construed, this prevents trustees exercising their power of

advancement to transfer trust property to the beneficiary! 29 It is considered
that clauses of this type should not be so literally construed. Otherwise
the express power of advancement (typically found elsewhere in the trust)
is rendered virtually otiose. This construction makes more sense in the
context of the scheme of the IHTA 1984.
The moral is that one should not make protection clauses unduly wide.
The approach in this book is to apply the restrictions of the protection
clause only to what are intended to be the administrative powers of the
trust. The safety net clause is there in case unintended dispositive powers
have found their way in. No advantage can be seen in imposing any
restriction on the beneficial provisions. In the case of a simple IP trust,
this is plainly unnecessary. In the case of special trusts, which are more
complex, the imposition of a protection clause on the beneficial provision
may lead to uncertainty.
We have already mentioned the distinction between disqualifying and
departure powers. There is no need for a protection clause to restrict
departure powers.30 Unfortunately the drafting of the clause distinguish-
ing between the two types of power is somewhat cumbersome.31 The form
in this book does not discriminate and applies to both sorts of power. Our
28
In a discretionary trust there are no uncertain conditions to be satisfied.
29
Since s.71A (or 71D) ceases to apply to property so advanced.
30
Oerton fi rst pointed this out in “Safety Net Clauses” (1992/3) Trusts & Estates 66.
31
The Oerton form was in outline:
“If during any period the mere existence of any powers given to the Trustees in relation to
this settlement would be enough (without their exercise) to prevent (and would be the only
thing preventing) the conditions stated in s.71 IHTA 1984 from being satisfied in respect of
the property comprised in the trust or some part of it then during that period those powers
shall be restricted (in relation to that property or that part) so far as may be necessary to avoid
that result.”

protection clause is therefore wider than it strictly need be. This does not
matter since the clause—restricted as it is to administrative provisions—is
only for the avoidance of doubt and has no discernible practical effect.
Interest in possession protection clause
16.19 Where it is important to have an IP for IHT purposes, (e.g. an IPDI trust)
the form used in this book is as follows:
The powers conferred by this schedule32 shall not be exercisable so as to prevent a
Beneficiary from being entitled to an interest in possession in Trust Property (within
the meaning of the Inheritance Tax Act 1984).
It is not strictly necessary to define “interest in possession” which is a

familiar trust law expression. But the IHTA 1984 gives a special meaning
to the phrase,33 so a referential definition is desirable.
It is not necessary to say: “the IHTA 1984 or any modification or re-
enactment thereof ” as those words are implied.34
It is not necessary to include this form in a lifetime IP trust made after
22 March 2006, because the IP is not recognised for IHT purposes, but
no harm is done if it is included.
“No conflict” clause
16.20 One sometimes sees forms like these:

The provisions of the schedule below shall not take effect so as to conflict with the benefi cial provi-
sions of this settlement.
Nothing in the schedule hereto shall authorise any of the Trust Fund or income to be
dealt with in a manner inconsistent with the benefi cial provisions applicable to the Trust
Fund.
The effect of this “no confl ict” clause naturally depends on what is in “the
schedule” to which it refers. The provisions will be largely administra-
tive in nature. “Administrative” and “beneficial” provisions are mutually
exclusive categories. Administrative provisions aid beneficial provisions
and do not confl ict with them or destroy them. This is bolstered by a
presumption, a rule of construction—which does not need to be stated
expressly in a trust—that provisions contained in a section of a trust
dealing with administration would be administrative and would not be
32
This will be the schedule of administrative powers in the precedents used in this book.
33
Section 46 and 50(2) IHTA 1984. The expression is used in the CGT legislation and in the 1925
property legislation without defi nition.
34
Sections 17, 23 Interpretation Act 1978.

CGT PROTECTION CLAUSE 265
construed to confl ict with beneficial provisions.35 It is considered, there-

fore, that administrative provisions are not affected by the no confl ict
clause.36 The schedule will generally contain some dispositive provisions
which do confl ict and would be restricted by the clause.
This form is intended to perform the same task as a protection clause,
and it would have that effect. In an IP trust, the form will prevent powers
in the schedule from being exercised in a way which would prevent
the life tenant from having an interest in possession. Where there is a
protection clause as in the precedents in this book, there is no need for
a no-confl ict clause. The no-confl ict clause is wider than a protection
clause and it prevents any confl ict between the powers in the settlement
and the beneficial provisions (even a confl ict which does not breach IP
conditions).37 It may impose some significant (and probably unintended)
restrictions.38 The form is also too vague to be satisfactory and it is not used
in this book.
CGT protection clause
The powers conferred by this schedule shall not be exercisable so as to cause the settlement to be 16.21
an accumulation or discretionary settlement (within the meaning of section 5 of the Taxation of
Chargeable Gains Act 1992).
This clause is obsolete. It related to the foolish rule (introduced in 1988

and abolished 10 years later) that an accumulation or discretionary trust
paid CGT at a higher rate than an IP trust. Where the form is still used
(for instance under the first edition of the STEP Standard Provisions) no
harm is done.
35
This presumption is supported by common sense, and authority: IRC v Miller [1987] STC 108 at
112; Inglewood v IRC [1983] STC 133 at 139.
36
But provisions properly classified as “administrative” may nonetheless affect a beneficiary’s enti-
tlement very substantially; and in such cases some might argue that there is a “confl ict”.
37
Suppose the schedule contains a power to release powers. The no- confl ict clause would restrict
this to a power to release administrative powers. It could not be used to release a power of
appointment.
38
For instance, suppose (i) a beneficial provision directs trustees to pay income to A; and (ii) a power
in the schedule (subject to the no- confl ict clause) permits trustees to allow beneficiaries to reside
in trust property. The power could not be used to allow beneficiaries (other than A) to reside, as
that would confl ict with the beneficial provisions; 16.11 (Power to permit beneficiary to occupy
or use trust property rent free).
Suppose the schedule (subject to the no- confl ict clause) confers on the trustees a power of
advancement. It is suggested that the power of advancement could be used and that would not
“confl ict” with the beneficial provisions. This is consistent with the comment in Inglewood v IRC
[1983] STC 133 that the power of advancement is “like an administrative power”. But the con-
trary is arguable. Compare Re Batty [1952] Ch 250 where the power of advancement is described
as “confi scatory”.

A&M protection clause
16.22 Paragraph 14 of the first edition of STEP Standard Provisions provided an

A&M protection clause:
These provisions shall not have effect . . . so as to prevent the conditions of section 71(1)
Inheritance Tax Act 1984 from applying to Trust Property.
This clause is obsolete now that A&M trusts have been abolished. Where
the form is used, however, no harm is done as the words have no effect.

CHAPTER 17
TYPES OF WILL TRUSTS
Types of will trusts: terminology
This chapter considers the many different types of will trust, their quali- 17.1
fying conditions, and tax treatment. Will trusts can be divided into two
classes:
(1) Standard IHT Trusts: A trust which does not qualify for any special
IHT treatment, and so is subject to 10-year and exit charges.1 This
category includes an ordinary IP trust.
(2) Special IHT Trusts, the most important of which are:
(a) IPDI Trust: A trust within s.49A IHTA 1984 (Immediate
post-death interests)
(b) Bereaved Minors Trust: A trust within s.71A IHTA 1984
(c) Age 18-to-25 Trust: A trust within s.71D IHTA 1984
(d) Disabled trusts: discussed at 27.1 (Disabled trusts).
These are not subject to 10-year and exit charges. A discretionary
will trust can within two years be converted into any of the above.
We use the labels “Bereaved Minors trust” and “Age 18-to-25 trust” with
reluctance:
• “Age 18-to-25 trust” is a misleading description for a trust which

falls within s.71D. “Age 0-to-25 trust” would be more accurate.
• “Bereaved Minors trust” is a tolerably accurate description of trusts
within s.71A, but that term also fits trusts within s.71D.
However practitioners must use technical terminology of one kind or

another. The alternative terms are “Section 71A trusts” and “Section 71D
1
Ch.3, Pt 3 IHTA 1984.

268 TYPES OF WILL TRUSTS
trusts”, but on balance it seems better to stick with the terms used in the
IHTA 1984.
The terms “standard” and “special” trusts are non-statutory and are
also less than ideal:
• “Standard” trusts might more accurately be called “relevant prop-

erty trusts”2 but that label is not very helpful.
• “Special” trusts are all those which are not “standard”: they may
not be very special! These are sometimes called “privileged” trusts
but that is inapt as the “special” trusts will sometimes pay more tax
than standard trusts.
Spouses: terminology
17.2 UK legislation distinguishes between a civil partner and a spouse in its

terminology, and in formal contexts (such as trust drafting) the words
“spouse” and “marriage” do not (in the absence of special context) include
a civil partner or civil partnership.3 However for all practical purposes the
two are in the same position and in loose language they are elided. It is
tiresome to constantly refer to spouse/civil partner. So in this chapter, and
generally in this book:
(1) “Spouse” means either a spouse or a civil partner and “marriage”

includes a civil partnership. (The Law Commission does the same4
and we expect this will become standard usage outside the formal
context of statute and trust drafting.)
(2) “Single” refers to an individual who is neither married nor a civil
partner.
(3) “Cohabitees” refers to an individual and partner who are unmar-
ried and not civil partners.
2
The trust property is “relevant property” as defi ned in s.58 IHTA 1984.
3
See 5.29 (Civil Partners).
4
Law Commission, Intestacy & Family Provision Claims on Death (Law Com no 331, December
2011), para.1.38: “The legal treatment of husbands, wives and civil partners is identical in the law
of intestacy and family provision claims, and for brevity we use the term “spouse” in this Report
to refer to all three. . .”.

WHY USE IPDI TRUSTS? 269
IPDI trusts: qualifying conditions
The IPDI conditions are straightforward. The main condition is that a 17.3
beneficiary has an interest in possession.5 We follow the example of the
legislation and call this beneficiary, the life tenant, “L”. This condition
must be satisfied at all times since L became beneficially entitled to the IP.6
L may be a minor.7 In addition:
(1) The settlement must be effected by will or intestacy.8 A lifetime

trust cannot be an IPDI.
(2) L must become beneficially entitled to the IP immediately on the
death of the testator.9 Hence immediate post-death interest. But a
discretionary will trust may within two years be converted into an
IPDI trust.10
(3) The trust is not a Bereaved Minors trust (this will not in practice
happen) and not a disabled trust.11 The regimes for these types of
trust have priority.
The IPDI trust may have an overriding power of appointment, giving

considerable flexibility.
Why use IPDI trusts?
IHT advantages and disadvantages. The IPDI is an estate-IP, so the property 17.4
is treated for IHT purposes as if it belonged to the life tenant. The trust
property will be subject to tax on L’s death, unless the value of the estate
is within the NRB, or an exemption applies. The spouse exemption will
in principle apply on the death of the testator if L is the testator’s spouse.
This will generally be better than:
(1) the standard IHT trust regime of 10-year and exit charges, or
5
Section 49A IHTA 1984. For this requirement, see 14.3 (Interest in possession income clause) and
16.1 (Provisions inconsistent with IP and IHT special trusts).
6
Section 49A(5) IHTA 1984.
7
See 14.17 (Life tenant a minor).
8
Section 49A(2) IHTA 1984. It is considered that a gift by will to an existing trust can satisfy this
condition, but this issue does not arise for wills in the form in this book.
9
Section 49A(3) IHTA 1984.
10
Under s.144 IHTA 1984. What if a testator dies and the beneficiary is en ventre sa mere or born in
the following two years? An unborn child cannot have an interest in possession. It is considered
that a discretionary trust followed by an interest in possession for the beneficiary (once born)
qualifies as an IPDI under s.144 IHTA 1984.
11
For disabled trusts see 27.1 (Disabled trusts).

(2) an Age 18-to-25 trust (which suffers the 4.2% charge).
CGT advantages and disadvantages. There is a tax-free uplift on death of L,

the life tenant.12 Conversely there is no CGT hold-over relief to defer the
CGT charge on the termination of the trust during L’s lifetime (except for
business/agricultural property). Age 18-to-25 trusts seem better because
they do offer CGT hold-over relief.13 This drawback is not as significant
as may at fi rst appear. So long as the trust endures there is no need for
hold-over relief. Also, if hold-over relief is needed, it can up to a point
(for property within the NRB) be obtained by creating a short term dis-
cretionary period.
Income tax advantages. IP trusts are better than discretionary trusts for IT
purposes.
Terms of IPDI trust after death of life tenant
17.5 The IPDI trust will confer a life interest on the life tenant (“L”) subject to
an overriding power of appointment.
The position after the death of L depends on whether L is married. On
the death of a life tenant who is single, there should normally be a discre-
tionary trust.14
On the death of a life tenant who is married, there is a stark choice to
be made:
(1) The trust fund may pass to the surviving spouse absolutely; or
(2) The trust property may continue to be held in trust.15
If L’s spouse was disabled when the testator died, there is a third choice: to
confer an IP on L’s spouse.
12
Sections 72, 73 TCGA 1992. This assumes that the administration of the testator’s estate is com-
plete when the life tenant dies.
13
Assuming the beneficiary is UK resident and does not become non-resident in the following six
years.
14
This gives flexibility. If the trust is wound up after the death of the life tenant, this discretionary
trust gives rise to a trivial exit charge, but the price is worth paying.
15
Of course, lifetime planning offers further choices:
(1) There could be an absolute appointment to L, following which L could confer an IPDI by
will on his spouse. Then the property qualifies for the spouse exemption on the death of
L. This course has a possible CGT downside: it loses (or at least reduces) the benefit of the
CGT uplift on the death of L and instead incurs a CGT charge on the appointment to L.
(2) The life tenant’s interest could be revoked during his lifetime (creating either a PET or a
chargeable transfer, depending on how it was done).

AGE 18-TO-25 TRUSTS: QUALIFYING CONDITIONS 271
Route (1) qualifies for the IHT spouse exemption.16 Of course this
route is only a practical solution if the spouse is a suitable person to
receive the trust fund absolutely. Route (2) does not qualify for the spouse
exemption. IHT is payable on the death of L and so 60% of the fund passes
to the next generation.17 There is an old jibe18 that IHT is a voluntary tax
paid by those who distrust their heirs more than they dislike the Revenue.
This was formerly a half-truth; from 2006 (read “spouse” for “heirs”) it
is reasonably accurate.
The correct choice depends on the individual circumstances. Either
route qualifies for the CGT uplift on the death of L.
This decision must be made during the lifetime of L. It cannot be
altered after L’s death.19 It is not necessary to make the final decision when
drafting the will of the testator: it is necessary to make a provisional deci-
sion, i.e. one which can be changed subsequently (during the lifetime of
L). The provisional decision made in the precedents in this book is to
forego the spouse exemption, and keep the trust property in the settle-
ment. This is more often likely to be the final choice.
The provisional decision may be changed by executing an appropriate
deed of appointment during the lifetime of L to confer an absolute interest
on L’s surviving spouse. The deed should normally be revocable during
the lifetime of L. That is an issue which should be considered when L
makes his or her own will.
Age 18-to-25 trusts: qualifying conditions
The conditions here are complicated and restrictive. 17.6

The relief applies to trusts under the will of a parent20 of a beneficiary
under the age of 25. A lifetime trust cannot be an Age 18-to-25 trust.
Only parents may create an Age 18-to-25 trust.
The main condition is in s.71D(6) IHTA 1984 and needs to be set out
in full:
(a) that the [beneficiary who has not yet attained 25] (“B”), if he
has not done so before attaining the age of 25, will on attain-
ing that age become absolutely entitled to—
(i) the settled property,
(ii) any income arising from it, and
16
Assuming the spouse is UK domiciled.
17
Unless the spouse of L is disabled at the time of L’s death.
18
Roy Jenkins, Hansard, 19 March 1986, col.325.
19
Sections 142, 144 IHTA 1984 do not apply to settled property.
20
“Parent” is given a somewhat artificial defi nition in s.71H IHTA but this will not often be
important.

(iii) any income that has arisen from the property held on the
trusts for his benefit and been accumulated before that
time,
(b) that, for so long as B is living and under the age of 25, if any of
the settled property is applied for the benefit of a beneficiary,
it is applied for the benefit of B, and
(c) that, for so long as B is living and under the age of 25,
either—
(i) B is entitled to all of the income (if there is any) arising
from any of the settled property, or
(ii) no such income may be applied for the benefit of any other
person.
Although s.71D(6) IHTA is drafted by reference to a single beneficiary

(i.e. B), HMRC apply the principle that the singular includes the plural
and so take B to include all beneficiaries within the relevant class provided
they are alive at the date the s.71D trust takes effect and are under the age
of 25.21 It is permitted to have an overriding power of appointment which
complies with these conditions.
It is also permitted to have the statutory power of advancement, and to
extend it to the whole of the trust fund.
A trust satisfying the IPDI conditions is not an Age 18-to-25 trust: the
IPDI regime has priority. But subject to that, an Age 18-to-25 trust may
confer an IP.22
What is the position if a parent has more than one child under 25? In
the discussion below, it is assumed there are three children, A, B, and
C. What can be done with the income and capital of each child’s share?
There are two approaches to this question: these may be called “share-by-
share approach” and “the global approach”.
(1) The share-by-share approach is to direct that:

(a) The income and capital income of A’s share may be applied
only for the benefit of A.
(b) Likewise B’s share may be applied only for the benefit of B;
and likewise for C’s share.
(2) The global approach is to direct that:
(a) The income and capital of A’s share may be applied for the
benefit of A or B or C (while under 25).
21
www.step.org/resources/policy_and_technical/uk_policy/2008/step__ciot_correspondence.aspx? link=
contentMiddle.
22
It is an interesting question whether s.144(3) IHTA 1984 applies if a beneficiary under an Age
18-to-25 trust attains an IP within two years of the testator’s death. But this question does not
arise in this book. Age 18-to-25 trusts are not used.

WHY USE AGE 18-TO-25 TRUSTS? 273
(b) Likewise, B’s share and C’s share may be applied for the benefit
of A or B or C (while under 25).
HMRC accept that the global approach is permitted in an Age 18-to-25

trust. So it is unnecessary for a parent by will to fi x each child’s share.
While the child is under the age of 25, the income and capital may be used
for any of the other children under that age. However, the child’s share
cannot be altered after he or she has reached 25. The child must become
entitled to the income and capital at that age. IPDI trusts are preferable,
since although the income is fi xed, capital may be used for any of the chil-
dren or any other beneficiary irrespective of their ages.
Why use Age 18-to-25 trusts?
IHT advantages and disadvantages. Age 18-to-25 trusts offer two IHT 17.7
advantages:
(1) There is no IHT charge on the death of a beneficiary under the age
of 18. Since the possibility of a child dying under the age of 18 is in
practice extremely remote, this is not a significant advantage.
(2) There is no 10-year charge or exit charge while the beneficiary
is under 18; and the exit charge between the ages of 18 and 25 is
based on that seven year period (so the maximum charge at current
rates is 4.2% of the trust fund). This seems like an advantage
because it is better than the standard IHT trust treatment of 10-
year and exit charges. However it is much less favourable than IPDI
trusts, where:
(a) the IHT charge arises on the death of the life tenant (“L”);
and
(b) there is scope for IHT planning during L’s life.
If desired, the IHT risk of death under 25 for an IPDI could be covered
by insurance. The cost of insurance against death under 25 would be far
cheaper than the 4.2% IHT charge on the Age 18-to-25 trust. This is
for the obvious reason that death under 25 is extremely rare. (In order to
understand the rules, it is worth bearing in mind that although the 4.2%
charge is called “inheritance tax”, it is not in any meaningful sense an
inheritance tax.23 It is a tax on trusts, or if you prefer, a penalty for using
23
Contrast the IT charge on pre- owned assets, which is not a tax on income: it is a penalty for
carrying out certain types of IHT planning: see Kessler, Taxation of Non-Residents and Foreign
Domiciliaries (11th edn, 2012), para.72.37 (Commentary) accessible www.foreigndomiciliaries.co.uk.

trusts. It does not reflect the tax advantage of Age 18-to-25 trusts (as set
out above). If it did, the rate would be far less than 4.2%.)
The only circumstance we can see in which an Age 18-to-25 trust may
be useful is the somewhat theoretical case where:
(1) a parent dies leaving a child under 25, and

(2) the child has such a seriously impaired life expectancy that he or
she will (or is almost certain to) die under the age of 25.
Age 18-to-25 trusts should not be used by foreign domiciled testators

because they are more harshly taxed than common form discretionary
trusts.
CGT advantages and disadvantages. Age 18-to-25 trusts do offer CGT hold-
over relief on a termination of the trust.24 As mentioned above, this relief is
not as significant as may at first appear. So long as the trust endures there
is no need for the relief.
Bereaved Minors trusts
17.8 Bereaved Minors trusts can be dealt with quite briefly as there are no cir-
cumstances in which they will actually be useful. The main condition is
set out in s.71A IHTA 1984:
(a) that the bereaved minor, if he has not done so before attaining
the age of 18, will on attaining that age become absolutely
entitled to—
(i) the settled property,
(ii) any income arising from it, and
(iii) any income that has arisen from the property held on the
trusts for his benefit and been accumulated before that
time,
(b) that, for so long as the bereaved minor is living and under
the age of 18, if any of the settled property is applied for the
benefit of a beneficiary, it is applied for the benefit of the
bereaved minor, and
(c) that, for so long as the bereaved minor is living and under the
age of 18, either—
(i) the bereaved minor is entitled to all of the income (if
there is any) arising from any of the settled property, or
24
Section 260 TCGA 1992.

WILL TRUSTS AND LIFETIME TRUSTS: DRAFTING DIFFERENCES 275
(ii) no such income may be applied for the benefit of any

other person.
Why not to use Bereaved Minors trusts
The main reason why Bereaved Minors trusts will not be used is that
parents will not want their children to become entitled to substantial sums
at the age of 18. But even if a parent was content to allow that, an Age 18-
to-25 trust is better, because it allows the option of postponing vesting of
capital until 25 (or indeed later).25 If the capital is in fact distributed at the
age of 18, there is no IHT charge. A Bereaved Minors trust is less flexible,
and offers no corresponding advantage.
“Express Wills”
The will drafting software “Express Wills” (published by Sweet & 17.9
Maxwell) allows users to incorporate the will trusts from this book. This
software is sophisticated and easy to use. It is not, of course, foolproof, but
a useful tool and timesaver.
Will trusts and lifetime trusts: drafting differences
A will trust is of course a different matter from a lifetime trust. It takes 17.10
effect in different circumstances — the testator ex hypothesi being dead
at the time — and there are specific rules which apply only to wills. Tax
considerations are different. These factors, however, do not cause many
differences between the drafting of will trusts and lifetime settlements.
A handful of minor drafting points:
- One refers to the “testator” rather than the settlor. “Testator” will
serve for both sexes and “testatrix” is now obsolete.26
- The perpetuity period runs from the date of the testator’s death.27
- The will has no settlor exclusion clause; for the settlor ex hypothesi
will not benefit from their own will.
25
By exercise of a power of advancement.
26
This is the view of Office of the Parliamentary Counsel Drafting Guidance (October 2010) para.2.4
accessible www.cabinetoffi ce.gov.uk/resource-library/drafting- guidance- offi ce- parliamentary- counsel: “tes-
tator”. . . should . . . be regarded as gender-neutral, despite the existence of testatrix”. That
follows Garner’s Dictionary of Legal Usage, (3rd edn, 2011), entry under “Testatrix”.
27
Sections 6(1) and 20(6) PAA 2009.

– The will is traditionally drafted in the fi rst person, so one refers

to “my trustees” instead of “the trustees”, “my residuary estate”,
etc.; a convention of no significance and not fully adopted in this
book.
– There are conventionally no recitals in wills; these are unneces-
sary in a lifetime settlement, so their omission does not matter. It
follows that there is no testatum (“now this deed witnesses . . .”)
whose purpose is to indicate where the recitals end and the body of
the document begins.
The great distinction in common practice is that a lifetime trust is gener-

ally a lengthy document, drawn up with some care; a will trust is too often
a short document and drawn up without much thought. This is usually
the explanation of deficiencies of wills met in practice, as well as the
routine absence of good drafting techniques, such as a defi nition clause or
the use of a schedule of administrative provisions.28 This practice has been
castigated 29 but still continues. The drafter’s first duty is to produce a will
that suits their client’s needs. However the drafter (and authors of draft-
ing books) must recognise commercial reality and seek to devise forms of
wills which are technically adequate and approach the simplicity that the
client would like to see.
Non-resident trustees
17.11 In very large estates serious consideration should be given to the appoint-
ment by the will of non-resident trustees and (especially where there are
foreign domiciled beneficiaries) non-resident executors.30 This offers the
possibility of substantial tax savings.
28
Perhaps in the past the use of schedules was discouraged by the rule that the will had to be signed
at the “foot or end thereof ”, but that rule has been abolished, and it is now clear that a will may
be signed either before or after the schedule: s.9 Wills Act 1837 as amended by the Administration
of Justice Act 1982.
29
“Trusts appear in wills as well as in lifetime settlements, and of course they need to be drafted
with as much skill and care in either place; yet by tradition, solicitors and public alike seem to treat
settlements as being specialised and difficult and wills as being so easy that they can be drafted
by almost anyone and given away with packets of cornfl akes . . .” (Oerton, “Drafting trusts and
will trusts” (1993) NLJ 143 (6588), p.246.) Will trusts are in fact harder to draft than lifetime
settlements, as the drafter has to look ahead to the time of the death of the testator and cater for
a wider variety of circumstances.
30
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.73 (Estates of
Deceased Person CGT) and Ch.74 (Estates of Deceased Persons IT) accessible www.foreigndomi-
ciliaries.co.uk.

SURVIVORSHIP CLAUSES 277
Survivorship clauses
A survivorship clause is one which provides that the spouse must survive 17.12
the testator by a period (commonly 28 days) in order to benefit under the
will.
These clauses do no harm provided:
(1) The survivorship period is short enough not to delay or hinder

administration. 28 days is usual; six months probably about the
limit; also s.92 IHTA 1984 sets a six month limit or one may lose
the IHT spouse exemption).
(2) The estates of each spouse should contain sufficient assets for each
to utilise their nil rate band.31
But what is the reason for the clause?

The testator’s concern may be that their spouse will survive them, take
under their will, and then die shortly after, so their residuary estate effec-
tively passes under the will of the spouse. But if that is their concern, a
survivorship clause is not a good solution since the spouse may just survive
the 28-day (or whatever) period and then die shortly after, and exactly the
same problem still arises.
Usually testators will be happy that property passes under their spouse’s
will if the testator dies fi rst. Usually the beneficiaries would be the same
whoever dies fi rst.
If the testator is not happy with this (e.g. in cases of remarriage
with separate children from each marriage) then they ought to give the
spouse an IPDI and direct where the capital is to go after death of the
spouse.
For this reason, survivorship clauses are not used in the wills in this
book.
31
Otherwise the NRB of the surviving spouse may be lost. E.g. suppose H has a estate of £1m and
W has nothing. H dies and W dies shortly after, so the gift to W in H’s will fails because of the
survivorship clause. W’s NRB is not utilised. A deed of variation would then be necessary to
solve the problem.
Other (less significant) drawbacks of survivorship clause are (1) it is possible that IHT becomes
payable somewhat sooner because of the survivorship clause and (2) a somewhat esoteric point,
the clause has an IHT disadvantage in the (improbable but not impossible) case where spouses die
in circumstances where it is not know which dies fi rst; see Finney, “Survivorship Clauses”(2009)
Sol Jo 153(11) 14 accessible www.kessler.co.uk. But we would not lose much sleep over those two
disadvantages.

Gift by will to existing trust 32
17.13 The will precedents in this book do not make gifts to existing trusts.
However, such gifts are sometimes made. Some concern has been caused
by the view expressed by one commentator, that one cannot make gifts
by will to existing trusts. The following discussion may therefore be of
interest.
The leading cases in this area are Re Edwards33 and Re Schintz.34 It is con-
sidered that the rules of law which emerge from these cases are as follows:
(1) A testator cannot make a gift by will to trustees to hold on the

terms of a trust made after the will.35
(2) A testator cannot make a gift by will to trustees to hold on the
terms of a trust
(a) made before the will, but
(b) affected by an appointment made after the execution of the
will (and before the testator’s death).36
Whether a particular gift is of this type is a matter of construction.37
If a testator purports to make a gift of this type then the gift might
be entirely void;38 or else it may take effect as a gift to the trustees to
hold on the terms which had effect at the time the will was made
(ignoring the subsequent appointment). In that case the power of
appointment may then remain exercisable after the death of the
testator.
(3) A testator can make a gift by will to trustees to hold on the terms
of a trust made before the will. That trust may confer powers of
appointment exercisable (in relation to the estate of the testator)
32
See also 21.6 (Power to accept additional funds).
33
[1948] Ch 440.
34
[1951] Ch 870.
35
This breaches s.9 Wills Act 1837 (unless the trust is executed with the formalities of a will).
36
Unless the power of appointment is exercised in a way which satisfies the formalities of the Wills
Act 1837, which would require that the testator signed it in the presence of two witnesses. That
is not, of course, the position for powers of appointment in common form. The reported cases
concern powers of appointment exercisable by the testator. But in principle the same should apply
to powers of appointment exercisable by trustees.
37
Suppose the gift is “to the Trustees of the [name] trust, to hold on the terms of that trust”.
It is considered that this clause as worded will result in the gift being held by the trustees on
the terms of the Trust as it stood at the time of the will. For while a will “speaks and takes effect”
from the time of the testator’s death, as far as descriptions of property are concerned, it does not
“speak and take effect” from the time of death for other purposes: see s.24 Wills Act 1837. Thus
the reference in the will to “the terms of the trust” should be taken to mean the terms of the trust
at the time the will was made, so the gift is valid. The cases are reviewed in Thomas on Powers
(2nd edn, 2012), 3.16–3.35.
38
As in Re Jones [1942] Ch 328.

GIFT BY WILL TO EXISTING TRUST 279
after the death of the testator. This is often done. If (while the testa-
tor is still alive) the trustees of a trust make an appointment altering
the terms of the trust, it would be necessary to make a new will.39
This is a trap easily overlooked.
Watch out if a will makes a gift to a trust which holds two or more funds
on distinct terms: remember to specify to which fund the gift is made, or
how it is shared between the funds.
39
Assuming the intention is that the property passing under the will should pass to the terms of the
trust as affected by the appointment.

CHAPTER 18
WILL DRAFTING
Introduction
18.1 This chapter considers:
(1) Transferable nil rate bands (NRB).

(2) What are the most suitable forms of will for different classes of
testator.
(3) The drafting and construction of NRB gifts.
18.2 Basic IHT planning for spouses requires that each should make full use
of the NRB. The NRB for 2012/13 is £325k1 so use of both NRB may
save £130,000 tax.
Section 8A IHTA 1984 allows the transfer of NRBs between spouses
(and civil partners—all references in this chapter to spouses include CPs.)
This relief applies if the surviving spouse dies on or after 9 October 2007.
It does not matter when the fi rst spouse died: all that matters is that the
NRB was not used up on the first death.2 The relief therefore applies to
any surviving spouse living on 8 October 2007.
Classic NRB trusts
18.3 Care has always been needed to ensure that spouses make full use of the
NRB on the death of the first spouse to die. Before the introduction of
1
The F(No.1)A 2010 froze the NRB which was to have increased. The NRB will also not be
linked to rises in the RPI until at least 2015.
2
It is possible to claim the relief even if the fi rst estate was subject to CTT or estate duty. However,
until 21 March 1972, there was no spouse or charity exemption from estate duty and, from 22
March 1972 to 12 November 1974, these exemptions were limited to £15,000 and £50,000
respectively. So even where the fi rst spouse left everything to the survivor or to charity, the NRB
may still have been fully used leaving nothing to transfer.

WILL DRAFTING AFTER THE INTRODUCTION OF NIL RATE BANDS 281
transferable NRBs, this was generally achieved by a NRB discretionary

trust in the will. The standard form was:
(1) A legacy of an amount equal to the NRB made to a discretionary

trust.
(2) Residue to the surviving spouse absolutely or to an IPDI trust for
their benefit.
The surviving spouse was a beneficiary of the NRB trust and so could
continue to benefit from the entire estate. We refer to this as “the classic
NRB trust”.
In order for the NRB trust to have effect, the spouses had to equalise
their estates or at least arrange that each estate held assets of a value equal
to the NRB.
The administration of NRB trusts is complicated, and is discussed in
the next chapter.
Will drafting after the introduction of nil rate bands
Happily, NRB trusts are now redundant in most cases. The introduction 18.4
of transferable NRBs means that the first spouse can leave everything to
the survivor (or to an IPDI trust for the survivor). The survivor’s estate
can take advantage of two NRBs. The NRB of the first to die is not in
principle wasted.
It has been suggested that NRB trusts might be preferable to using the
transferable NRB, but in normal cases their advantages are tenuous:
(1) Classic NRB trusts may be useful where a married couple wants
to create long term trusts (i.e. trusts which will continue follow-
ing the second death). The first to die could leave everything to
the survivor who could then establish a discretionary trust with
a trust fund equal to two NRBs. The NRBs are not wasted on
either death. However, the survivor’s NRB is only increased for
the purpose of the charge to tax on their death. So only one NRB
will be available for the purpose of future IHT charges on the trust
(i.e. the 10-year and exit charges). Two separate NRB trusts would
eliminate any IHT charges in the fi rst 10 years and reduce future
charges. But in practice (like more elaborate planning involving
pilot trusts) we do not expect this will often be worthwhile.
(2) The benefit of the NRB trust will exceed the benefit of the trans-
ferred NRB if the value of the assets held in the trust (or the asso-
ciated debt or charge) is greater than the value of the transferred

282 WILL DRAFTING
NRB at the time of the second death; but predicting these future
values is impossible, so this is not a practical consideration.
Married clients should generally opt for the simpler and cheaper route of
transferable NRBs. So far as possible they should leave their NRB intact
on the first death so it is transferred to the surviving spouse.
How transferable NRBs work
18.5 In short, the amount of the NRB on the death of the second spouse to die
is increased by the percentage of the NRB which was not used on the first
death. The percentage is calculated by:
• taking the NRB in force on the first death; and

• seeing how much of it, expressed as a percentage, was used up by
the first spouse on their death.3
Example:
H dies in 2002/03 when the NRB is £250,000. He leaves £125,000 to his son
and the residue to his wife W.
W dies in 2010/11 when the NRB is £325,000. H only used 50% of
his NRB. The NRB available on W’s death is increased by 50%, that is, to
£487,500.
Same facts save that H left everything to W. H used 0% of his NRB.
The NRB available on W’s death will be increased by 100%, that is, to
£650,000.
The NRB is only increased for the purpose of reducing the charge to
IHT which is payable on the death of the second to die.4 Obviously the
transferred NRB is available for the purpose of reducing the IHT on free
property in the estate of the second to die, but it is also available for:
– failed PETs made by the second to die within seven years of her
death5
3
Section 8A IHTA. HMRC have published tables showing the NRBs for IHT CTT and estate
duty going back to August 1914: www.hmrc.gov.uk/rates/iht-thresholds.htm. Gifts made by the fi rst
spouse to die within seven years of his or her death reduce the NRB in the usual way.
4
Section 8A(3) IHTA.
5
It is not obvious from the statute that this is correct. Tax on a failed PET is not strictly a charge to
tax on the death (even though in the absence of the death there is no charge.) However when the
Opposition (briefed by the Law Society) made the point, Jane Kennedy (Financial Secretary to
the Treasury) stated in Parliament that the wording is “sufficient to encompass lifetime transfers
on which an IHT charge subsequently crystallises on death”; Hansard, 13 May 2008, col.172. That
should be sufficient to resolve the ambiguity.

NRB CLAIMS 283
– settled property in which the second to die enjoyed an estate IP

– property subject to the gift with reservation provisions.
It does not matter whether there were sufficient assets on the fi rst death
to utilise the NRB, so it is not necessary for married couples to equalise
their estates.
NRB claims
A claim must be made for the relief; we refer to this as a “NRB claim”. 18.6
Section 8B(1) IHTA provides:
A claim under section 8A above may be made—

(a) by the personal representatives of the survivor within the permitted
period, or
(b) (if no claim is so made) by any other person liable to the tax chargeable
on the survivor’s death within such later period as an officer of Revenue
and Customs may in the particular case allow.
The NRB claim is normally made by the personal representatives (PRs)
of the second spouse to die though if they fail to do so it could in principle
be made by a beneficiary of the estate or by the recipient of a failed PET.
A NRB claim is made by completion of a form6 which should be sent
to HMRC with the IHT400. The time limit for a NRB claim (the “per-
mitted period”) is usually two years from the end of the month in which
the death of the second to die occurred7 (there is provision for late claims
but this should not be relied on).8
The PRs of the second to die need to provide the following documents
to support their NRB claim: the death certificate of the first spouse to die;
the marriage certificate; a copy of the will; a copy of any deed of varia-
tion; a copy of the grant of probate.
The PRs of the first to die should calculate how much of the NRB is
Relief is not available against tax payable at the time of a lifetime chargeable transfer (but there
is no reason to make such a transfer.)
6
Form IHT402, accessible www.hmrc.gov.uk/inheritancetax/iht402.pdf, which is one of the supple-
mentary pages to the IHT400.
7
“Permitted period” is defi ned in s.8A(3) IHTA:
“In subsection (1)(a) above “the permitted period” means—
(a) the period of two years from the end of the month in which the survivor dies or (if it
ends later) the period of three months beginning with the date on which the personal
representatives fi rst act as such, or
(b) such longer period as an officer of Revenue and Customs may in the particular case
allow.
8
See IHT Manual para.43009 for the circumstances in which HMRC admit late claims.

284 WILL DRAFTING
transferable and ensure that they pass on to the surviving spouse (or their
solicitor) sufficient documents and information to permit the surviving
spouse’s PRs to make a NRB claim in due course. This will include
copies of: the IHT400 return; the deceased’s will; any deeds of variation;
valuations of any assets which pass (under the will or intestacy or in the
case of jointly held property by survivorship) other than to the surviving
spouse; evidence to support the availability of reliefs such as APR and
BPR where the relievable assets pass to someone other than the surviving
spouse.
Solicitors can expect to do much chasing of copy documents for their
long widowed clients! Remember to heed HMRC’s warning about the
importance of looking after one’s documents: “The information and doc-
uments about the claim could be very valuable. . . and it will be important
to keep them safe.”9
HMRC will refuse to agree the amount of the transferable NRB at
the time of the first death.10 HMRC may therefore reopen valuations/
eligibility for reliefs at the time of the second death.11
Transfer of NRB in cases of remarriage
18.7 Where one spouse dies and the surviving spouse remarries, it is possible to
acquire the NRBs of more than one deceased spouse. However this only
applies up to a limit of one additional NRB.
Example:
H1 dies leaving everything to his wife W. W thus acquires a 2nd NRB.

W marries H2.
W dies in 2012/13. W left £325k to her son and residue to H2. The NRB
available on the death of H2 will be increased by 100% to £650,000.
Same facts save that W left everything to H2. The NRB available on the
death of H2 will be increased by 100% to £650,000. Half the double NRB of
W (representing the NRB of H1) is wasted.
Two NRB claims are needed: (1) a claim on the death of W and (2)
a claim on the death of H2. The NRB claim on the death of W may in
some cases be made late (at the time of the death of H2)12 but it would
be better practice to make that NRB claim at the time of the death of W.
9
See HMRC’s “Transferable nil rate bands – Frequently asked questions” accessible http://iht216.
co.uk/tnrb-faqs.pdf.
10
IHT Manual para.43062.
11
Section 274 TCGA 1992.
12
Section 8B(2) IHTA.

UNTRANSFERABLE NRB PROBLEMS 285
Untransferable NRB problems
The rule that one is not allowed more than two NRBs raises various 18.8
problems when spouses have remarried, which we call “untransferable
NRB problems”. Consider the following cases:
Testator (“T”) Spouse (“W”)

Case 1 One NRB Two NRBs
Case 2 Two NRBs One NRB
Case 3 Two NRBs Two NRBs
Case one: T has one NRB and W already has two NRBs
If T gives his entire estate to W (not using his own NRB) then all his
own NRB is entirely wasted. The position is exactly as in the bad old days
before transferable NRBs.
In this case the best form of will for T is a legacy of the single NRB
to a classic NRB trust, with a gift of residue to W (or to an IPDI for her
benefit). In this way T uses his NRB which is otherwise lost. T and W
must equalise their estates (or at least make sure that T has assets to use
his NRB).13
The above is a slight simplification: in many cases W will have more
than one but less than two full NRBs.14 So the best form of will for T is
a legacy to the NRB trust which uses up the untransferable NRB (which
may be the entire NRB amount or something smaller); and the residue is
given to W (so as to top up her NRB to a double NRB.)
Case two: T has two NRBs and W has one NRB
If T gives his entire estate to W (not using his double NRB) then half of
his double NRB is wasted. The position is similar—not identical—to the
bad old days before transferable NRBs.
In this case the best form of will is for T to make a legacy equal to the
single NRB to a classic NRB trust, with a gift of residue to W or to an IPDI
for her benefit. In this way one half of T’s double NRB is used by the gift
to the trust and the other half is used by the transfer to W who will acquire
13
An alternative is to make simple gifts of the single NRB to the children absolutely. This avoids
the hassle of the classic NRB trust. It is only satisfactory if W is sufficiently provided for and the
children are fi nancially competent to receive the money.
14
That is, only part of the NRB of W’s former spouse may have been transferred to W, either
because the will of W’s former spouse made other gifts chargeable to IHT or because W’s former
spouse made lifetime chargeable gifts within seven years of death (failed PETs).

286 WILL DRAFTING
a double NRB.15 As above, T and W must equalise their estates (or at least
make sure that T has the assets needed to make the gift to the NRB trust).
In many cases T will have more than one but less than two full NRBs.
In that case the best form of will for T is a legacy to the NRB trust which
uses up the untransferable NRB, and the residue is given to W (so as to
give her a double NRB).
Case three: T and W each have two NRBs
If T gives his entire estate to W, all of his double NRB is wasted. The
position is comparable—but not identical—to the bad old days before
transferable NRBs.
In this case it is not immediately obvious what is the best form of will.
The best solution will generally be for T to give a legacy equal to the
double NRB to a classic NRB trust, with a gift of residue to W or to an
IPDI for her benefit. In this way the double NRB of T is fully used. As
above, T and W must equalise their estates (or at least make sure that T
has assets to use his double NRB).
In many cases T and W will each have more than one but less than two
full NRBs. In that case the best form of will for T is a legacy to the NRB
trust which uses up the untransferable NRB (which may be the double
NRB amount or something smaller); and the residue is given to W (so as
to top up her NRB to a double NRB).
The double NRB 10-year charge problem
The drawback is that the NRB trust (which will hold assets up to the
amount of the double NRB) will suffer a small 10-year charge on the 10
year anniversary of the death of T.16 We refer to this as the “double NRB
10-year charge problem”. But the amount of that charge will not be
significant compared to the future IHT saving on the death of W.
One way to avoid the 10-year problem is:
(1) to make simple gifts of a single NRB to the children absolutely, and
(2) to give a legacy equal to the single NRB to a classic NRB trust.
Of course it is only satisfactory if W is sufficiently provided for and the

children are fi nancially competent to receive the money.17
15
As above, an alternative is to make simple gifts of a single NRB to the children absolutely.
16
In short, the NRB trust does not enjoy the benefit of a transferred NRB. So a trust with £650k
assets anticipates a 10-year charge at an effective rate of 3%, = £19,500 tax (at 2012/13 rates). The
use of lifetime pilot trusts may avoid the double NRB 10-year charge problem, but the amounts
involved could only barely justify the additional trouble and cost.
17
As above, an alternative is to make simple gifts of the double NRB amount to the children
absolutely.

CHOICE OF WILL TRUSTS: OVERVIEW 287
It is suggested that the standard will in this case ought to ignore the
double NRB 10-year charge problem and give the full double NRB
legacy to a NRB trust. If appropriate, a post-death appointment under
s.144 IHTA within two years of the death can distribute some or all of
the fund of the NRB trust. Part II of this book contains a precedent
reducing a double NRB legacy to a single NRB legacy: Form NRB
Appointment 4.
Why not use a Deed of Variation?
Another solution for estates with an untransferable NRB problem is to

give the estate to the surviving spouse absolutely. Of course the survivor
could make a deed of variation after the death, so as to use the NRB.
However this is slightly risky: for various reasons the survivor may not
make (or may be unable to make) the necessary arrangements.18 It would
be safer to make the NRB gift by will. In practice we suspect it will
often happen that the entire estate is given to the surviving spouse, and
the matter will have to be put right by a deed of variation. Where the
exact IHT position is not known for certain when the Deed of Variation
is executed, the documentation should employ a formula similar to that
used in the draft wills in this book.
Commentary: let’s abolish untransferable NRB problems
The introduction of transferable NRBs in 2007—a reform which this

book advocated for many years—is very welcome. It is unfortunate that
sometimes NRBs remain untransferable and NRB trusts continue to be
needed for most testators who remarry after the death of their first spouse,
and for spouses of those testators. The removal of the double NRB limit
would be a useful simplification of the law. The only objection to this
reform can be the loss of tax paid by the estates of those unaware of (or
who choose not to take advantage of ) existing possibilities for tax plan-
ning. IHT payable on the second NRB of a remarried testator may fairly
be described as a voluntary tax.
Choice of will trusts: overview
There are nine forms of will trust which will usually be the most satisfac- 18.9
tory choices in any normal but reasonably substantial estate:
18
A further problem is that a trust made by deed of variation is within the scope of s.624 ITTOIA
2005, the IT settlement provisions. However, this problem would not affect typical NRB trusts
as the NRB trust usually has no income; and even in other cases it does not greatly matter if the
settlement provisions apply. Indeed, it will often be better if they do apply.

288 WILL DRAFTING
(1) Discretionary will trust. This is the most suitable form for a testator
who is single. It can within two years of death be converted into
any other form of trust. Will 1 of the Precedents.
(2) Life interest for spouse. This is generally the best form for a
married testator. It allows full transfer of the NRB. Will 2 of the
Precedents.
The next two wills contain alternative provision for the children in the
event that the spouse does not survive:
(3) Residue to spouse absolutely or to discretionary trust (if no spouse). Better

than will 4, the discretionary trust which arises (if there is no sur-
viving spouse) can be converted into any type of trust within two
years of death. Will 3 of the Precedents.
(4) Residue to spouse absolutely or to life interest trust (if no spouse). This
form is appropriate where the children are not competent to
receive the entire estate and for larger estates in that it avoids the
10-year and exit charges. Will 4 of the Precedents.
The next four wills are for a testator who faces the untransferable NRB
problem:
(5) Absolute gift of untransferable NRB; life interest in residue for spouse. This
form is appropriate for a testator facing the untransferable NRB
problem if:
(a) the family assets are sufficiently large that the surviving
spouse does not need access to the untransferable NRB; and
(b) the beneficiaries who receive the untransferable NRB gift
(typically the testator’s children) are adult and settled in life
so it is appropriate to give them the sum absolutely.
Will 5 of the Precedents.
(6) Classic NRB trust for untransferable NRB; life interest in residue for
spouse. This form is appropriate for a testator facing the untransfer-
able NRB problem if it is not appropriate to give the testator’s chil-
dren the untransferable NRB absolutely or residue to the surviving
spouse absolutely. Will 6 of the Precedents.
(7) Classic NRB trust for untransferable NRB; residue to spouse absolutely.
This is an alternative to form (6) where the testator:
(a) has a smaller estate; or
(b) wants simplicity; or
(c) where it is desired to create an IPDI for the next generation(s).

BEST FORM OF WILL FOR SINGLE TESTATOR 289
(If the spouse has an IPDI, as in will (6), a subsequent interest

in possession does not qualify as an IPDI.)
(8) Classic NRB trust for untransferable NRB; residue to spouse absolutely
or to discretionary trust (if no spouse). Better than will 7, though more
complex, this provides appropriate flexibility if the spouse does not
survive. This is generally the best form if the family is united and
it is appropriate to give the surviving spouse an absolute interest.
Lastly for the single testator:

(9) Classic NRB trust; residue to cohabitee absolutely. Will 9 of the
Precedents.
Best form of will for single testator
The best form of will where a testator is single, and wishes to benefit 18.10
their family or other individuals, is generally a discretionary will trust of
the entire residuary estate. This allows the decision what to do with the
property to be made after the death.19 So long as s.144 IHTA 1984 remains
in force, the testator need not in principle revise their will to take into
account changes in circumstances or tax law. This is even more impor-
tant following the FA 2006, since the current state of the law cannot be
regarded as stable. We would regard this as preferable to an IPDI and far
preferable to an Age 18-to-25 trust. The drafting is straightforward: see
Will 1 in the precedents.
A possibility for a cohabitee is a classic NRB trust with an absolute gift
of residue to the testator’s partner: see Will 9 in the precedents. Classic
NRB trusts may be useful where it is desired to make provision for
unmarried cohabitees or relatives. The transferable NRBs do not apply
in this case. IHT is in principle payable on the first cohabitee’s death.
The advantage of a will creating a NRB trust is that it avoids or reduces
“bunching”—the additional IHT payable on the second death which
would arise if the first cohabitee gives everything by will to a benefici-
ary.20 Of course the same result can be achieved by a simple discretionary
will trust followed later by a deed of appointment.
One could save more IHT on the second death by giving more than the
nil rate sum to the discretionary trust, and indeed one would normally
save the most by giving the entire estate to the discretionary trust. But
19
Section 144 IHTA 1984.
20
This applies to an absolute gift or a gift to an IPDI trust.

290 WILL DRAFTING
then the discretionary trust does itself become subject to 10-year charges.
Where the balance of advantage comes beyond a NRB gift will depend
on many factors: obviously values and life expectancy of the cohabitee are
the key factors, but there are other matters, such as cash flow, administra-
tion costs, and the completely unforeseeable issue of what the law will be
at the time of the second death. So the NRB trust should be the starting
point, because that costs nothing (beyond modest administration costs).
Best form of will for testator who is married or a civil partner
18.11 Where the testator is married, a discretionary will trust of the residuary
estate is not usually21 the best choice, as:
(1) The process of obtaining probate is easier if the surviving spouse

has an IPDI in the entire estate.22
(2) The almost inevitable execution of a deed of appointment involves
additional legal work and expense.23
21
There are special cases where the flexibility of a discretionary trust is useful, in particular, where
an estate has agricultural or business property: 18.21 (Married testator with business or agricul-
tural property).
22
Under a discretionary will trust IHT must be paid up front in order to obtain probate; and the
tax is then reclaimed after execution of the appointment in favour of the spouse.
Occasionally in practice the IHT Account is completed on the basis that an appointment in
favour of a spouse will be made and IHT is not paid up front. In the past this led to no worse
sanction than admonition: (“I trust you will take note of this for future cases”: CTO General
Examination Manual, Vol.2, reference SL 64). This practice is not mentioned in the present IHT
Manual. But correct practice should be followed, since otherwise (i) the solicitor involved is
submitting an incorrect return, which should never be done knowingly; and (ii) there remains a
risk of penalties if the appointment is not made because (say) the surviving spouse unexpectedly
dies.
This problem can in principle be avoided by an appointment creating an IPDI executed before
obtaining probate. See s.144(3) IHTA 1984. An appointment before probate is in principle pos-
sible as a matter of trust law. HMRC accept this: see IHT Manual para.35181.
It is not necessary to wait three months from the death of the testator before creating an IPDI.
The “three month trap” survives in an attenuated form as it remains necessary to wait three
months:
(1) In order to obtain the IHT spouse exemption on an absolute appointment to a spouse; or
(2) In order to obtain IHT charity relief on an appointment to charity.
If an absolute appointment to a spouse or charity is made within three months, no IHT relief
is available. See s.144(1) IHTA 1984, as (somewhat over-literally) construed in Frankland v IRC
[1997] STC 1450.
23
For completeness we would add: (3) Further problems can arise if the surviving spouse dies before
the execution of a deed of appointment. That will give rise to additional IHT if the circumstances
are that (a) the fi rst to die has an estate in excess of the NRB; and (b) the surviving spouse does
not. After the death of the spouse it is not possible to make an appointment under s.144 IHTA.
(There may be a solution to this problem if it arises: (1) the trustees appoint the estate to a ben-
eficiary; (2) the beneficiary varies the estate in favour of the deceased spouse under s.142 IHTA.
But that is not entirely straightforward and it is best not to have to go down that route.)

WILL FOR TESTATOR WHO IS MARRIED OR A CIVIL PARTNER 291
The most appropriate form of will for a testator who is married is in prin-
ciple as follows:
Either:
(1) Absolute gift of the entire estate to the surviving spouse. Will
forms 3 or 4.
Or:
(2A) Personal chattels to the surviving spouse absolutely; 24

(2B) Residue to pass to will trust under which:
(a) the spouse has an IPDI;
(b) subject to that there is a discretionary trust. Will form 2.
In either case:
(1) There is no IHT on the death of the testator if the spouse survives
him or her.25
(2) The surviving spouse acquires the testator’s available NRB.
At first sight, it seems that each route has advantages and disadvantages:
(1) The main advantage of an absolute gift to a spouse is that the sur-
viving spouse can create a discretionary will trust under section
144 IHTA 1984 so that:
(a) the trustees can review the situation as at the time of the
death of the surviving spouse with a two year leeway;
(b) the trustees can create an IPDI in favour of children/grand-
children.26 A grandchildren’s IPDI takes property out of the
scope for IHT for two generations, which is as far as anyone
can look ahead.
24
This is normally the most convenient course but the position will need to be reviewed if the
chattels include particularly valuable items. The Law Commission have recommended that there
should be a revised and simplified statutory defi nition of “personal chattels” (Intestacy and Family
Provision Claims on Death, Consultation Paper no.191, Oct 2009, para.3.124) but it is considered
best to continue to use the current statutory defi nition for the present.
25
Section 18 IHTA 1984 (spouse exemption). This exemption is restricted if a UK domiciled
testator makes a gift to a foreign domiciled spouse: s.18(2). See on foreign domiciliaries gener-
ally Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012) accessible www.
26
See 18.10 (best form of will for single testator). Alternatively of course the spouse could create
the IPDI directly, but that is not so flexible.

292 WILL DRAFTING
But this assumes that the testator can accept the property law con-
sequences of allowing their spouse absolute ownership.
(2) An IPDI for the surviving spouse avoids that property law problem,
so the surviving spouse cannot consume the capital or prevent it
from passing as the testator wants on her death. This is also better
for compulsory care charges. But there are significant tax draw-
backs where the spouse is given an IPDI:
(a) The next generation(s) cannot have an IPDI under the same
trust.27
(b) No relief is available under s.144 IHTA 1984 on the spouse’s
death. So if the will creates a discretionary trust after the
spouse’s death (normally the best course) the executors will
have to distribute within three months of the death (not two
years) if they wish to avoid an exit charge.28
In fact, however, if the will creates an IPDI, the executors can review the
position after the death of the testator. If appropriate they can still appoint
the trust property to the surviving spouse absolutely.29 That is, route (2)
allows us the option to return back to route 1 if desired at or shortly after
the time of the first death. The choice may not be easy, but at least it is
deferred and maybe by then the law may have become more sensible and
eventually we hope and expect to see an IHT regime which does not
penalise the use of trusts.
A will creating an IPDI is therefore the more flexible, and so the better,
option. The form is Will 2.
Where untransferable NRB problems arises, classic NRB trusts remain
useful for a married testator.
27
Conferring a general power of appointment on the spouse/life tenant will solve this problem as
this avoids the CGT charge on terminating a trust, and the interest created under the general
power is an IPDI. HMRC accept that: STEP/CIOT Statement October 2008 Question 15, acces-
sible www.step.org. However this is a complicated solution.
28
There is also the danger that the 10- year charge may occur shortly after the death of the spouse
since the date of the 10-year anniversary runs from the date of the fi rst death, not the date of the
death of the surviving spouse. That would be a proportionate charge for the period from the death
of the surviving spouse but may still be unwelcome.
29
There is no CGT cost in this if it is done during the administration period as the beneficiary
acquires “as legatee”: see s.62 TCGA 1992. If the property is transferred from the IPDI trust
to the surviving spouse absolutely after the end of the administration period, there is a disposal
for CGT purposes, see s.71 TCGA 1992, which may give rise to a CGT charge. But conferring
a general power of appointment on the spouse/life tenant will solve this problem as this avoids
the CGT charge on terminating a trust, and the interest created under the general power is an
IPDI. HMRC accept that: STEP/CIOT Statement October 2008, Question 15, accessible www.
step.org.

PROVISION FOR CHILDREN IF THE SPOUSE SURVIVES 293
Married testator: provision for children if the spouse survives
What if the testator does not wish to give their spouse the entire estate or 18.12
an IPDI in the entire estate? The testator may want to provide benefits
on their death to his or her children (or other chargeable beneficiaries i.e.
not the spouse or UK charities). The usual case is where the testator has
remarried and wishes to make substantial gifts to the children from his or
her first marriage.
The simple course is a direct gift by will to the children. If the amount
of the chargeable gift is less than the available nil rate band, this is satis-
factory and although slightly less than ideal30 it will generally be the best
course as it is the simplest.
If the amount of the gift is more than the available nil rate band,
this course should be avoided as it gives rise to unnecessary IHT on
the death of the testator.31 There are two better ways to deal with this
situation:
(1) The testator may give a short IP to their spouse (e.g. to pay income
to her for three months) and subject to that for (say) the children
absolutely.
(2) Alternatively the testator could give a revocable life interest to the
spouse and leave a letter of wishes requesting the trustees to make
an appropriate appointment in favour of (say) the children.
In either case:
(1) There will be no IHT on the death of the testator if the spouse
survives him/her as the IHT spouse exemption will apply.32
(2) The termination of the interest of the surviving spouse later will (if
the drafting is right) be a PET.
Either of solutions (1) and (2) is satisfactory and it does not matter much
which is chosen. The former solution is suggested where smaller sums are
involved and the latter where larger sums are involved because it gives
30
The gift will have the effect of reducing the NRB which can be transferred for use on the surviv-
ing spouse’s death. It would be (slightly) better to make a gift of the entire estate to the spouse,
transferring the NRB to her; and the spouse makes gifts to the children (which would be PETs).
But in practice the advantage is not usually worth the complication involved.
31
If this bad form of will is made it is possible to put matters right by a deed of variation, but this
may involve a good deal of legal work and expense.
32
Section 143 IHTA 1984 will not override the IHT spouse exemption: Harding v IRC [1997] STC
(SCD) 321. The only complication is the loss of the NRB of the surviving spouse if she dies
within seven years of the PET: see 30.12 (Arrangements for loss of NRB in case of death within
seven years).

294 WILL DRAFTING
more flexibility. That course does however require the testator to rely
wholly on their executors.
A simpler solution (for a united family) is to give the entire estate to
the spouse absolutely and for the spouse to make gifts to the children.
However:
(1) This does of course require the testator to rely wholly on their
spouse.
(2) Section 143 IHTA raises a problem. This provides:
Where a testator expresses a wish that property bequeathed by his will
should be transferred by the legatee to other persons, and the legatee
transfers any of the property in accordance with that wish within the
period of two years after the death of the testator, this Act shall have
effect as if the property transferred had been bequeathed by the will
to the transferee.
Thus if the testator expresses a wish, and the spouse acts on it within two
years, IHT is charged as if the gift were made by the testator (with con-
sequent loss of the NRB) and if the values exceed the NRB a charge to
tax on the death of the testator. One could avoid this problem by waiting
two years, but that postpones the date when the seven year PET period
begins to run.
Married testator: provision for children if the spouse does not

survive
18.13 There are three ways to provide for children of a testator with no spouse
at the time or his or her death:
(1) Absolute gift of the entire estate to the children;

(2) Residue to pass to will trust under which the children have IPDIs
(Will 3 of the precedents);
(3) Discretionary will trust of entire residuary estate (Will 4 of the
precedents).
The choice will not affect the IHT on the death of the testator since the
IHT spouse exemption is in any case unavailable. Solution 1 (absolute
gift) is the simple course. But it may not be appropriate for the children
to receive an absolute interest (for example, if they are too young or their
financial or matrimonial position is unsettled). Solution 2 (IPDI trust) is
then a better solution. The children cannot consume the capital or prevent
it from passing as the testator wants on their death. The IHT and CGT

STATEMENT OF INTENTION NOT TO MAKE MUTUAL WILLS 295
advantages and disadvantages are discussed in 17.4 (Why use IPDI trusts)?
However, we regard solution 3 (discretionary trust) as generally the best
solution. It gives the trustees flexibility to decide within two years of the
death how best to proceed: s.144 IHTA 1984. The correct choice will
depend on life expectancies and values. For smaller estates (especially those
under the single NRB), the standard IHT 10-year and exit charges are not
harsh and CGT hold-over relief is, unlike for IPDI trusts, available on the
termination of the trust.
Statement of intention not to make mutual wills
Mutual wills are wills which a couple agree to make in a certain form 18.14
and not to revoke without notice to the other, so that after the death of
the fi rst to die the survivor is bound by that agreement. This imposes
a constructive trust upon the survivor (and their estate on their death)
but the property subject to that trust and the obligations arising under
it are in many respects unclear.33 We would recommend that couples
do not make mutual wills given the uncertainty and inflexibility they
create.
Couples frequently make wills in mirror terms which are not intended
to be mutual. In order to reduce the scope for post-death disputes,34 we
recommend that where wills are made at the same time in similar form,
they should record that they are not intended to be mutual. A suitable
clause is included in our will precedents.
There are many possible ways to express the point. Our suggested
wording is:
“My Spouse and I are free to revoke our wills at any time”
The words “including after the first of us dies” could be added but this is
unnecessary.
An alternative is:
“My Spouse and I have made wills in mirror terms but we do not intend them
to be mutual wills”
We prefer our wording for the following reasons:
(1) There is no requirement that both testators actually make a will.
33
Rimer L.J. described them as anomalous and unprincipled as cited by Norris J. in Re Walters, Olins
v Walters [2008] WTLR 339 at [8].
34
For recent examples, see Olins v Walters [2009] Ch 212, Charles v Fraser [2010] WTLR 1489 and
Fry v Densham-Smith [2010] EWCA Civ 1410; see also Hughes, “Mutual Wills” [2011] PCB 131.

296 WILL DRAFTING
It is only necessary that the first to die leaves a will in accordance

with the mutual wills agreement.
(2) It is unnecessary that the wills are in mirror terms. The agreement
is binding if the testators agree to make wills in a certain form.
(3) The reference to “mutual wills” does not alert the layman to the
significance or intended effect of the clause. One could add the
words “so the survivor is free to revoke their will” to solve this
problem but we prefer the simplicity of our version.
Another method would be for there to be a side letter signed by the testa-
tors, but it is more convenient to put it in the wills and so avoid an addi-
tional document.
Will providing accommodation for friend, relative or cohabitee

for life; residue to other chargeable beneficiary
18.15 Suppose:
(1) a person (“the testator”) owns a property35 which is occupied by a

friend or relative (not a spouse) (“the friend”). The testator wishes
to ensure by will that the friend continues to be entitled to occupy
the property during the friend’s life.
(2) The residuary estate passes to another chargeable beneficiary (i.e.
not a spouse or a charity, but (say) a child of the testator). (The
position where the residuary estate passes to a non-chargeable ben-
eficiary is discussed in the next section).
There is no single simple satisfactory solution here: it depends on the facts.

A simple solution is to give the friend an IPDI in the property. There
is a charge to IHT on the death of the testator and on the death of the
friend.36 If the friend is young, this is not much of a concern as the second
IHT charge is remote. If the friend is old, however, the double IHT
charge is very much a concern.
An alternative solution is to give the property to a discretionary trust.37
This is satisfactory if the value of the testator’s interest in the property is
within the NRB. Otherwise this may also be expensive for IHT purposes
35
We assume for simplicity that the testator owns all of the property, but the same applies if the
testator owns a share in the property jointly with the friend.
36
Quick succession relief may be available under s.141 IHTA 1984, but that relief is not generous.
37
Take care that the relative does not have an interest in possession, which would be an IPDI: see
SP 10/79.

WILL PROVIDING ACCOMMODATION FOR RELATIVE OR COHABITEE 297
because there will be 10-year and exit charges which may be substantial.
However the older the friend, the less of a problem since one can expect
the discretionary trust to be wound up sooner. Whether this is satisfactory
depends on the values and the age of the survivor at the time of the death,
but the position can be reviewed at the time of the death and if necessary
an appointment could be made under s.144, so this is our favourite solu-
tion. The choice of executors is important, obviously, given the potential
for confl ict and a letter of wishes would be appropriate.
An alternative solution is to divide the property into two shares:
(1) give a share in the property to a discretionary trust equal in value

to the NRB and
(2) give the balance to the friend absolutely.
That avoids the 10-year and exit charges (so far as the value of the property
exceeds the NRB at the time of the anniversary) but gives more to the
friend that the testator might like.
Another possible solution is for the will to grant the friend a lease for
a fi xed number of years (not a lease for life, which would be a settle-
ment for IHT purposes). One would need to estimate the friend’s life
expectancy, erring on the side of caution. Ideally the lease will be under
21 years, to avoid rights of enfranchisement. The freehold (subject to that
lease) might be held by the residuary estate or in a separate discretionary
trust.
Will providing accommodation for relative or cohabitee; residue

to spouse or charity
Suppose: 18.16
(1) a person (“the testator”) owns a property38 which is occupied by a

friend or relative (not a spouse) (“the friend”). The testator wishes
to ensure by will that the friend continues to be entitled to occupy
the property during the friend’s life.
(2) The residuary estate passes to an exempt beneficiary (i.e. a spouse
or a charity).
The gift of the property to an IPDI or discretionary trust will give rise to
IHT on the death of the testator, losing the benefit of the spouse or charity
38
We refer for simplicity to the property, but the same applies if the testator owns a share in the
property jointly with the friend.

298 WILL DRAFTING
IHT exemption.39 The grant of a lease by will to the friend will also lose
the benefit of the spouse or charity IHT exemption.
If the friend is old, a better solution is:
(1) The will gives a cash sum to the friend or to an IPDI trust for their
benefit; the amount of the cash sum is equal to the value of a lease
for life in the property.
(2) The will contains appropriate provisions to enable the friend (or
trustees of an IPDI trust) to purchase a lease for life from the
executors.
Since the lease for life is purchased for full consideration, it is not a settle-
ment for IHT purposes. There is a SDLT cost and an income tax charge
on the grant of the lease for life,40 but that will be far less than the IHT, if
the friend is sufficiently old (i.e. her life expectancy is not too great.) At the
risk of further complications, one could combine this with a discretionary
trust in case the friend dies within two years of the testator.
The nil rate formula
18.17 It cannot be known what the nil rate band will be at the time of the death;
or how much of it will be available in the circumstances of the testator.
Since testators do not want to review their wills each year, a normal prac-
tice when NRB gifts are made (e.g. gifts of untransferable NRBs) is to
quantify a NRB legacy by a formula to equal the available NRB. This is
easy enough in principle:
“The Nil Rate Sum” means the maximum amount of cash which I can give on
the terms of the Nil Rate Fund without incurring any liability to Inheritance
Tax on my death.
The difficulty with the formula is its uncertainty. Quite apart from the
possibility of a transferred NRB, discussed below, the NRB might be
increased substantially: in their 2007 party conference the Conservatives
proposed to increase it to £1m, and in 2007 the Liberal Democrats pro-
posed £500,000 with a 15-year cumulation period (although neither
reform seems likely in the short-term).41 The NRB might be substantially
reduced. So the will should be drafted so that it still works satisfactorily
39
If the value of the property is less than the NRB, then no IHT is due but then the loss of the
transferrable nil rate band may also be expensive on the death of a surviving spouse of the testator.
40
See s.277 ITTOIA 2005.
41
In addition, the nil rate sum may effectively increase if the testator owns business or agricultural
property at the time of his or her death, or if the testator acquires a foreign domicile.

THE NIL RATE FORMULA 299
even if the amount of the nil rate sum turns out to be substantially more
or less than expected. This is best achieved in the following manner:
(1) A nil rate legacy should be given to a discretionary trust for the benefit
of all the family of the testator. Except in very substantial estates, where
the spouse would not need the nil rate sum, it should not be given
to the children absolutely, or to a trust for the benefit of the family
excluding the spouse. Thus no member of the testator’s family need
be prejudiced by an unexpected increase in the nil rate band.
(2) Other legacies in the will should be given priority to the nil rate
sum. Thus other legatees will not be prejudiced by an unantici-
pated increase in the NRB.42
The nil rate sum is therefore defi ned in the following manner:
(1) “The Nil Rate Sum” means the maximum amount of cash which I
can give on the terms of the Nil Rate Fund without incurring any
liability to Inheritance Tax on my death, but subject to the follow-
ing clauses.
(2) The Nil Rate Sum shall be nil if:
(a) Inheritance Tax has been abolished at the time of my death;
or
(b) I am not married43 at the time of my death; or
(c) The amount of the Nil Rate Sum would otherwise be less
than £5,000.
(3) Any other legacy given by my will or any codicil shall be paid in
priority to the Nil Rate Sum.
RSPCA v Sharp44 concerned a NRB gift in slightly non-standard form.

The will gave the residuary estate to a charity subject to two gifts:
1. A NRB gift to individuals: “I give the amount which at my death

equals the maximum which I can give by this my Will without
Inheritance Tax becoming payable in respect of this gift . . .”
2. A gift of land worth £169k to individuals.
As anticipated in the 10th edition of this book, the Court of Appeal

42
An alternative is to put a cap on the formula, so the amount given will not exceed a specified
amount.
43
If the testator is a civil partner say: “I am not a Civil Partner at the time of my death”. Of course
paragraph (2)(b) is not appropriate for a cohabitee.
44
[2010] STC 553. For discussion of a will making a nil rate band gift to an individual, residue to
charity, see 18.24 (Best forms of will making substantial gifts to UK charity).

300 WILL DRAFTING
(reversing the Judge) held that the will made a gift of the NRB remain-
ing available after allowing for the second gift (£300k-£169k = £131k).
This was the correct construction because (among other reasons) IHT did
“become payable”—£112k in amount—and it did so, in part, “in respect
of ” the NRB gift.
The position would have been clearer if the drafter had used the form
of this book, because the maximum amount of cash which could be given
without incurring “any liability to IHT” could only be the net amount.
To reduce the Nil Rate Sum to the untransferable Nil Rate Sum, we
say:
(1) “The Untransferable Nil Rate Sum” means the maximum

amount of cash which I can give on the terms of the Nil Rate Sum:
(a) without incurring any liability to Inheritance Tax on my
death; and
(b) without reducing the amount by which the Nil Rate Band
applicable on the death of my Spouse would (apart from this
clause) be increased under section 8A Inheritance Tax Act
1984,
but subject to the following clauses.
(2) For the purposes of computing the amount of the Untransferrable
Nil Rate Sum it shall be assumed that any claim which may
increase the Untransferable Nil Rate Sum shall be made; 45 and
(3) For the purposes of computing the amount of the Untransferrable
Nil Rate Sum it shall be assumed that my Spouse will not remarry
or enter into a civil partnership after my death.46
45
That is, one must assume that the PRs of the surviving spouse will make any possible claim for the
transferable NRB. In the absence of this sub- clause, the executors of H might say that they should
wait and see if a claim is made after W’s death. They may say that they will not know whether
the NRB is increased until after her death. If no claim is made, there will be no increase without
a claim and it cannot therefore be known whether the untransferable NRB problem arises. This
sub- clause precludes that argument by requiring the executors to assume that a claim will be
made on W’s PRs. It allows the executors to compute the Untransferable Nil Rate Sum without
worrying about whether a claim is made and the effect that might have on the computation.
46
This addresses the position if (1) H1 makes a NRB gift by his will. (2) W has not previously
married, so (one would think) has only one NRB. So far this is straightforward. (3) W then
swiftly marries H2, say, while the estate of H1 is in the course of administration. (4) H2 dies, say,
while the estate of H1 is in the course of administration, and leaves his entire estate to W.
In the absence of this sub- clause, could the executors of H1 say that the estate of W has a double
NRB (because of the death of H2) so that there is an untransferable NRB given to the NRB trust
after all? If that is right, perhaps the executors of H1 could or should wait (maybe indefi nitely)
and see if W remarries. They may say that they will not know what is the NRB until the death
of W. This sub- clause precludes that argument by requiring the PRs to assume that W will not
remarry. This assumption is not a restriction on remarriage, it merely allows the executors to
compute the Nil Rate Sum without worrying about whether W might remarry and the effect
that might have on the computation.

CONSTRUCTION OF TRADITIONAL NRB FORMULA 301
(4) My executors shall make a claim under section 8B Inheritance Tax

Act 1984.
In the case where a testator with a double NRB wishes to create a NRB
trust of a single NRB add:
(5) The Nil Rate Sum shall not exceed the Nil Rate Band Maximum
at the time of my death. “The Nil Rate Band Maximum” here
means the amount shown in the second column in the first row of
the Table in Schedule 1 Inheritance Tax Act 1984 (upper limit of
portion of value charged at rate of nil %) and in the fi rst column in
the second row of that Table (lower limit of portion charged at next
rate).47
The amount of the Nil Rate Sum may be uncertain because:
(1) the testator may make a gift of an asset (within seven years of their
death) the value of which is uncertain; or
(2) the testator may make gifts where it is unclear whether an IHT
relief applies (such as the normal expenditure exemption or busi-
ness property relief ).
It is suggested that the executors should have power to determine the issue
for the beneficiaries and the following precedent is based on s.22(3) TA
1925:
My executors may ascertain and fi x the amount of the Nil Rate Sum so as to
bind all persons interested under this Will if the executors have discharged the
duty of care set out in section 1(1) Trustee Act 2000.
Construction of traditional NRB formula where transferable

NRB applies
Suppose: 18.18
(1) A testator (“T”) has a double NRB, because T’s first spouse
(“W1”) predeceased T and left her entire estate to T.
(2) T married W2.
(3) T leaves a will in the form in the 8th edition of this book (a stand-
ard pre-2008 form) giving a legacy (“the NRB legacy”) to a NRB
47
The drafting is based on s.8A(7) IHTA.

302 WILL DRAFTING
trust of “the maximum amount of cash which I can give on the terms of the
Nil Rate Fund without incurring any liability to Inheritance Tax on my
death”; and the residue to W2 (or to an IPDI for W2).
Effect of NRB claim
Assume that T’s executors make a NRB claim. What is the amount of the
NRB legacy? Is it the amount of the single NRB or the double NRB?
The answer is that it is the amount of the double NRB, for that amount is
“the maximum amount of cash” which T can give to the trust.48 HMRC
agree with this view.49
In the drafting of T’s Will one should say this expressly, not for the
avoidance of doubt (for we see little room to doubt) but to save the reader
from having to ask the question.
The power to make a NRB claim
In this situation the decision to make a NRB claim is very significant: the
claim does not affect the amount of IHT payable on the death of T (there
is none either way) but it doubles the size of the NRB legacy (received
by the NRB trust) and correspondingly decreases the residuary estate
(received by the widow).
In general, a claim can only be made by the PRs of T.50 In the absence
48
This is confi rmed (if confi rmation is needed) by consideration of s.8A(2) IHTA 1984. This
defi nes the amount M as “the maximum amount that could be transferred by a chargeable transfer
made (under section 4 above) on the person’s death if it were to be wholly chargeable to tax at the
rate of nil per cent. (assuming, if necessary, that the value of the person’s estate were sufficient but
otherwise having regard to the circumstances of the person).” It is clear from s.8A(6)(a) IHTA
that the transferred NRB is taken into account in computing M. It is not logical to construe
similar words in a will differently.
HMRC also agree with this view: IHT Manual para.43065.
The contrary view has been suggested, on the grounds that a will speaks from death, so any-
thing that happens after death (such as a claim for the transfer of the NRB) must be disregarded.
But the statutory rule is actually that a will shall “speak and take effect as if it had been executed
immediately before the death of the testator”; Section 24 Wills Act 1837. The statutory provision
does not support the view that one should disregard post death events if relevant under the terms
of the will.
49
IHT Manual para.43065. Of course, it depends on the wording and one could achieve either result
by appropriate drafting. The IHT Manual gives some subtle variants:
(1) “To my trustees such sum as I could leave immediately before my death without IHT becoming
payable” will only transfer the single NRB because any NRB that may be transferred is
not available immediately before death;.
(2) “I give free of tax to my trustees an amount equal to the upper limit of the nil per cent rate band in the
table of rates in Schedule 1” will only transfer a single NRB; and
(3) “To my trustees an amount equal to the nil rate band in force at my death” again will only transfer
a single NRB.
50
The beneficiaries of the NRB trust could not make a claim as they are not a person liable to tax
on the death. It is theoretically possible the recipient of a failed PET might be able to make a claim
but that will not often happen.

CONSTRUCTION OF TRADITIONAL NRB FORMULA 303
of any provision in the will, T’s executors have a discretion whether or not
to make the NRB claim.
A NRB claim made by the PRs must be made by all the PRs51 so if W2
is an executor she has effective power to veto the NRB claim. It is con-
sidered that the power of W2 to make (or refuse) a NRB claim should be
regarded as a semi-fiduciary power so that other beneficiaries could only
challenge a decision not to make a NRB claim where there is bad faith;
for W2 to consult her own interests in deciding whether or not to allow a
NRB claim to be made is not bad faith.
If W2 is not an executor, the executors will have to balance the con-
fl icting interests of W2 against those of the trust in deciding whether or
not to make the NRB claim. In practice since W2 will be a benefici-
ary of the NRB trust, it should not be problematic to make the claim,
and it would normally be in the interest of the beneficiaries as a whole
to make the NRB claim (that is why the NRB trust is set up in the fi rst
place).
The issue is most likely to be problematic where:
(1) T has children of his first marriage who are beneficiaries of the
NRB trust; and
(2) W2 has children from her fi rst marriage who are not beneficiaries
of the NRB trust.
In that case the effect of the claim is to transfer an NRB amount from
W2 to the trust, so in principle providing a long-term benefit for the
children of T and depriving the children of W2 (assuming they would
benefit under W2’s will). The solution may be to add the children of W2
to the NRB trust and make an appropriate appointment before making
the claim.
It is suggested that in the drafting of the Will one should expressly
require the PRs to make the NRB claim, so as to avoid these difficulties.
Once one has made the claim, the executors then face the untransfer-
able NRB charge problems. Assuming that W2 has only a single NRB, it
will be desirable for the executors of T:
(1) to claim the transferable NRB

(2) to transfer half of the double NRB legacy to W. Then W will
acquire the double NRB on her death, and the double NRB
legacy on the death of H is not wasted. Part II of this book contains
a precedent: NRB appointment 4.
51
HMRC agree: IHT400 provides: “Each person delivering this account, whether as executor,
intending administrator or otherwise must sign”

304 WILL DRAFTING
Terms of classic NRB trust
18.19 There are two possibilities:
(1) The nil rate sum may be held on a long-term discretionary trust.
This was the usual course prior to the FA 2006.
(2) The nil rate sum may be held:
(a) on a discretionary trust for the period of two years;
(b) thereafter the surviving spouse may have an IP. This will not
be an IPDI, so it will not be an estate IP for IHT purposes.
The nil rate fund will not be in the estate of the surviving
spouse.
The nil rate sum will normally consist of non-income producing assets
so it does not make any practical difference which solution is adopted,
but solution (1) is marginally easier to draft, and solution (2) raises the
problem of the disabled person trap if the surviving spouse was disabled
when the testator died.52 So the precedents in this book set out a simple
discretionary trust.
There are two ways to give the nil rate sum to a discretionary trust:
(1) The nil rate sum may be given to a lifetime trust in existence at the
time the will is made. In practice this normally involves creating
one (or two) trusts (known as “pilot trusts”) with a nominal trust
fund.
(2) The nil rate sum may be held on terms set out in the will.53
It makes little difference which is chosen, from a trust or a tax viewpoint.54

The forms in this book make the gift to a discretionary trust declared in
the will, which seems the easier course.
52
See 27.7 (Disabled person trap).
53
It is not necessary to say:
“I give the Nil Rate Sum to the Trustees to hold on the terms set out below”
Such forms go back to before the Land Transfer Act 1897 when real property did not vest auto-
matically in executors, so a testator had to devise it expressly to trustees, if they wanted to create
a trust. So even for land the form has been unnecessary for a century. The meaning of the will is
plain enough without it: if the trustees are directed to hold the Nil Rate Sum on trust, that is what
they must do. But these words are reluctantly added to the wills in the seventh and subsequent
editions of this book because experience showed their absence caused some confusion.
54
Note in particular that s.80 IHTA 1984 will apply to the fund in which the surviving spouse has
an IPDI. In consequence, briefly, that fund is treated as being comprised in a trust (i) made when
the surviving spouse dies, or when her interest terminates, and (ii) which is treated as a separate
trust from the nil rate band trust.

M ARRIED TESTATOR WITH BUSINESS OR AGRICULTURAL PROPERTY 305
The will may also provide that the spouse will have an interest in pos-
session in the residuary estate. The drafter then has another choice:
(1) The will may create two separate trusts, a trust of the nil rate sum
and a trust of the residuary estate.
(2) The will may create one single trust with two funds, a nil rate fund
and a residuary fund (generally called “sub-funds”).
It makes little difference from a trust or a tax viewpoint, and the balance
of convenience favours a single trust with two funds.
For the administration of NRB trusts, see the next chapter
(Administration of NRB trusts).
Alternative to nil rate band trusts
An alternative to a NRB trust is an absolute gift of a share of the family 18.20

home to children. This is fine from an IHT viewpoint. It loses the CGT
private residence exemption (but that is less important than IHT). The
surviving spouse has slightly less security of possession (e.g. on the insol-
vency of a child). In practice this is not usually done.
Married testator with business or agricultural property
One difficulty with drafting a will involving business or agricultural prop- 18.21
erty is that the drafter can have no idea what IHT relief will apply to that
property at the time of the testator’s death. There is no certainty that the
present rules will endure.
From an IHT viewpoint the ideal form of will for a testator who is
married, whose estate includes business or agricultural property, is as
follows:
1. A discretionary trust consisting of:

(1) all property qualifying for 100% business property relief;
(2) property qualifying for less than 100% relief (up to the
NRB).
2. An IPDI for the spouse for the remainder.
Unfortunately the drafting is frightfully complicated because the draft

must deal with (i) assets qualifying for 100% relief, (ii) assets qualifying

306 WILL DRAFTING
for 50% relief, (iii) restrictions on relief under s.112 IHTA 1984 (excepted
assets). The result is not appropriate except for clients whose estates are
sufficiently large to justify more than usual care.
For ordinary estates, the better course is to use a discretionary will
trust, which is simple and nearly as satisfactory. (Some practitioners avoid
this course because of the risk that s.144 IHTA 1984 may be abolished.
But it is considered that the risk of this is remote; if it happened the worst
that would follow would be that the testator has to make a new will.)
Bad form of will for testator with business or agricultural property
A testator with agricultural or business property should not make a NRB

gift in common form. A gift of “the maximum amount of cash which I
can give on the terms of the Nil Rate Fund without incurring any liability
to inheritance tax on my death” will not have the expected effect because
of the application of s.39A IHTA 1984.
Will making gifts to UK charity
18.22 Will drafting is straightforward if the entire estate passes to UK charities.

A form sometimes seen (not used in this book) is a gift of a NRB sum
to individuals, remainder to charity.55 There is some sense in this for a
testator who is highly averse to payment of IHT. Such a testator may
well want that as far as the law permits they will give to individuals but
so far as such gifts are taxable at substantial IHT rates, they would rather
give to charity. However there is no knowing what the nil rate band will
be at the time of death: it may be extended to £1 million, or reduced
to £10,000 (perhaps with lower rate bands), or IHT may be abolished,
perhaps before there is any opportunity to change the will. The testator
should be advised of that uncertainty.
Will making gifts to non-EU charity56
18.23 Gifts to a charity outside the EU57 do not qualify for IHT relief. The solu-
tion is to make the gift to a UK charity with similar objects which supports
(and may transfer funds to) the foreign charity. For instance, a gift to the
55
For the construction of such gifts, see 18.14 (The nil rate formula).
56
For full discussion of the UK tax position of foreign charities, see Kessler and Brown, Taxation of
Charities and Non-Profit Organisations (8th edn, 2011) accessible www.taxationofcharities.co.uk.
57
A charity in Iceland or Norway is in the same position as an EU charity.

IHT 10% CHARITY LEGACY RELIEF 307
UK charity “Friends of Harvard University” would qualify for charity tax

reliefs but a gift to Harvard University would not.58
Best forms of will making gifts to EU charity59
Charities established in the EU (and Norway and Iceland) in principle 18.24

qualify as charities for UK tax purposes, and so receive the same tax reliefs
as UK charities, provided that their objects are wholly charitable within
the English law definition. If there are doubts as to whether the foreign
charity’s objects meet this requirement, the best course is to make a gift to
an appropriate UK charity.
IHT 10% charity legacy relief
FA 2012 provides a new IHT relief (inserting schedule 1A IHTA 1984) 18.25
which we call “10% charity legacy relief”. In a nutshell, the rate of IHT
on estates that make charitable60 legacies of 10% or more of the net estate
will be 36% rather than 40%. The details of the relief are complicated; for
a full discussion, see Kessler & Brown, Taxation of Charities.61 In outline,
estates are divided into three components:
(1) a general component (the free estate),

(2) a survivorship component (property held under a joint tenancy) if
any; and
(3) a settled property component (property under which the deceased
had an estate interest in possession) if any.
Each component has a “baseline amount”. That is, in short, the taxable
element after allowing for the NRB and other exemptions. Thus an estate
may have 1, 2 or 3 components and 1, 2 or 3 baseline amounts. The relief
applies if the charitable gift exceeds 10% of the baseline amount. It is pos-
sible to elect to merge two components, which may increase the amount
of the relief.
58
Kessler and Brown, Taxation of Charities and Non-Profit Organisations (8th edn, 2011) Ch.2
(Defi nitions of Charity) accessible www.taxationofcharities.co.uk.
59
For full discussion of the UK tax position of foreign charities, see Kessler and Brown, Taxation of
Charities and Non-Profit Organisations (8th edn, 2011) accessible www.taxationofcharities.co.uk.
60
In this section, “charities” includes registered sports clubs, which are not (strictly) charities but
which are treated in the same way for IHT purposes.
61
There will be a chapter on the topic in the 9th edition of this work, forthcoming 2013, but in the
meantime the chapter is available in the online version www.taxationofcharities.co.uk.

308 WILL DRAFTING
The IHT Manual para.45010 gives the following example for an estate
with a full NRB and no joint tenancy or settled property:
Robert died on 17 June 2012 leaving an estate valued at £750,000 after

deduction of liabilities. He leaves a legacy of £50,000 to the National Trust.
The donated amount is £50,000. The baseline amount is calculated follow-
ing the steps in IHTA/Sch.1A/Para.5 as follows
Estate on death £750,000

Legacy to charity (donated amount) -£50,000
Chargeable transfer £700,000 (step 1)
Less nil-rate band -£325,000
£375,000 (step 2)
Add back legacy to charity £50,000
Baseline amount £425,000 (step 3)
The charitable giving condition or 10% test requires that the donated amount
is at least 10% of the baseline amount. Here the legacy of £50,000 is more
than 10% of £425,000 (or £42,500) so the estate qualifies for the reduced rate.
The reduced tax liability will be £135,000 compared to £150,000 at full rate.
The IHT Manual para.45012 gives the following example for an estate
including a joint tenancy:
Elizabeth died on 17 May 2012 leaving assets owned personally valued at

£750,000 after deduction of liabilities. She bequeaths 10% of the residue of
her estate to Cancer Research. She held a joint bank account with her son,
Andrew, which had a balance of £60,000 at death. Both contributed equally
to the account so £30,000 is included in her estate as joint property passing
by survivorship.
In this case the estate contains two components, a survivorship component
and a general component. The donated amount in the general component is
£75,000. The joint account passes by survivorship to Andrew, so the survi-
vorship component cannot qualify for the reduced rate.
The baseline amount for the general component is calculated following the
steps in IHTA/Sch.1A/Para.5 as follows 62
Estate on death £750,000

Legacy to charity (donated amount) 62 -£75,000
Chargeable transfer £675,000 (step 1)
Less proportion of nil-rate band -£311,170
£363,830 (step 2)
62
£675,000 ÷ (£675,000 + £30,000) × 325,000 = £311,170

IHT 10% CHARITY LEGACY RELIEF 309
Add back legacy to charity £75,000

Baseline amount £438,830 (step 3)
The charitable giving condition or 10% test requires that the donated amount
is at least 10% of the baseline amount. Here the legacy of £75,000 exceeds 10%
of £438,830 or £43,883, so the general component qualifies for the reduced
rate. The reduced tax liability will be £130,978.80 compared to £145,532 at
full rate.
The tax on the survivorship component will be 63
Chargeable transfer £30,000

63
Less proportion of nil-rate band -£13,830
£16,170
Tax at 40% = £6,468
Where, the amount qualifying for charity exemption in one component

exceeds the 10% test (as is the case in this example) the beneficiaries of the
estate may want to consider making an election to merge the components to
gain the maximum benefit from the reduced rate.
If it is desired to take advantage of the relief, it will be necessary to use a

formula (here called “the legacy relief formula”) to calculate the minimum
necessary gift. The following is recommended:
1.1. I give [name of charity] the Specified Sum.
1.2. The Specified Sum is 10% 64 of the baseline amount in relation to the
general component of my estate65 provided that:
1.2.1. If the relief under schedule 1A Inheritance Tax Act 1984 is
abolished at the time of my death, or if Inheritance Tax is abol-
ished at that time, the Specified Sum is a sum equal to 10% of
the net value of my residuary estate.
1.2.2. [If (apart from this clause) this will (including any codicil)
makes any gifts to which s.23(1) IHTA applies (gifts to charities
and registered clubs) the amount specified in Step 3 paragraph 5
Schedule 1A Inheritance Tax Act 1984 (the amount of the gift)
63
£30,000 ÷ (£675,000 + £30,000) × £325,000 = £13,830
64
The figure of 10% should not be altered up or down. It would be wrong to insert a fi gure of less
than 10% since no relief would apply and the amount of the gift to charity would be arbitrary. It
would be wrong to insert a figure of more than 10% as the amount of the gift would be arbitrary.
If the testator wants to give more, the correct course would be to use a minimum amount clause
to specify a minimum amount, or a minimum percentage of the estate (not a percentage of the
baseline amount.) In other words, to use a figure other than 10% incurs the disadvantages of the
legacy relief formula but not of the advantages.
65
The wording of this subclause is derived from the HMRC IHT Manual approved draft, which is
in turn taken from a STEP precedent.

310 WILL DRAFTING
shall be deducted from what would otherwise be the Specified

Sum (but the Specified Sum shall not be reduced below zero).] 66
1.3. [Notwithstanding the above, the Specified Sum shall in no event be less
than
[£x] or
[x% of my residuary estate]].67
1.4. My executors may make or withdraw any election under paragraph
7 Schedule 1A Inheritance Tax Act 1984 whether or not the general
component is the qualifying component.
1.5. Terms used in this clause have the same meaning as in schedule 1A
Inheritance Tax Act 1984.
This clause is incomprehensible to a non-tax lawyer, which is undesirable,
but because of the complexity of the provisions there is no alternative.
The legacy relief formula should not be used with an estate holding
property qualifying for business or agricultural property relief, because
the attribution rules may have unexpected results and there are too many
uncertainties as to what the figure will be. The best solution for estates of
this kind is a discretionary will trust.
In relation to a simple estate (with no survivorship property and no
settled property components) the legacy relief formula will result in a
legacy of between 0% and 10% of the net estate:
(1) The legacy will be zero when the baseline amount is zero, which
will be:
(a) if the estate is within the available NRB (allowing for trans-
ferrable NRB) or
(b) if the estate (apart from the NRB) qualifies for the spouse
exemption.
(2) The legacy will be 10% of the estate if the NRB is not avail-
able (most likely due to a failed PET made within seven years of
death) and the entire estate is otherwise chargeable (i.e. no spouse
exemption).
STEP offer a variant form where the gift is equal to 10% of the baseline
amount in relation to the aggregate of the general, survivorship and settled
property components of the estate. If that formula is used, and the estate
holds survivorship property, the position is different. It is still the case
that the legacy could be zero. However there is no maximum. The legacy
under the formula may amount to the entire free estate. In other words,
the use of that formula will in some cases wholly disinherit the residuary
66
This sub- clause is not needed if the will does not make any other gifts to charities.
67
If the minimum amount given is 10% of the residuary estate there is no need for the legacy relief
formula, as the gift must meet the necessary minimum.

BEST FORM OF WILL FOR TESTATOR DOMICILED OUTSIDE THE UK 311
legatee in favour of the charity. In practice the safe course is never to use
the survivorship component in the formula. The scope for disaster is too
great. If the individual holds joint property, and wants IHT legacy relief,
the safe course is to sever the joint tenancy (so the individual’s share of the
property passes by will.)
Similarly, great care would be needed if the formula used includes the
settled property component.
Suppose H and W each intended to give between 5% (or any amount
less than 10%) of the baseline amounts to charity. They would do better
to give the entire estate to the survivor, so the survivor could make a gift
qualifying for 10% incentive relief. In fact it will never be appropriate for
a married couple to make a charity legacy on the first death. Thus the
consequence of the relief is to encourage married testators to postpone
giving to charity to the second death. The same will generally apply to
unmarried cohabitees, because of the nil rate band.
Best form of will for testator domiciled outside the UK
Where a testator is not domiciled in the UK, but has property in England 18.26
(or Wales) there are three possible solutions: to have two wills, an English
law will only, or a foreign law will only.
The best course is to have two wills:
(1) A will governed by English law to deal with property situate in

England. This should be drafted by English lawyers in the fi rst
instance but reviewed by lawyers in the country of the testator’s
domicile.
(2) A will governed by the law of the testator’s domicile, to govern
other property (“foreign property”). Such a will should be consid-
ered even if there is no foreign property.
The English will, where the testator is married, should normally give
an interest in possession in UK situate property to the spouse. In other
cases, a simple discretionary will trust is probably the best form for the
English will.68 The English will should contain a governing law clause.69
Both wills should contain declarations of the testator’s domicile.70 In case
68
For a full discussion of the tax issues for wills of foreign domiciliaries see Kessler, Taxation of
Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.63 (IHT on death: wills and IOVs)
accessible www.foreigndomiciliaries.co.uk.
69
See 28.1 (Governing law, place of administration and jurisdiction clauses).
70
The declaration will be evidence, though not necessarily cogent evidence, of the testator’s
domicile. This is obvious on principle but if authority is needed, see IRC v Bullock 51 TC 522
at p.540: “The declaration as to domicile contained in the Appellant’s will is also a matter to be

312 WILL DRAFTING
there is any doubt where the property is situated, the trustees of each will
should have power to determine the issue in a manner which binds the
beneficiaries.
The second possibility for a foreign domiciled testator with land in
England is to make a single English will which deals with the English
property as well as their foreign property. However:
(1) There is a risk that problems may arise through ignorance of

requirements of the law of domicile. To avoid this it is neces-
sary that the English will should be reviewed by lawyers in the
country of the testator’s domicile, so one might as well have two
wills.
(2) If a foreign grant of probate of the foreign will could be obtained
quickly that could be an advantage, especially if foreign assets
might be used to pay UK IHT. It avoids the problem that IHT
must be paid before the grant of probate of a UK law will.
(3) In the case of a testator domiciled (for treaty purposes) in India,
Pakistan or France, a foreign law will is needed to qualify for relief
under the relevant IHT double tax treaty.71
The third possibility for a foreign domiciled testator with land in England
is that the testator may make a single foreign will (governed by the law of
the testator’s domicile) which deal with English situate property as well
as foreign property.72 However the IHT complications are such that the
taken into account, although the weight to be attributed to it must depend on the surrounding
circumstances.” This evidence is much more cogent if the will briefly sets out the facts which
justify foreign domicile (rather than simply stating that the testator is domiciled in any particular
state). The declaration should be drafted according to the individual’s circumstances, and not
taken from a standard precedent. Three examples:
“I declare that my domicile is and continues to be the Province of Nova Scotia, Canada, where
I was born and brought up, to which Province I intend to return and remain permanently upon
my wife’s death.” (The form used in the Bullock case.)
“I declare that (i) although I have resided in England since [date] I do not have, and have never
had the intention of residing there permanently, and (ii) it is my intention on my retirement
to return to my home in Bermuda and to cease to reside in the United Kingdom; and I am
domiciled in Bermuda accordingly.”
“I declare that:
(1) I was born in and have a domicile of origin in England.
(2) I have resided in the Bahamas since [date] and intend to reside there permanently.
Accordingly I am and intend to remain domiciled in the Bahamas.”
For an example of a bald declaration of domicile being (rightly) disregarded, see Reddington v
MacInnes [2002] ScotCS 46 accessible www.bailii.org. (If those drafting that will had considered
domicile more carefully, the litigation might have been avoided.)
71
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.65 (IHT
DTTs: India, Pakistan, Italy, France) accessible www.foreigndomiciliaries.co.uk.
72
The Wills Act 1963 makes this easier: inter alia a will executed in accordance with the law of
domicile is treated as properly executed.

WILL FOR TESTATOR WITH FOREIGN DOMICILED SPOUSE 313
foreign will must be reviewed by UK lawyers73 so it is just as easy (maybe

easier) to have two wills, with a separate English will for the English
property.
Best form of will for testator domiciled in Scotland or Northern

Ireland
Where a testator is domiciled in Scotland or Northern Ireland, but has 18.27

property in England, the IHT points raised above do not apply but the
property law points still do apply. The recommended course is still to have
two wills:
(1) A will governed by English law to deal with property situate in

England.
(2) A will governed by the law of the testator’s domicile, to govern
other property
Best form of will for testator domiciled in England with foreign

property
Similar issues arise where a testator domiciled in England has property 18.28
outside England. Again, two separate wills are best practice, though
(subject to foreign law advice, which is essential) a single will governing
all property might be a satisfactory alternative.
Best form of will for UK domiciled testator with foreign

domiciled spouse
Where a UK domiciled testator has a foreign (non-UK) domiciled spouse, 18.29

the usual IHT spouse exemption is restricted.74 The choice for the will lies
73
It is tempting not to bother with UK advice. Those who are so tempted should read McGowan v
Hamblett 8 ITELR 943. Here a New Zealand will disposed of English land. The drafter fell into
the Benham trap (leaving property in equal shares to a spouse and other beneficiaries without
considering the IHT implications). A small cost in UK legal advice at the time of the will would
have made the litigation unnecessary.
74
Apart from the (almost) nominal £55,000 spouse exemption, which will sometimes be available
but that will often have been used up before the death. See Kessler, Taxation of Non-Residents and
Foreign Domiciliaries (11th edn, 2012), Ch.69 (UK domiciliary married to foreign domiciliary)
accessible www.foreigndomiciliaries.co.uk. Some changes are proposed from 2013/14 but the details
are not yet known.

314 WILL DRAFTING
between a discretionary will trust or an absolute gift to the foreign domi-

ciled spouse. Which is better? Either way, there is a charge to IHT on the
death of the testator. But if the property is given to the spouse, it should
be outside the scope of IHT thereafter (so long as it is not UK situate). If
the property is given to a will trust, it remains within the scope of IHT, it
is not excluded property, as the will trust has a UK domiciled settlor. So
at first sight, the absolute gift seems better. Having said that, if property
goes into the discretionary will trust and out to the spouse again within
two years, the IHT position is just the same as a direct gift: s.144 IHTA
1984. And it may be desired to pass the property to others, perhaps giving
it to the next generation (particularly if not UK domiciled). Also when
the testator makes the will, one won’t usually know the spouse’s domicile
position at the time of the death. A spouse who lives long enough in the
UK will become deemed UK domiciled for IHT purposes. All things
considered, the discretionary will trust seems the more flexible and safer
course for the will, in a routine case. In most cases, the will trust is likely
to be wound up within two years, but the only cost is the cost of the deed
of appointment. Of course, the impact of the law of the domicile of the
spouse would also need to be considered.

CHAPTER 19
ADMINISTRATION OF NIL RATE BAND

TRUSTS
Unwinding an unwanted NRB trust
Many existing wills contain a NRB trust which has become unnecessary 19.1
because of the transferable NRB. A new will or codicil could be made to
revoke the NRB gift but that is not necessary, as the NRB trust can be
unwound after the death of the testator.
The easiest way to unwind the trust will be for the trustees to appoint
the trust assets in favour of the surviving spouse absolutely. Provided this
is done within two years of death (and remember the three-month trap)
this will be treated for IHT purposes as if the assets had simply been left
to the surviving spouse outright, so the surviving spouse will have the
transferable NRB.1 If the appointment is made during the period of
administration of the estate (which will be usual) it will not give rise to
CGT as the spouse will acquire as legatee.2 Part II of this book contains
a precedent: Form NRB Appointment 1.
An alternative is to confer an IP on the spouse. Provided this is done
within two years of death (and in this case the three-month trap does not
arise) this will be treated for IHT purposes as if the will had conferred
an IPDI on the surviving spouse, so the surviving spouse will again have
the transferrable NRB. There is no disposal for CGT. Part II of this book
contains precedents: Form NRB Appointment 2 for Will Form 6 and
Form NRB Appointment 3 for Will Forms 7–9.
Surviving spouse dies before appointment
An appointment in favour of the spouse can only be made during the 19.2
spouse’s lifetime. Suppose (say) H died in 2005/06 when the NRB
1
See s.144 IHTA 1984.
2
Section 62 TCGA 1992. An appointment after completion of administration will involve a dis-
posal but if the trust asset is cash, as would usually be the case, no chargeable gain will arise.

316 A DMINISTRATION OF NIL R ATE BAND TRUSTS
was £275,000. W died in 2010/1 when the NRB was £325,000. H’s
will gave the NRB to a discretionary trust and the residue to W. W’s
executors are alert to the fact that if H had not used any of his NRB,
her estate would have benefited from a NRB of £650,000 (rather than
£325,000).
The appointment out within two years route is closed since W died
before any distribution could be made to her from the NRB trust (where-
upon she ceased to be an object of the trustees’ powers). Is it possible to
vary H’s will to eliminate the NRB trust? The class of beneficiaries in a
standard form NRB trust includes minor or unborn beneficiaries so this
is not possible.3 Is it possible to appoint out to adult beneficiaries who then
make the variation? In the authors’ view, the answer is yes, though care
must be taken with the drafting.
Retention of the NRB trust
19.3 The rest of this chapter deals with the administration of NRB trusts in the
limited cases where they remain useful after FA 2008: Wills 6–9 in this
book.4 It is assumed that the testator is survived by their spouse.5 There
are five ways to proceed:
(1) Raise the nil rate sum (2010/11, £325,000) to hold on the terms
of the NRB trust. Alternatively appropriate assets to that value to
the trust. The trust is then administered like any other normally
funded trust.
(2) Appropriate a share in the family home to the trust.
(3) The loan scheme (discussed below).
(4) The charge scheme (discussed below).
(5) Waive the NRB legacy (in whole or in part).
Appropriation of share of family home
19.4 The simplest course is to appropriate to the NRB trust:
3
Except with an application to the Court under the VTA 1958 which is not likely to be cost
effective.
4
See Ch.18 (Will Drafting).
5
Wills 6–8 deal with a married testator. Will 9 concerns cohabitees. This chapter refers to a
“spouse” (the term is understood to include civil partner) but the same applies to a cohabitee in
a Will 9 case.

A PPROPRIATION OF SHARE OF FAMILY HOME 317
(1) the whole of the testator’s interest in the family home (if its value is
less than the nil rate sum); or
(2) a share of the family home with a value equal to the nil rate sum (if
the value of the testator’s interest exceeds the nil rate sum).
HMRC have contended—though with limited enthusiasm—that the

surviving spouse occupying the property has an IP in it.6 But it does not
matter after the FA 2006 whether this is right or wrong, as long as:
(1) the appropriation is not within two years of the death;7 and
(2) the surviving spouse is not “disabled” (in the IHT sense) at the
time of the death of the testator.
The recommended method of dealing with NRB gifts is, therefore:
(1) Wait two years from the death of the testator.

(2) Appropriate to the trust the testator’s interest in the family home
(or a share of that interest if it is worth more than the nil rate sum).
There is no SDLT on this appropriation.8 To facilitate this we have
provided in the draft wills in this book that the appropriation may
rely on the probate valuation.
(3) Appoint an IP in favour of the surviving spouse. The appoint-
ment has no IHT effect but will ensure that CGT principal private
residence relief (PPR) is available to the NRB trustees when the
property is eventually sold. This is discussed in detail in Appendix
6.
Part II of this book contains a precedent: NRB appropriation and

appointment.
This seems the best course, where it is possible, because it is simplest.
In particular:
(1) It avoids the complex tax issues raised by the debt and charge
schemes including SDLT and s.103 FA 1986 (see Appendices 4
and 5).
6
There are strong arguments against this view, which HMRC have at least on some occasions
accepted. A full discussion is outside the scope of this book: see “Splitting Up the Family”,
Taxation, Vol. 137 (1996) p.113 accessible www.kessler.co.uk. See also Judge (PRs of Walden decd) v
IRC [2005] STC (SCD) 863. HMRC did not argue that the trustees (who were unaware that
they even had a discretion to allow her to occupy) conferred an estate-IP on the spouse.
7
A discretionary trust may be converted into an IPDI trust within two years by operation of s.144
IHTA 1984.
8
Para.3A Sch.3 FA 2003

(2) It avoids Limitation issues raised by the debt and charge schemes
(see below).
(3) It avoids the problem that the debt may become irrecoverable.
Position if house worth less than nil rate sum
19.5 If the testator’s interest in the home is worth less than the nil rate sum and
the testator has additional assets in their estate, the question arises how to
deal with the balance. The choice is:
(1) Waive the balance of the legacy to the NRB trust. This is the easiest
course. It may be less efficient for IHT: it loses the benefit of part of
the testator’s nil rate band, and it may increase IHT on the second
death. But in practice this may not matter, or the amount involved
may not be worth worrying about.
(2) Appropriate further assets to the NRB trust and deal with the trust like any
other funded trust. This is administratively inconvenient.
(3) Leave the money owed to the NRB trust outstanding, as a debt from the
surviving spouse. This is the debt or charge arrangement. The advan-
tages are:
(a) It is not necessary to invest and administer the nil rate fund
separately, incurring additional investment and accountancy
costs.
(b) The nil rate fund will not produce income, and so it will not
be necessary to pay tax at the trust rate or dividend trust rate.9
In practice the appropriation of the home interest to the NRB trust will
normally suffice. However, the debt will sometimes be an attractive sup-
plement in addition.
If the surviving spouse was “disabled” (in the IHT sense) when the
testator died it is not desirable to appropriate the family home to the trust.
In this (relatively rare) case, the debt or charge scheme should be operated
for the entire nil rate sum.
Trust law issues
19.6 The trustees must have power to make the arrangements. (A family trustee
may be prepared to act in breach of trust; a professional trustee could not
do so.) The will should pave the way for arrangements of this kind by
9
This problem can be avoided if the NRB trust becomes IP in form.

TRUST LAW ISSUES 319
including appropriate powers, and these are contained in Will Forms

6–9.10
The arrangement must not be a sham. Properly executed arrangements
will not be a sham. It does not matter that the debt from the surviving
spouse remains outstanding. It does not matter that the trustees follow the
wishes of the spouse if they consider (as trustees generally will) it is appro-
priate to do so.11 It might be different if (say) the spouse were (mis)advised
not to bother about the documentation as the funds were “yours really”.
The professional advisers must explain to the spouse:
1. Their (limited) rights as beneficiary under the discretionary trust.

2. Their duties as executor and trustee (if appointed executor and
trustee).
3. The terms of the debt or charge (if any).
4. An appropriate risk warning. This would make the following
points. The arrangement has been accepted by HMRC since at
least the 1990s. While it is possible they may change their minds
there is (in our view) no sound basis for them to do so. There is
also some risk that an IHT ten year charge may arise, of a more
than nominal amount (e.g. because rates or values change). But
any ten year charge will be far less than the IHT saving. It is also
conceivable that new legislation may stop the scheme, but even if
that happens it is most unlikely that the tax position will be worse
than if nothing is done.
That advice should be recorded in writing.

There is no difficulty in the same solicitors acting for the executors and
the surviving spouse, as long as both parties agree to that. An explanation
must likewise be given to the other executors and trustees (unless they are
solicitors and do not need this).
We discuss the tax issues in Appendices 4–5.
10
Sometimes the will contains a NRB discretionary trust but no express power to make the debt
or charge arrangements. In this case an exercise of the overriding power of appointment under
the will trust can generally confer the necessary power: see 11.2 (Power of appointment).
11
Re the Esteem Settlement [2004] WTLR 1 [2003] JLR 188 at para.165 accessible www.jerseylegalinfo.
je. Kessler, “What is (and what is not) a Sham” (1999) OITR, vol.9, p.125 accessible www.kessler.
co.uk. In 2003 this aspect received attention because of comments of Peter Twiddy, former head
of IR (Capital Taxes), but this was not followed up by action. See the Trust Discussion Forum
thread “NRB Loans: CTO Sham Attack”, accessible www.trustsdiscussionforum.co.uk.

Implementation of debt scheme
19.7 The following deals with the position where:
(1) it is not desired to appropriate the family home to the trust (e.g.
where the surviving spouse was disabled (in the IHT sense) when
the testator died); or
(2) the nil rate sum is not wholly satisfied by an appropriation of the
testator’s interest in the family home, and the debt (or charge)
arrangement is used for the balance.
There is an important difference between Wills 6 and 7–9 which impacts

on the implementation of the debt scheme.
(1) Under Will 6, the residue of the estate is retained by the executors
in their capacity as the trustees (who hold on trusts under which
the surviving spouse has an IPDI).
(2) Under Wills 7–9, the residue is transferred to the surviving spouse/
cohabitee absolutely and the executors will eventually drop out of
the picture.
This affects the way that the legacy of the nil rate sum (NRS) is dealt with.
Implementation of debt/charge scheme in a Will 7–9 case
In the Will 7–9 case there are two ways of dealing with the NRS:
(1) The spouse may promise to pay the NRS personally: she then
receives the entire unencumbered residuary estate but incurs a debt
which will be deductible for IHT on her death. This is known as
“the debt scheme”.
(2) The NRS may be charged on the testator’s property (so the spouse
does not incur a debt; she does not receive the entire unencum-
bered estate; but the assets she does acquire from the estate are
reduced in value by the charge on the testator’s property). The
documentation and implementation is rather more complicated.
This is known as “the charge scheme”.
The debt scheme is easier than the charge scheme: the documentation and
implementation of the charge scheme is rather more difficult. However, in
some cases s.103 FA 1986 makes the debt scheme ineffective so the charge
scheme is the only option (or Will 6 should be used).

A DMINISTRATION OF THE NRB TRUST 321
Implementation of debt scheme in a Will 6 case
Under Will 6, there is a simpler solution. The NRS may simply be left
unpaid. There would be an agreement (under clause 11 of Will 6) which
dealt with index-linking. One does not need a debt agreement imposing
a personal liability on the trustees of the residuary estate, or a charge. The
NRS is a liability of the residuary estate and deductible for IHT. Section
103 FA 1986 is not a problem in a Will 6 case.
Liability for breach of trust if NRS becomes irrecoverable
In the Will 6 case, the trustees of the NRS could not possibly be liable
for breach of trust if the NRS becomes unrecoverable (i.e. the debt is left
outstanding and the residuary estate becomes insolvent). The reason is
that the beneficiaries interested in the capital of the NRS are the same as
the beneficiaries interested in the capital of the residuary estate. Leaving
the debt outstanding is an action which favours the capital beneficiaries of
the residuary estate, so what they lose on one side they gain on the other.
Hence an exclusion clause such as in cl. 8.4 of Will 7 (cl. 9.4 of Will 8) is
not needed for Will 6.
Wills 7–9 contain an exclusion clause to cover this case. It is not really
needed; the power to lend is a dispositive power, it is intended to be used
to benefit the spouse.
Administration of the NRB trust
The NRB trust will be within the scope of IHT 10 year charges.12 In 19.8
practice no IHT charge will arise because the value of the trust fund (the
interest in the home and/or the benefit of the debt) should fall within the
nil rate band. If the asset is a share in the house, it should be valued on a
discounted basis.13 Nevertheless it will be necessary to complete the form
IHT100.
The trustees have discretions which they should review as often as
appropriate. If the circumstances of the spouse change, it may be appro-
priate to call in the debt (if any) of the spouse. For instance, if the spouse
moves into residential care accommodation and the land is sold. On any
occasion when the spouse makes a new will, or if she remarries, the posi-
tion should be reviewed. In the absence of these special circumstances,
it is sufficient to review the position every 10 years when an IHT return
falls due.
12
These arise on the 10-year anniversaries of the death of the testator: see ss.64 and 83 IHTA 1984.
13
See 20.5 (Valuation).

Limitation considerations
19.9 The trustees must not allow the debt (if any) to become statute-barred.
Section 8 Limitation Act 1980 provides:
An action upon a speciality shall not be brought after the expiration of 12 years
from the date on which the cause of action accrues.
The Spouse Undertaking in this book is a “speciality” since it is made by

deed. The cause of action “accrues” when the deed is made.14 This applies
even though the intention of the parties may be that the spouse should not
pay for many years. The only way to avoid the Limitation Act applying,
therefore, is that the spouse must acknowledge the trustees’ claim.15 Then
the 12-year period starts running again from the date of acknowledge-
ment.16 The convenient time to deal with this would be on the 10 year
anniversary when the IHT return goes in.17
Subsequent sale of property
19.10 No difficulty arises on the sale of the property. If the property has been
appropriated to the trust, CGT PPR will in principle apply.18 The proceeds
of sale will be received by the trustees and the surviving spouse in propor-
tion to their joint ownership. The trustees may consider calling in their
14
Re George (1890) 44 Ch. D 627; Re Brown [1893] 2 Ch. 300.
15
Section 6 Limitation Act 1980 allows an extension of time for certain contracts of loan. However
the Spouse Undertaking is not a contract of loan. An alternative to acknowledgement is repay-
ment of the debt in part (£1 would suffice). Another solution is that the debt should be on terms
that it is not payable on demand, but this raises possible IHT and income tax problems.
16
See s.29(5) Limitation Act 1980. The acknowledgement must be in writing and signed by the
debtor.
17
If the debt does accidentally become statute-barred, the result may not be disastrous. HMRC
accept that a statute-barred debt of a deceased person is allowable for IHT purposes provided that
it is paid: see IHT Manual para.28384. So as long as the debt is actually paid to the trustees of the
NRB trust by the executors of the spouse, after the death of the spouse, the IHT deduction is
available. Difficulties would arise, however, if the executors refused to make the payment. They
would refuse to make the payment if the beneficiaries under the will of the spouse were different
from the beneficiaries under the NRB trust. (That might well happen. It is quite likely to happen
if a spouse remarries after the death of the testator. It might also happen if a spouse’s marriage to
the testator was a second or subsequent marriage.)
To let the debt become statute-barred is in principle a breach of trust. If the spouse is a trustee
of the NRB Trust, they will not be allowed to gain by their own breach of trust. Their estate
would be required to reimburse the nil rate trustees. That would in principle solve the problem,
though this claim too might conceivably become statute-barred. It would be better that the debt
does not become statute-barred and this need not be considered any further.
18
The appointment of an IP in favour of the surviving spouse ensures that PPR is available to the
NRB trustees when the property is eventually sold: see s.225 TCGA 1992. This is discussed in
detail in Appendix 6.

TAX IMPLICATIONS OF REPAYMENT OR RELEASE OF THE DEBT 323
loan (if any) at that point, turning the trust into a conventionally funded
trust. That might be especially appropriate if, for instance, the surviving
spouse goes into residential care. The trustees and spouse may apply the
proceeds of sale in a new property if appropriate.
Winding up the NRB trust after the death of the spouse
The NRB trust will normally be wound up after the death of the spouse. 19.11
The trustees of the NRB trust should review the position at that time. The
property will normally be sold. The trustees may:
1. Call in the debt (if any), and

(1) retain the funds on the terms of the discretionary trust, or
(2) appoint new trusts, or appoint the capital out to beneficiaries.19
2. The trustees may transfer the debt to beneficiaries (who may them-
selves release it or call it in as they wish).
3. The trustees may release20 the debt if this is for the benefit of ben-
eficiaries of the discretionary trust. (This depends primarily on
whether the residuary legatee of the spouse’s will is also a benefici-
ary of the discretionary trust. That will normally (but not always)
be the case.)
Tax implications of repayment or release of the debt
See Appendix 4: NRB debt and charge arrangements: tax analysis. 19.12
19
The appointment will in principle give rise to an IHT exit charge: s.65 IHTA 1984. However no
IHT charge will in practice arise because the values will fall within the NRB exemption. It will
be necessary to put in an IHT return.
20
A release of the debt should be made by deed (though a release in writing may be valid under the
Bills of Exchange Act 1882).

CHAPTER 201
WILLS AND CARE FEE PLANNING
Introduction
20.1 A person who goes into permanent residential care is normally required
to pay all or part of the care home fees.2 The payment depends on the
amount of capital he or she has. If this can be minimised, more capital
will be preserved for the next generation. This chapter concerns the use
of will trusts to protect the family home and other assets from becoming
part of the assessable capital.
In the following, the testator is called “the fi rst to die” or “the
deceased”; and the person who may go into residential care “the survi-
vor”, and they are together referred to as “a couple”. The couple will nor-
mally be spouses, civil partners or cohabitees but similar principles apply
when anyone wishes to make provision by will for a person who may go
into permanent residential care. We assume that the couple own living
accommodation (“the house”) in England or Wales.
The term sometimes used for this arrangement is “protective property
trust” or “family protection trusts”.
Why use will trusts?
20.2 For the purposes of assessing care home fees, a person’s capital is the market
value of their assets, but it does not include property in which they have
a life interest.3
If the couple own the house as joint tenants then, on the first death, the
survivor will become entitled to the whole interest in the house by sur-
1
We are grateful to Sarah Dunn who prepared a fi rst draft of this chapter.
2
Section 22 National Assistance Act 1948 (“NAA 1948”). For a detailed analysis of this subject,
see Coldrick on Care Home Fees, (2nd edn, 2012).
3
Paragraph 11, Schedule 4 National Assistance (Assessment of Resources) Regulations 1992
(“NA(AR)R 1992”).

TYPES OF TRUST 325
vivorship. The survivor’s capital will include the value of the house. The
same applies where the couple own the house as tenants in common (or
the first to die owns the entire beneficial interest) if the fi rst to die leaves
their interest to the survivor absolutely.
The first to die could leave their interest in the house to others, perhaps
the children, bypassing the survivor altogether, but that would generally
leave the survivor insufficiently provided for. It also loses CGT private
residence relief.
If, instead, the first to die leaves their interest in the house on trust for
the survivor for life, then the deceased’s interest will not become part of
the capital of the survivor. (The survivor’s own share in the house will
form part of their capital. However, the value of that share will be less,
usually much less, than 50% of the value of the whole. We return to the
question of valuation below.)
If the house is owned under a joint tenancy, this must of course be
severed while both parties are alive. This can be done simply by serving a
notice of severance. The couple should be advised to do this at the time the
will is drafted. The survivor could make a deed of variation after the first
death but the deceased’s share will form part of his or her assessable capital
if the deprivation rule applies (see 20.7 (Deprivation of capital) below).
Types of trust
There are three types of will trust used for this purpose: 20.3
(1) The survivor may have an IPDI in the deceased’s interest in the
house.
(2) The survivor may have an IPDI in the whole estate of the deceased.
(Will 2).
(3) A classic NRB trust; residue to the survivor for life or absolutely;
and provision for implementation of the charge or debt scheme.
(Wills 6–8).
Options (1) and (2) are appropriate for most estates. Normally option (2)
will be the better one. It excludes from the assessable capital of the survi-
vor not only the deceased’s share in the house but also their other assets.
However, option (1) is appropriate where the deceased’s assets other than
the house are relatively low in value. If he or she has a few thousand pounds
in the bank and nothing else, it is not worth the extra cost of administer-
ing this as trust property, particularly if it is likely to be exhausted by the
deceased’s funeral expenses or the survivor’s living expenses before the
survivor needs permanent care.

326 WILLS AND CARE FEE PLANNING
Option (3) is only likely to be appropriate in cases of remarriage where

there is an untransferable NRB problem.4 The debt or charge scheme, if
properly implemented, reduces the value of the survivor’s estate for IHT
and care fee purposes.5
Assessing liability to pay
20.4 The first step is to determine whether the person’s capital:
(1) exceeds £23,250; 6

(2) does not exceed £23,250 but does exceed £14,250; or
(3) does not exceed £14,250.
Ability to pay is then assessed as follows:
(1) Capital exceeds £23,250

The person is liable to pay for their accommodation at the full rate.
So long as the person’s capital remains above £23,250, there is no
assessment of their income.
(2) Capital between £14,250–£23,250
The person’s liability to pay is calculated primarily by reference to
their weekly income. From this is deducted the amount per week
which they are deemed to need for their personal requirements,
currently £22.60.7 Added to their weekly income is a further
amount of deemed income based on their capital. For every £250
of capital they have in excess of £14,250, they are treated as receiv-
ing an additional £1 income per week.
(3) Capital under £14,250
No account at all is taken of capital which does not exceed £14,250.
The person’s liability to pay is based on their weekly income after
deducting the amount they are deemed to need for their personal
requirements.
There are detailed rules for assessing income which are outside the scope of
4
See 18.8 (Untransferable NRB problems).
5
See Ch.19 (Administration of NRB Trusts).
6
Reg. 3 National Assistance (Sums for Personal Requirements and Assessment of Resources)
(Amendment) (England) Regulations 2010).
7
Section 22(4) NAA 1948; Reg. 2 of the National Assistance (Sums for Personal Requirements)
Amendment (England) Regulations 2011.

VALUATION 327
this book. In assessing capital, there are four important points for present
purposes.
First, the general rule is that capital which a person possesses is assessed
at its current market value. Valuation is discussed further below.
Secondly, certain capital is disregarded altogether. Such capital is not
assessed whatever its value. The most relevant “capital disregards” are
discussed below.8
Thirdly, capital which a person no longer possesses may be treated as
theirs and assessed as if it was theirs.9
Fourthly, if the person’s level of assessable capital changes, this must
be taken into account. A person who has capital in excess of £23,250
when they go into care will be obliged to pay care home fees at the full
rate. If their capital is only a few thousand pounds above that figure, their
expenditure on care home fees alone will bring it below the threshold
within a few weeks or months. When that happens, their automatic
liability to pay at the full rate ends. Ability to pay must now be re-assessed
in accordance with (2) above (weekly income plus deemed income from
capital) until such time as their capital falls below £14,250, when their
remaining capital will be ignored.
Where the survivor has capital of her own in excess of £23,250, care
fees planning may still be worthwhile. If there is any prospect that their
own capital (leaving aside anything inherited from the first to die) will
fall below £23,250, perhaps after a few years of payment of care home
fees, then it will usually be in the family’s interest for the fi rst to die to
give their interest in the house to a trust so that, at least, is protected from
care home fees.
Valuation
The valuation provisions are in the National Assistance (Assessment of 20.5

Resources) Regulations 1992 (“NAARR”). Regulation 23(1) NAARR
sets out the general rule:
. . . subject to regulation 27(2), capital which a resident possesses in the UK

shall be calculated at its current market or surrender value (whichever is the
higher), less—
(a) where there would be expenses attributable to sale, 10%; and
(b) the amount of any incumbrance secured on it.
If the survivor owns the entire beneficial interest in the house, then
reg.23(1) is straightforward to apply. The value of the house is its market
8
See 20.6 (Capital disregards).
9
See 20.7 (Deprivation of capital).

value less (a) 10% for sale expenses and (b) the amount of any incumbrances
(typically a mortgage but also a NRB debt charged on the property).
The position is more complicated where:
(1) the survivor owns a share in the house (“the survivor’s share”); and
(2) the other share is held on the terms of the will trust (“the settled
share”).
Regulation 27(2) provides:
Where a resident [of a nursing home] and one or more other persons are ben-
eficially entitled in possession to any interest in land—
(a) the resident’s share shall be valued at an amount equal to the price which
his interest in possession would realise if it were sold to a willing buyer,
less 10 per cent and the amount of any incumbrance secured solely on
his share of the whole beneficial interest; and
(b) the value of his interest so calculated shall be treated as if it were actual
capital.
This requires one to ascertain the market value of the survivor’s share.
That value will in principle be less than 50% of the value of the whole
house.
The amount by which it is less will depend upon how soon a purchaser
of the survivor’s share can realise the value of their interest by forcing a
sale of the house. This will depend on whether those interested in the
settled share possess rights of occupation because if they do the court may
have no power to order a sale, or if it does have power it is not likely to
order a sale.10
Section 12(1) TLATA 1996 provides:
A beneficiary who is beneficially entitled to an interest in possession in land

subject to a trust of land is entitled by reason of his interest to occupy the land
at any time if at that time–
(a) the purposes of the trust include making the land available for his occu-
pation (or for the occupation of beneficiaries of a class of which he is a
member or of beneficiaries in general), or
(b) the land is held by the trustees so as to be so available.
In order to apply this one needs to bear in mind that there are two distinct
trusts here:
(1) “the trust of land”, the trust which arose when the couple acquired
the house jointly.11
10
See Smith on Plural Ownership (OUP, August 2004) at p.122 and 156.
11
Since all jointly owned land is held in trust: s.36 LPA 1925.

VALUATION 329
(2) the will trust, which holds the settled share (under which the sur-
vivor will initially have an interest in possession, though that may
be altered by exercise of an overriding power of appointment).
Rights of occupation under s 12(1)(a) TLATA 1996 depend on the purpose

of the trust of land, which is normally12 the purpose of the couple at the
time the trust of land was created, i.e. when the house was jointly acquired.
In the typical case, the purpose will be for them to live there together as
their joint home and, normally, for the survivor to live there after one has
died. This purpose will normally continue if the survivor goes into care
in circumstances where they may return to the house. However, once
it becomes clear that the survivor is in permanent care, this purpose is
exhausted. It appears that no-one then has a right to occupy.
The purpose might extend to enabling an adult child who lives at the
house to remain there after the death of one or both of the parents, but
that would be unusual.13
In the absence of that unusual situation, where:
(1) the deceased has died and left their share in the house to a will
trust; and
(2) the survivor has moved into a home;
it is considered that a purchaser of the survivor’s share would in principle

be able to obtain a sale of the house.
Suppose the trustees of the will trust exercise their overriding power
so as to terminate the survivor’s interest in possession in the settled share
and confer a life interest on an adult child. Could the child then acquire
a right to occupy and thus reduce the value of the survivor’s share? If
the trustees of land actually make the land available for occupation by
the child, then the child can acquire a right to occupy under s.12(1)(b)
TLATA 1996.14 The will trustees cannot unilaterally alter the purposes of
the trust of land but the purposes can be altered if the will trustees and the
survivor together agree. However, this can only happen if the land is suit-
able for the child’s occupation. That will not be the case if the child is an
12
The purposes of the trust of land may change after creation of the trust, if the change represents
a new purpose of all beneficial co- owners. For instance, a couple may originally buy the house
as a rental investment, and later move into the property. But that will be rare.
13
The position is different if the parent jointly owns the house with their child: see, e.g., The Chief
Adjudication Offi cer v Palfrey [1995] UKSSCSC_CIS_391_1992, accessible www.bailii.org, where
the daughter refused to move or join in the sale of a house which she jointly owned with her
elderly father and the Court of Appeal held that she had a powerful argument to resist an applica-
tion for sale on the ground that the underlying purpose of the trust was to provide for a family
home for them which had to be reflected in the valuation, i.e. the hypothetical purchaser would
have to estimate the risk that they might have to wait until the daughter’s death before obtaining
possession and that if their application to court were to fail, they would be liable in the ordinary
course to pay their own and the daughter’s costs.
14
See Smith (above) at pp.161– 67.

adult with no intention of moving into their parents’ house. In the typical
case, the children will be in late middle age with their own homes when
the surviving parent goes into permanent care. In those circumstances,
the child will not acquire a right of occupation even if they are given an
interest in possession in the settled share. A purchaser of the survivor’s
share could in principle force a sale. In practice that will normally be the
position. But this is an area which is highly fact-sensitive.15
If the trust of land trustees do not wish to sell, a purchaser of the survi-
vor’s share will have to make an application to the court before they can
realise the value of their interest. The application should succeed but there
is no certainty. This fact alone should substantially depress the value of
the survivor’s share. Apparently some local authorities have on occasion
accepted that the value of the survivor’s share of the house is nominal on
the grounds that a child has a right to occupy for life.16 In most cases, it is
unlikely that the child does have that right. This does not mean that the
discount in the value of that share is insignificant. A purchaser would be
reluctant to buy a share in land which could only be turned to account
by making an application to the court. The irrecoverable costs of such an
application will often represent a significant proportion of the value of the
share.
If the value of the survivor’s share is above £23,250, the use of a
will trust is still normally worthwhile. Suppose that the house is worth
£200,000 and is owned by a couple as tenants in common without a
mortgage. The first to die leaves their share on life interest trusts for the
survivor. Suppose that the survivor’s share is valued at £30,000. After
deducting 10% for the costs of sale, the survivor’s capital is assessed at
£27,000. Their other capital is worth less than £14,250.
Initially, the survivor is liable to pay the care home fees in full because
their capital (including their share in the house) exceeds £23,250.17
However, they may be able to defer payment of all or part of their obli-
gation to pay in return for a local authority charge over their beneficial
15
If the property is beneficially owned by relatives, the local authority consider that the value of
the resident’s interest will be heavily influenced by the possibility of a market amongst their co-
owners. If no other relative is willing to buy the resident’s interest, the local authority consider
that it is highly unlikely that any “outsider” would be willing to buy into the property unless
the fi nancial advantages far outweighed the risks and limitations involved: see the Charging for
Residential Accommodation Guide 2011 at 7.019, which goes on to say that: “The value of the
interest, even to a willing buyer, could in such circumstances effectively be nil”. However, it
was decided by the Court of Appeal in Wilkinson v Chief Adjudication Offi cer [2000] EWCA Civ
88, accessible www.bailii.org, that the starting point for the valuation of W’s share which had been
given to her and her brother in equal shares under their mother’s will was half the market value
of the house with vacant possession because there were no good grounds on which the brother
could have resisted an order for sale under s.14 Trusts of Land and Appointment of Trustees Act
1996. (Evans L.J. dissenting found that the interest should have been valued in accordance with
The Chief Adjudication Offi cer v Palfrey, discussed in fn.13 above, and on the basis that W’s applica-
tion for an order for sale would probably have failed.)
16
See discussion on the Trusts Discussion Forum at www.trustsdiscussionforum.co.uk.
17
See (1) at 20.4 (assessing liability to pay).

CAPITAL DISREGARDS 331
interest in the house.18 The local authority is not obliged to enter into this
arrangement (“a deferred payment agreement”). It is entitled to do so if
the house is or was previously occupied by the survivor as their only or
main residence.19
In practice, local authorities often enter into these agreements. The
alternative is to try to enforce the survivor’s liability for fees by forcing a
sale of their half share. This is unlikely to be a better option for the local
authority.
If the survivor and the local authority enter into a deferred payment
agreement, the payments which are deferred are the difference between
(1) the survivor’s total liability for fees and (2) the amount of that liabil-
ity if their interest in the home were disregarded. In the example above,
amount (2) will be solely based on the survivor’s income. This is all they
will have to pay. The remainder of their liability to pay fees in full will be
deferred and charged on the house.
That charge is an incumbrance on the survivor’s share in the house.
Once the amount of the charge has reached £13,000, the value of their
beneficial interest for the purposes of regulation 27(2) NAARR will
be £14,000. This is because their interest is valued at its market value
(£30,000) less 10% for expenses (£3,000) and less the amount secured
on it (£13,000). Once this position has been reached, the survivor’s
ability to pay will be assessed by reference to their income alone. The
heirs will ultimately inherit 93½% of the value of the property (a
house worth £200,000 subject to a charge of £13,000, and thus with a
net value of £187,000). In contrast, if the deceased had left their share
to the survivor absolutely, up to £186,000 of the value of the prop-
erty could be spent on care home fees, with the heirs inheriting only
£14,250.
Capital disregards
Certain capital is ignored in determining a person’s capital resources.20 The 20.6

most important disregard for our purposes is:
The value of the right to receive any income under a life interest or from a
[Scottish] liferent.21
18
See s.55 Health and Social Care Act 2001, the National Assistance (Residential Accommodation)
(Relevant Contributions) (England) Regulations 2001 (SI 2001/3069).
19
The Health and Social Care Act 2001 (Commencement No. 2) (England) Order 2001 (SI
2001/3167).
20
See Palin, “Capital Disregards and Care Home Fees” [2011] PCB 155.
21
Income Support (General) Regulations 1987 Sch.10 para.13, incorporated into Sch.4 NAARR,
which lists the items of capital to be disregarded, by para.11.

If the survivor has a life interest in the deceased’s share in the house, i.e.
the settled share, this will simply be left out of account.
There are many other capital assets which are disregarded.22 The follow-
ing disregards will sometimes apply to the survivor’s share in the house:
(1) A dwelling occupied by a person who is only temporarily resident

in the care home;23
(2) A dwelling still occupied by the partner of the care home resident
(including a former partner from whom the claimant is neither
estranged nor divorced); and
(3) A dwelling still occupied by a relative or family member who is
either over 60, incapacitated, or a child under 16 whom the resident
is liable to maintain.24
This is not an exhaustive list.
Deprivation of capital
20.7 Regulation 25(1) NAARR provides:
A resident may be treated as possessing actual capital of which he has deprived

himself for the purpose of decreasing the amount that he may be liable to pay
for his accommodation.
This rule is not directly relevant to the will planning discussed in this
chapter. It explains why it is important to do this planning by will. A
person cannot put their own interest in a property into a life interest
trust and thereby avail him or herself of the “disregard” for property in
which he or she has a life interest.25 The deprivation rule overrides the
disregard of a life interest. It treats the property given away (whether
into a life interest trust, to children, or otherwise) as actual capital of the
disponor. The deprivation rule is not relevant to will planning because
the survivor has not deprived him or herself of property belonging to
the deceased.
This notional capital is reduced each week by reference to the addi-
tional care home fee liability for that week attributable to the notional
capital.
22
Schedule 4 NAARR.
23
Paragraph 1 Sch.4 NAARR.
24
Paragraph 2 Sch.4 NAARR.
25
See 20.9 (Lifetime trusts and care planning).

A DMINISTRATION OF THE WILL TRUST 333
According to the local authority guidance,26 the deprivation rule will

apply even if reducing liability for care home fees was not the sole or
main purpose of the deprivation. It is sufficient that it was a significant
purpose.27 Similar wording (“for the purpose of ”) is used in s.423(3)
Insolvency Act 1986 (transactions defrauding creditors).28 The courts
have held that it is not necessary that the only or dominant purpose of the
transaction was to put assets beyond the reach of creditors. It is sufficient
that it was a “substantial purpose”.29 It is suggested that the same test
applies to the deprivation rule.
Administration of the will trust after the survivor goes into care
This section considers the position where the first to die has given their 20.8
share of the home to an IPDI trust and the survivor goes into permanent
care. The trustees have to consider what to do with the house. There are
six main options:
(1) Sell the whole house to a third party.

(2) The survivor sells their share at a discounted price:
(a) to the children, or
(b) to the will trustees.
26
Charging for Residential Accommodation Guide (“CRAG”) 2011, Department of Health, acces-
sible www.dh.gov.uk/en/Publicationsandstatistics/Publications/index.htm.
27
See CRAG at 6.062 to 6.063. The purpose of the transaction is tested subjectively. The resident
must be shown to have had an intention of achieving the relevant purpose. This can be estab-
lished by inference: see, e.g. Yule v South Lanarkshire Council [2000] SLT 1249, where the Scottish
Court of Session held that the local authority was entitled to conclude that Mrs Yule had the
necessary intention even though she had transferred her property a year before any significant
deterioration of her health and there was no evidence that she was aware of the charging rules.
However, in R v Dorset County Council, ex parte personal representatives of Christopher Beeson and
Secretary of State for Health [2001] EWHC Admin 986, Richards J. said (at [11]) that he “did not
see how an application could be found to have the relevant purpose unless he was aware of the
possibility that he might be provided with accommodation and that he might be liable to pay for
it”. The timing of the disposal is also taken into account when considering purpose: see CRAG
at 6.070, which states that “It would be unreasonable to decide that a resident had disposed
of an asset in order to reduce his charge for accommodation when the disposal took place at a
time when he was fit and healthy and could not have foreseen the need for a move to residential
accommodation”.
28
“Where a person has entered into [a transaction at an undervalue], an order shall only be made
if the court is satisfied that it was entered into by him for the purpose—
(a) of putting assets beyond the reach of a person who is making, or may at some time make,
a claim against him, or
(b) of otherwise prejudicing the interests of such a person in relation to the claim which he is
making or may make.”
29
IRC v Hashmi [2002] 2 BCLC 489 at [33], [37] and [38] and Hill v Spread Trustee Co Ltd [2007]
1 WLR 2404 at [131].

The purchase price may either be paid or left outstanding as an

interest free loan.
(3) Let the house.
(4) Leave the house empty.
(5) Children or other relatives move into occupation rent free.
(6) The survivor gives their share to the will trustees.
Option (1) is the least desirable from the perspective of care home
fees. When the house is sold, the survivor will become entitled to
half of the proceeds. The discount in the value of the share (for care
home fees purposes) is lost. Thereafter, their liability will be assessed
by reference to the cash proceeds and not the (lower) value of the half
share.
Option (2) will be attractive if the survivor can justify selling at the
discounted value. The discount will not then be lost. The children (in
conjunction with the trustees) will be able to realize the value of the
house by selling it or letting it. The trustees should consider terminat-
ing the survivor’s interest in possession in the settled share. Otherwise,
half of the rental income or income from the proceeds of sale will be
taken into account in assessing the survivor’s care fees. The deprivation
of capital rule will not apply on the termination of the survivor’s interest
by the trustees.30 There is a SDLT cost if the sale price exceeds the SDLT
threshold.
If the amount for which the share is sold to the children is too low, the
local authority may invoke the deprivation of capital rule. Perhaps the sur-
vivor could have negotiated a higher price on account of the fact that the
value of the share to the children is much higher, particularly if they are in
a position to procure a sale of the whole house. This risk may be greater if
the children have to borrow to buy the survivor’s share, clearly intending
to discharge it out of the proceeds of a subsequent sale.
Under Option (3) the survivor’s half share in the rental income will
be taken into account as income. The survivor’s interest in possession in
the settled share should be terminated so that this is not also taken into
account (see option (2) above).
Option (4) is could be sensible if the survivor may return to live in the
house. Otherwise, it is not an attractive long term option.
If the children want to move in to the house, then option (5) is likely
to maximise the discount in the value of the survivor’s share. However, it
is rare for the children to wish to do this.
If the survivor gives their share to the will trustees, option (6), the
deprivation of capital rule will in principle apply. The survivor will
30

LIFETIME TRUSTS AND CARE FEE PLANNING 335
treated as possessing the actual capital of which he or she has deprived

himself or herself.31 That capital is valued in accordance with normal
rules. It is valued as though it were still owned by the survivor. It is con-
sidered that the discount for jointly held property will be available.32 The
capital is to be valued “as if it were actual capital which [the survivor]
does possess”.33
If the share were sold or given to the children, there would be a
CGT downside. The children will have a low base cost and no principal
private residence relief. It is suggested that the best course is that the
survivor should give or sell the share to the trustees of the will trust.
The trustees will then have three years from the date when the survi-
vor moved out to sell the whole house with the benefit of full principal
private residence relief. Those who are concerned about care home fees
and who look ahead might do this well before the survivor goes into a
home.
Lifetime trusts and care fee planning
The drafter should consider whether it is appropriate to act for a client who 20.9
wishes to transfer their interest in a property into a lifetime trust for the
purpose of reducing their liability to pay care fees. The local authority is
likely to assess the client’s interest as part of their capital under the capital
deprivation rule.34 The transfer is liable to be set aside if the local authority
is unable to recover the charges.35 It is doubtful whether legal professional
privilege would attach to advice given or communications passing between
the client and the solicitor.36 It may not be appropriate to act at all.37 The
31
32
Reg. 25(5).
33
Reg. 25(5).
34
35
Under section 423 Insolvency Act 1986 on the basis that its purpose was to put assets beyond the
reach or otherwise prejudice the interest of the local authority. In addition, if the client moved
into residential accommodation within six months of the transfer, the local authority might seek
to recover the charges from the trustees under s.21 Health and Social Services and Social Security
Adjudications Act 1983.
36
On the basis that the “iniquity principle” applies. The principle is that advice sought or given for
the purpose of effecting iniquity is not privileged: Barclays Bank v Eustice [1995] 1 WLR 1238 at
1249. Although the case law refers to crime, fraud or dishonesty, it is plain that the term “fraud” is
used in a relatively wide sense: Eustice at 1249D. A scheme to effect a transaction at an undervalue
is sufficient (as in Eustice); as is making dispositions with the intention of defeating a spouse’s claim
for fi nancial relief (see C v C [2008] 1 FLR 115). In our view, the same approach is likely to be
taken in connection with the capital deprivation rule.
37
The fi rst two mandatory principles in the SRA Code of Conduct 2011 are that solicitors must
uphold the law and the proper administration of justice and act with integrity. The outcomes
which they must achieve in order to comply with those principles in the context of client care
include “O(1.3) when deciding whether to act, or terminate your instructions, you comply with
the law and the Code”. The old Rule 2.01 of the Solicitors’ Code of Conduct 2007 provided that

transaction is at best tax neutral (for small estates) but has the potential for
putting the client in a much worse fiscal position.38
solicitors must refuse to act or cease acting for a client when to act would involve them in a breach
of law. This would seem to include transactions in breach of s.423 Insolvency Act 1986 and pos-
sibly those to which the capital deprivation rule applies. See also the Law Society’s Practice Note
on Making Gifts of Assets (6 October 2011), accessible at www.lawsociety.org.uk/productsandservices/
practicenotes/giftsofassets.page.
38
If the clients’ interests exceed their NRB, there will be an immediate charge to IHT and ongoing
relevant property charges. The fi rst to die’s NRB will be used up so that no transferable NRB
is available on the survivor’s death. The interests will also be taxed as part of the clients’ estates
under the GWR rules. If the fi rst to die’s interest had simply been left on life interest trusts for
the surviving spouse, none of these problems would arise.

CHAPTER 21
ADMINISTRATIVE PROVISIONS
Introduction
The administrative powers of trustees conferred by the general law are 21.1
broadly but not wholly satisfactory. The Trustee Act 2000 improved
matters considerably, but the general law still imposes restrictions (some-
times complex and bureaucratic) intended to reduce the risk of misman-
agement.1 The statutory powers of investment and delegation are good
examples. This approach is well intentioned but misguided. Where the
general law of trusts fails, it falls to the drafter to ensure that the trust
has the administrative provisions needed to allow trustees to manage the
trust fund in the best way; and to find a fair balance between trustees and
beneficiaries when their interests confl ict.
It is convenient to place all the provisions dealing with the administra-
tion of the trust in a schedule.2
Unnecessary provisions
Provisions duplicating the Trustee Acts
Where the general law already confers powers on trustees, no purpose is 21.2
served in repeating the terms of the statute at length in the trust. This is
often found in trust deeds: probably the drafter is following precedents
unrevised since the enactment of the Trustee Act 1925 or its nineteenth
1
Law Commission, Trustees’ Powers and Duties (Law Com. Report No. 260), para.2–19, accessible
http://lawcommission.justice.gov.uk/
“The law must aim to achieve a balance between two factors—
(1) the desirability of conferring the widest possible investment powers, so that trustees may
invest trust assets in whatever manner is appropriate for the trust; and
(2) the need to ensure that trustees act prudently in safeguarding the capital of the trust.”
2
10.30 (Schedule of administrative provisions).

338 A DMINISTRATIVE PROVISIONS
century predecessors. Common examples are the power to apportion

blended funds3 and power to ascertain and fi x valuations.4
Power to insure
21.3 Trustees have full power to insure trust property.5

It is quite common to provide that trustees should not be liable for any
loss that may result from a failure to take out insurance. In this book a
provision of this kind is intentionally omitted. It is considered that trus-
tees should be expected to give proper consideration to the question of
whether or not to insure trust property. Proper reasons for not taking out
insurance may include cost and difficulties of funding. They would not of
course be liable for loss if, having considered the matter, they reasonably
decided not to insure.6
Power to vary investments

21.4 The Trustees may vary or transpose the investments for or into others of any nature hereby
authorised.
Wherever trustees have a power to invest, they have by implication power

to sell any trust property and invest or reinvest the proceeds.7 This provi-
sion is still found in some precedents. Perhaps it is thought worthwhile
to express clearly what would otherwise only be implied; perhaps the
form is retained under the influence of obsolete statutory precedent.8
The provision was sometimes incorporated into the trust-for-sale clause,
now happily obsolete. More logically, it is sometimes given the status of a
separate power. In any event, it is certainly unnecessary; especially where
there is a general power of management.
Power to add powers
21.5 Some trusts give trustees power to confer additional administrative

powers. In the precedents in this book such a power is unnecessary. The
powers conferred expressly are comprehensive. For good measure the
power of appointment can be used to confer additional administrative
powers.9 The power to add powers would do no harm;10 but the possibil-
3
Section 15(b) TA 1925.
4
21.49 (Power of appropriation).
5
Section 19 TA 1925.
6
This is the view of the Law Commission: Trustees’ Powers and Duties (Law Com. Report No. 260),
para.6–8, accessible http://lawcommission.justice.gov.uk/.
7
Re Pope [1911] 2 Ch 442.
8
Section 1(1) Trustee Investments Act 1961. The contemporary provisions in the TA 2000 have
no equivalent.
9
11.2 (Power of appointment).
10
It might be objected that the extent of the power is unclear: the borderline between administra-

UNNECESSARY PROVISIONS 339
ity of the power being usefully invoked is so remote that it merits no place
in a standard draft.
Power to accept additional funds or onerous property
The Trustees may accept such additional money or investments or other property as may be 21.6
paid or transferred to them upon the trusts hereof by the settlor or by any other person (including
property of an onerous nature) the acceptance of which the Trustees consider to be in the interest
of the benefi ciaries.
Trustees do not need express power to accept additions to the trust fund.11
(If anyone doubts this, let them ask: what remedy would there be for a
breach of trust of this kind?)
The power as regards onerous property needs more consideration. The
expression “onerous property” suggests property which may give rise to
a liability, such as a lease with tenants’ covenants, or shares which are not
fully paid up or contaminated land.12 “Accepting” such property suggests
that on acquiring the property, the trustees become liable for leasehold
covenants, calls on the shares, or subject to duties imposed on the owner
of the land.
The trustees could use trust funds to purchase such property. On what
basis could it possibly be said that they were not entitled to accept such
property if given to them? Possibly the onerous property may have no
value or a negative value: it may (in common parlance) be a liability. In
that case the trustees could not properly accept it as a gift (unless author-
ised in specific terms to accept onerous property to the benefit of the
“donee” and to the detriment of the trust fund). It is therefore considered
that a general power to accept additional property is unnecessary in a
standard draft.13
Powers relating to accounts and audits
For all practical purposes the powers in the Trustee Act 1925 are sufficient, 21.7
and no special provision is required.14
tive and dispositive powers is not a precise one. But the existence of the power would not give rise
to difficulties; and questions of doubt should not arise in practice.
11
10.40 (Defi nition of “the trust fund”).
12
The expression “onerous property” is not a term of art. Contrast the more elaborate defi nition of
“onerous property” in s.178 Insolvency Act 1986.
13
The power may be useful in the context of tax avoidance arrangements where it may be par-
ticularly important that added property forms part of the trust to which it is added. This is not
sufficiently common to merit a place in a standard draft. See also 17.13 (Gift by will to existing
trust).
14
Section 22(4) TA 1925 provides that trustees may arrange audited accounts every three years
or more often if it is reasonable to do so. The power is wide enough to allow trustees to have
accounts audited every year if they wish, or produce unaudited accounts, or for a dormant trust,
not to produce any accounts at all.

Powers to deal with shares and debentures
21.8 Section 10(3) of the Trustee Act 1925 gave trustees a general power to
deal with securities:
Where any securities of a company are subject to a trust, the trustees may concur in
any scheme or arrangement)
(a) for the reconstruction of the company;
(b) for the sale of all or any part of the property and undertaking of the company
to another company;
(bb) for the acquisition of the securities of the company, or of control thereof by
another company;
(c) for the amalgamation of the company with another company;
(d) for the release, modification, or variation of any rights, privileges or liabilities
attached to the securities or any of them;
in like manner as if they were entitled to such securities beneficially . . .
“Securities” here meant shares and stocks, but (arguably) not deben-
tures.15 Some drafters therefore set out at length in their drafts the terms
of s.10(3) TA 1925 but with one extension: the term “securities” is
defi ned to include “debentures”. This is here called “the extended s.10(3)
power”.
Is the extended s.10(3) power needed? It is thought not. The only
reason for s.10(3) is that the proposed arrangements might cause the
trustees to acquire new assets in place of their old securities. Those new
assets might not be authorised investments. This is the problem which the
s.10(3) power was intended to meet.16
It follows that where (as is now the case) the trustees have a wide
power of investment they do not need the s.10(3) power at all; a fortiori
they do not need any extension of the power to deal with debentures.
This was recognised by the Trustee Act 2000 which repealed s.10 in its
entirety. For good measure, the general power of management would
cover this situation. In this book, therefore, the extended s.10(3) power
is not adopted.
Power to repair and maintain trust property
21.9 Trustees have power to repair and maintain trust property.17 It is not neces-
sary to make express provision.
15
Section 68(13) TA 1925.
16
Wolstenholme and Cherry, Conveyancing Statutes (13th edn, 1972) Vol.4, p.10.
17
Re Hotchkys (1886) 32 Ch D 408 at 416–7; s.6 TLATA 1996.

UNNECESSARY FORMS RELATING TO ADMINISTRATIVE POWERS 341
Unnecessary forms relating to administrative powers
“Powers not restricted by technical rules”
These powers shall not be restricted by any technical rules of interpretation. They shall operate 21.10
according to the widest generality of which they are capable.
This form is not desirable: see 4.13 (Construction not restricted by techni-
cal rules).
Restricting administrative powers to perpetuity period
Administrative powers are not subject to the rule against perpetuities and 21.11
need not be restricted to the perpetuity period.18
“In addition to the statutory powers”
One sometimes sees a form that the powers of the trustees conferred by 21.12
the trust shall be in addition to the powers conferred by statute or by law.
This is unnecessary.19
Trustees entitled to expenses of exercising powers
The exercise of a power may involve expense. One sometimes sees an 21.13
express provision authorising the trustees to incur that expense. Even the
parliamentary drafter is not above this practice.20 However, trustees have a
general power to reimburse themselves for all expenses properly incurred
when acting on behalf of the trust.21 Individual “charging” provisions are
therefore unnecessary.
A further issue is whether the expenses should be paid out of income
or capital. In the precedents in this book this is dealt with in a separate
clause so it is not necessary to address this question in any individual
power.
Trustees not liable for loss from exercising powers
This is otiose: see 6.20 (Construction of trustee exemption clauses).
18
Section 1 PAA 2009.
19
Section 69(2) TA 1925 already provides that the powers conferred by statute shall be in addition
to the powers conferred by the trust.
20
Section 23(1) TA 1925 (repealed): “Trustees . . . may, instead of acting personally, employ and
pay an agent . . . and shall be entitled to be allowed and paid all charges and expenses so incurred . . .”.
21
Section 31 TA 2000; Dowse v Gorton [1891] AC 190.

Other provisions
21.14 Some provisions are not permitted in trusts intended to qualify as IP or

IHT special trusts. Such powers must be avoided in trusts of the appropri-
ate type; they may be included in discretionary trusts. See 16.1 (Provisions
inconsistent with IP and IHT special trusts). For provisions authorising
trustees to act negligently, see 6.20 (Construction of trustee exemption
clauses). For power to change the name of a trust, see 10.18 (Power to
change name of trust). For power to change the trust period, see 9.4
(Power to curtail the trust period).
Void powers
Power to decide between income and capital
21.15 The following power was held to be void22 :

The trustees may:
(1) determine what articles pass under any specific bequest
(2) determine whether any moneys are to be considered as capital or income
(3) determine all questions and matters of doubt arising in the execution of the
trusts of my will
and every such determination whether made upon a question actually raised or only
implied in the acts or proceedings of the trustees shall be conclusive and binding upon
all persons interested under my will.
Accordingly trustees were not entitled, despite the clear terms of this
power, to decide whether the proceeds of a sale of timber constituted
capital or income. Danckwerts J. said:
the insertion of a clause of this kind . . . is not desirable, because it is

likely to mislead equally trustees and beneficiaries as to their true position
and rights; and, therefore, it would be far better if a clause of this kind was
omitted.
So trustees should not be given power to decide whether a sum received

by them is income or capital; or whether expenditure is of an income or
capital nature. These questions must be decided by the courts; even though
it has been said that the courts have not made a particularly good job of
22
This was invalid as an attempt to oust the jurisdiction of the court: Re Wynn [1952] Ch 271. The
power set out here is a simplification of the actual form used in Wynn. Other parts of the clause
(not set out here) repeat provisions of the TA 1925 and were otiose. The division into sub- clauses
as set out in the text above is not in the original draft. If the drafter in Wynn had divided his long
clause into subclauses it would have been easier to consider their implications.

VOID POWERS 343
answering them.23 This principle does not prohibit powers which allow
trustees to treat income as capital, or vice versa; see 21.29 (Provisions relat-
ing to the income/capital distinction).
Power to determine questions of fact or law or “matters of doubt”
The general rule is that trustees should not be given power to determine 21.16
questions of law. Plainly it is a mistake—though once a common form—to
give trustees power to determine “questions and matters of doubt”.
Trustees may in principle be given power to determine questions of
fact. The classic example is a power to make valuations. There is a statu-
tory precedent for this.24
In practice many questions are difficult to classify as “fact” or “law”.
The drafter must tread warily in this area. To be safe, no-one should be
given power to determine the meaning of expressions used in a trust. Nor,
which is similar, should anyone have power to determine whether a con-
dition of the trust is satisfied. But in special cases the courts will permit
this.25 If the point is likely to be important the general practitioner should
seek specialist advice. This book does not employ any provisions using
this technique.
Power to make determinations subject to jurisdiction of court
The Trustees may (subject to the jurisdiction of the Court) determine whether 21.17
receipts and liabilities are to be considered as capital or income, and whether
expenses ought to be paid out of capital or income. The Trustees shall not be
liable for any act done in pursuance of such determination (in the absence of
23
Kay, Is Complexity in Taxation Inevitable? (IFS Working Paper 57, February 1985) accessible www.
kessler.co.uk. Kay is an economist; but few lawyers would disagree. There is a good argument that
Wynn should not be followed by a modern court, but the drafter should not proceed on that basis.
Wynn was followed in Wendt v Orr [2004] WASC; 26 [2005] WTLR 223; 6 ITELR 989 (reversed
on other grounds on appeal). However, in Richardson v FCT (2001) 48 ATR 101; [2001] FCA
1354 the Federal Court of Australia treated as valid, for the purposes of argument, a power “to
determine” whether any real or personal property or any increase or decrease in amount number
or value of any property or holdings of property or any receipts or payments from for or in con-
nection with any real or personal property shall be treated as and credited or debited to capital
or to income . . .” Re Wynn and similar authorities were not brought to the Court’s attention.
Moreover, s.11 TA 2000 assumes that trustees can have “a power to decide whether payments
should be made out of income or capital”. Modern market practices have blurred the income/
capital distinction still further.
24
Section 22(3) TA 1925. Section 5 Trustee Investments Act 1961 (repealed) is another example.
25
The Court brushed aside a provision that “my trustees shall be the sole judges of what the
term ‘advancement in life’ may signify” where the trustees exercised the power in self-interest:
Molyneux v Fletcher [1898] 1 QB 648. But the Courts respected a provision that the question
whether a person belonged to “the Jewish Faith” be determined by the Chief Rabbi: Re Tuck
[1978] Ch 49. The logical basis for this area of law has yet to be fully worked out. This is not the
place to summarise the tentative solutions proposed in the cases. The practitioner is fortunate
that this area has sparked considerable academic interest and a correspondingly large literature;
perhaps equally fortunately, the point arises only rarely in practice.

fraud or negligence) even though it shall subsequently be held to have been

wrongly made.
This is a power to determine doubtful capital/income issues, but only so

far as the law allows. This is not objectionable, but it is of no effect, so long
as Wynn is good law. This clause was found in earlier editions of this book.
Now that Wynn has been followed, there seems to be no point at all in this
clause. The clause does contain an exclusion of liability for trustees who
make erroneous determinations but the general trustee exclusion clause in
this book will cover that point.
Power exercisable with consent of court
21.18 The drafter should not direct that any power or provision in the trust
should depend on the consent of the court. Such provisions are void.26
Which powers should the drafter include?
21.19 It is hard to predict exactly what powers trustees will need, because trus-
tees in different circumstances need different powers. Trusts designed to
hold investments, a residence, or shares in a family company each have
different requirements.
When drafting administrative provisions two considerations lead the
drafter to a policy of all-inclusion. First, circumstances may change. It is
easy to see that trust property of one sort may be sold and other property
acquired. So broad provisions should be included regardless of current
needs. The second motive is the desire for a standard form of trustees’
powers; so the drafter can run off their trusts and wills without too much
consideration of individual circumstances. And since the client pays for
the drafter’s time and trouble, this consideration is neither selfish nor lazy.
STEP Standard Provisions
21.20 The Society of Trust and Estate Practitioners (STEP) has published the
second edition of its standard provisions. We refer to those provisions as
“SSP2”. 27 The text is based on the provisions used in this book. They are
designed to be incorporated by reference.
Standard forms of this type are not an innovation. Standard forms
26
Re Hooker [1955] Ch 55.
27
The text of SSP2 is set out in Appendix 1. For the fi rst edition see 10th edition of this book. The
text is also published in Precedents for the Conveyancer (looseleaf ); Wills, Probate and Administration

STEP STANDARD PROVISIONS 345
in conveyancing and company documentation are taken for granted.

Standard precedents in trust and will drafting are not unknown.28
The use of the STEP standard provisions has the following advantages.
It shortens the length of a document; it reduces the risk of unfortunate
omissions or inclusions; and the practitioner familiar with the standard
form will save time because they will not need to review individual
administrative provisions at length whenever dealing with the trust.
On the other hand, if administrative provisions are set out at length, the
material is immediately available for the testator and other readers; one
need not turn to a separate document to find out the terms of the trust.
Where is the balance of advantage? The best course is to use the STEP
standard provisions in simple matters, and to set out an express schedule
of provisions in more substantial ones. The STEP standard provisions are
now very widely used in exactly this sort of situation.
The course for which there is absolutely no justification is where the
drafter fails to provide adequate provisions. The typical will is only two
pages long. After the Trustee Act 2000 a trust governed by the general
law is just about adequate. Nevertheless the lot of the beneficiaries under
such wills would be improved if wills of this kind included SSP2 by
reference.29 This led Professor John Adams to describe the provisions as
“quite the most exciting development for private client drafters for several
decades”; and Ralph Ray to describe them as “an enormous asset”.30
The first edition of the provisions (SSP1) remains in effect if it is incor-
porated into a will or trust whenever made.31 A will should incorporate
by reference only a document in existence at the date of execution.32 SSP2
was formally adopted by STEP on 16 April 2011. It is therefore possible
for a will made now to incorporate SSP2. Which provisions are incorpo-
rated depend entirely on the terms of the document. The recommended
course is to use the current (2nd) edition.
Incorporating SSP2
The drafter has a choice, either: 21.21
(1) to incorporate only the “core” provisions (clauses 1–13) of SSP2; or
Service (looseleaf ); Encyclopaedia of Forms and Precedents (5th edn, 2007), Vol.40(1), para.3576;
Administration of Trusts (looseleaf ); and is accessible www.step.org.
28
e.g. s.33 TA 1925 (protective trusts); s.179 LPA 1925; the Statutory Will Forms 1925; s.11
Married Woman’s Property Act 1882; Law Society’s Standard Conditions of Sale; s.7 Agricultural
Holdings Act 1986.
29
Such wills generally contain absolute gifts, rather than trusts; but trusts for minors may come
about under s.33 Wills Act 1837 and the provisions may also be needed for the due administration
of the will even if it does not create any trusts.
30
Taxation, Vol.138, p.348.
31
It is possible to carry on using the fi rst edition but we strongly recommend switching to SSP2.
32
Section 9 Wills Act 1837. The problem does not arise with lifetime settlements.

(2) to incorporate the fuller form which includes the “special

provisions”.
The default choice is the core provisions. The special provisions (clauses
14–23) can only be incorporated by reference:
The standard provisions and all of the special provisions of the Society of Trust and
Estate Practitioners (2nd edn) shall apply
Specified special provisions may be incorporated by the words:

The standard provisions and the following special provisions of the Society of Trust
and Estate Practitioners (2nd edn) shall apply:
[specify which special provisions apply, as appropriate]
The drafter faces a confl ict between two irreconcilables: (1) restricting
trustees’ actions so that they cannot fail to carry out the wishes of the tes-
tator or settlor and (2) giving trustees freedom so that they can deal with
the fund sensibly in the light of circumstances which cannot be exactly
anticipated by the testator.
Our recommended approach is to give the trustees fairly wide powers
and rely on them to use them sensibly. Executors and trustees are persons
chosen by the testator or settlor, specifically, and they should chose people
who can be expected to carry out their wishes. We therefore recommend
that all the special provisions are incorporated.
Subsequent editions of STEP standard provisions
21.22 A will should incorporate the STEP standard provisions as at the date of
the will, not as at the date of the death.33 It is unlikely that STEP will
bring out new editions often but at some time a third edition may be
needed. SSP2 therefore provides that the executors or trustees may by deed
incorporate that or any subsequent edition. It is considered, in light of Re
Beatty34, that later editions may be incorporated in this way. If the special
provisions have not been incorporated, the trustees cannot incorporate
them at a later stage.
Standard administrative provisions
21.23 We can now turn to consider the standard administrative provisions.
33
The better view is that a will may validly incorporate the provisions at the date of death, or as
issued from time to time. However, it might be argued that the clause is invalid because of s.9
Wills Act 1837, so this form is not recommended. The problem does not arise with lifetime trusts.
34
[1990] 1 WLR 1503.

POWER OF INVESTMENT 347
Power of investment
In the absence of an express power of investment, trustees may invest in 21.24

any investment 35 except land outside the United Kingdom.36
The exception is misguided. The Law Commission state:
The concept of the trust is not universally recognised and, even in those juris-
dictions that do recognise trusts, the law does not necessary give effect to the
safeguards for the protection of the interests of beneficiaries against the claims
of third parties that apply in England and Wales.37
The Law Commission Report is surely rare if not unique in that it con-
tains a refutation and repudiation of its own position: the Scottish Law
Commission observe in the following page of the same report:
Trustees are subject to a duty of care at common law in the exercise of their
functions. This duty requires them to consider the risk associated with pur-
chasing immovable property in a foreign country that does not recognise trusts
(such as claims by personal creditors of the trustees, and rights of succession on
their death) in the same way as it requires them to weigh the risks of investing
in securities in developing countries, for example, or the more volatile sectors
of the British economy.38
Quite so. Accordingly, the form used here extends the power of invest-
ment. The form used in this book is as follows:
(1) The Trustees may make any kind of investment that they could make if they were
absolutely entitled to the Trust Fund. In particular the Trustees may invest in land
in any part of the world and unsecured loans.
(2) The Trustees may invest in speculative or hazardous investments but this power
may only be exercised at the time when there are at least two Trustees, or the
Trustee is a company carrying on a business which consists of or includes the
management or administration of trusts.
The opening sentence echoes the statutory power.39 The specific extension
35
On the meaning of “investment” see Hicks, “The TA 2000 and the modern meaning of ‘invest-
ment’” [2001] TLI 15(4) 203 accessible www.kessler.co.uk.
36
Section 3 TA 2000.
37
Law Com., Report No. 260, Trustees’ Powers and Duties, para.2.42 accessible http://lawcommission.
justice.gov.uk/.
38
Law Com. Report No. 260, Trustees’ Powers and Duties, para.2.46. The Trustee Act (Northern
Ireland) 2001 also follows the Scottish reasoning and contains no exceptions for foreign land. In
Northern Ireland it was felt in particular that prohibiting the acquisition of land in the Republic
of Ireland without express authorisation could not be justified. It is doubtful if the English statu-
tory rule is EU law compliant, but it is not necessary to pursue that here.
39
A power to invest “in such investments as the trustees think fit” was held to be unlimited without
adding “as if they were absolutely entitled”: Re Harari [1949] 1 All ER 430; Re Peczenick [1964]
2 All ER 339. See 6.24 (“As if the trustees were the absolute/beneficial owner”). For another
statutory precedent see s.34 Pensions Act 1995.

to unsecured loans is only for the avoidance of doubt.40 It is unlikely that

trustees would ever want to invest in unsecured loans (absent a desire to
confer a benefit on a beneficiary-borrower), but on balance it is preferable
to give them clear power to do so if they wish.
Former editions of this book provided that trustees are under no
obligation to diversify the Trust Fund. There is no rule which requires
trustees to diversify trust investments; the rule is that trustees must con-
sider the need for diversification (so far as is appropriate to the circum-
stances of the trust).41 This provision is therefore not strictly necessary.
On balance we consider that it is best left out.42 Some drafters exclude
the duty to consider the need for diversification43 but that is wrong in
principle.
21.25 Although wide, the power of investment is restricted by the usual
principles applying to fiduciary44 powers (supplemented by statutory pro-
visions which merely state what the general law would in any case have
implied). Accordingly:
(1) Duty to maximise return. The trustees must aim to seek the best
return for the beneficiaries, judged in relation to the risks of the
investments in question. For instance, they should not invest
merely to accommodate the wishes of the settlor.45
(2) Prudence. Trustees must in principle be prudent in their choice of
investments. This does not mean they must avoid risk altogether,
but no more than a “prudent degree of risk” is acceptable. Trustees
must avoid “hazardous” or “speculative” investments unless the
trust deed confers express authority to do so.
Should the drafter alter this rule? In some cases the settlor or benefi-
ciaries will be entrepreneurs and the trust fund will be invested in their
business. In these cases a power to invest in hazardous or speculative
investments will be necessary. In other cases the trust fund is a “nest egg”
40
Khoo Tek Keong v Ch’ng Joo Tuan Neoh [1934] AC 529 was decided on the curious ground that a
secured loan is, but an unsecured loan is not, an “investment”. The concept of “investment” is
much wider than it used to be, and this ground of the decision would not now be adopted in the
UK.
41
Section 4(3)(b) TA 2000. This is clear from the statutory wording, but if authority is needed, see
Gregson v HAE Trustees [2008] EWHC 1006 (Ch) at [90].
42
On principle, it is best not to include clauses which have no effect and are merely “for the avoid-
ance of doubt” unless it is clear that they do good and no harm. In this case, omission of the clause
may confuse those who (wrongly) think there is a duty to diversify. However, its inclusion may
confuse those who (wrongly) think it excludes the duty to consider diversification. On balance,
we therefore prefer to omit it. The same approach is adopted in SSP2.
43
TA 2000 does not state expressly that the duty can be excluded but this should be implied: the
point is discussed in more detail in the context of excluding s.15 TA 2000, see 21.64 (Delegation).
44
On the fiduciary nature of a power despite the “absolute owner” form, see 6.21 (“Absolute
owner” and “beneficial owner” clauses).
45
Cowan v Scargill [1985] Ch 270.

GENERAL POWER OF MANAGEMENT AND DISPOSITION 349
for the beneficiaries and the settlor would not want the trustees to indulge
in anything approaching speculation.
What is the drafter to do? The precedents in this book include a clause
authorising speculative investments subject to a two-trustee safeguard,
though it should be deleted in appropriate cases.46
(3) Duty to select suitable investments. The trustees must have regard to
the suitability of the investment to the trust. See s.4(3)(a) Trustee
Act 2000. Some drafters direct that this section should not apply,
but that is not done here. Plainly, trustees should try to select suit-
able investments; where the power is expressly excluded the duty
of the trustees could hardly be different.
(4) Duty to obtain and consider proper investment advice so far as necessary and
appropriate.47 This, again, does no more than spell out the implica-
tions of a fiduciary power in our era of investment sophistication
and complexity, and it is not sensible to alter this rule.
Matters not belonging in an investment clause. An investment clause some-

times confers a power to acquire residential property for a beneficiary to
occupy, but this is not the logical place for that power. The acquisition of
a residence for that purpose is not an “investment”. The matter is more
appropriately covered in a separate clause. Likewise questions of wasting
assets, non-income producing assets and joint property are best dealt with
in separate clauses. On power to vary investments, see 21.4 (Power to
vary investments). On the formula “whether producing income or not”,
see 21.36 (The balance between income and capital). No express power is
needed to acquire insurance policies as an investment.
General power of management and disposition

The Trustees may effect any transaction relating to the management or disposition of
Trust Property as if they were absolutely entitled to it.48 In particular:
(a) The Trustees may repair and maintain Trust Property.
(b) The Trustees may develop or improve Trust Property.
46
It is best to resist the temptation to specify the circumstances in which hazardous investments
may be made. Even if speculative investments are authorised, the trustees remain under a general
duty to seek the best return for the beneficiaries, judged in relation to the risk involved.
47
Section 5 TA 2000.
48
On the interpretation of the phrase “as if they were absolutely entitled” see 6.21 (“absolute
owner” and “beneficial owner” clauses).

Statute has conferred on trustees general powers in relation to land in

England and Wales.49 This general power is therefore still needed for per-
sonal property and for land outside England and Wales.
One could attempt to specify and authorise every conceivable form of
disposition. This leads to a thesaurus of legal terminology:
The Trustees may retain or sell, exchange, convey, lease, mortgage, charge, pledge, license, grant
options over and otherwise conduct the management of any real or personal property comprised
in the trust fund . . .
Section 57 Trustee Act 1925 and s.64 Settled Land Act 1925 are the basis
for other precedents to the same effect. Trustees should be allowed to
manage trust property without restrictions; this is the effect of the above
form.
Power to improve trust property

21.27 The Trustees may develop or improve Trust Property.
Trustees normally have power under the general law to make

improvements.50
Improvements would normally be paid out of capital. Under the general
law the trustees may in some cases, and must in other cases, recoup the
cost of improvements gradually out of income. This is supposed to be
done by instalments over a period of up to 25 years.51 In practice it will be
rare for the trustees to want to do this. However, in the precedents used
in this book, the trustees are given a discretion in the matter: recoupment
out of income is not compulsory.
It is quite common to fi nd extended provision allowing the cost of
improvement to be paid directly out of income:
The Trustees may apply capital or income of the Trust Fund in the improvement or development
of Trust Property.
This raises a problem. The power to use income for improvements is dis-
positive in nature, and inconsistent with an IP.52 A clause of this kind is
best avoided.
49
Section 6(1) TLATA 1996. The draft clause is loosely based on this section.
50
In the case of land in England and Wales, under s.6(1) TLATA 1996; in other cases improvement
expenditure may be authorised as an “investment” under the power of investment.
51
Section 84(2)(a) (b) SLA 1925. It is considered that this rule continues to apply after the TLATA
1996. By implication, this must plainly be permitted under the rule against accumulations, and
consistent with an interest in possession. There is a difference between this sort of gradual recoup-
ment and paying the entire cost out of one year’s income. The position is analogous to sinking
funds: see 21.35 (Income and capital).
52
The question arises whether the power would be a “departure” power or a “disqualifying power”.
This would depend on the words used, but in the absence of any clear indication in the wording,
the latter is the better view. See 16.9 (IP trusts: “departure” v “disqualifying” powers).

PROVISIONS RELATING TO THE INCOME/CAPITAL DISTINCTION 351
Power of joint purchase

The Trustees may acquire property jointly with any Person.
Trustees may wish to acquire property jointly with others or to merge two
trust funds together. It is considered that the general power of investment
is wide enough to authorise this,53 but the point is made expressly for the
avoidance of doubt.
The clause refers to “acquiring property” rather than “investing in
property”. The common case of joint property will be the purchase of a
residence jointly by trustees and a beneficiary; such a purchase may not,
strictly, amount to an “investment”.
Provisions relating to the income/capital distinction
Under a trust it is frequently necessary to decide whether a receipt or an 21.29

item of expenditure is one of income or capital. In principle this is a matter
of law, to be decided by the courts if need be. A provision that the trustees
can decide such questions is void as it ousts the jurisdiction of the court: see
21.15 (Power to decide between income and capital). This is a shame, as it
cannot be said that the courts have made a particularly good job of eluci-
dating this troublesome distinction. Fortunately there is another drafting
technique which has the same effect and which does not “oust the jurisdic-
tion of the Court”. This is a provision which directs trustees (or empowers
trustees at their discretion) to treat an income receipt as if it were capital, or
to treat a capital receipt as if it were income. It is a question of construction
whether a clause confers a power to determine whether a receipt is income
or capital (void) or a power to treat income as capital (valid). In practice of
course it is easy to devise a clause which is unambiguous and valid, if one
bears these principles in mind.54
53
This was the view of the Law Commission: Trustees’ Powers and Duties (Law Com. Report No.
260), para.2.28. For the position in the absence of such wide general powers, see Webb v Jonas
(1888) 39 Ch D 660. In Re Harvey [1941] 3 All ER 284 the absence of such a power was solved
by an application under s.57 TA 1925. There is a power in s.15(b) TA 1925 to apportion blended
funds.
54
This paragraph was cited with approval in Morgan Trust Company of the Bahamas Limited v DW,
Supreme Court of the Bahamas, Butterworths Offshore Service Cases, Vol.2, p.31.

Power to pay capital expenses out of income
21.30 The form used in this book is:

The Trustees may pay taxes and other expenses out of capital or income whether or
not they would otherwise be so payable.
This is an important power, for two reasons:
(1) It is sometimes unclear whether expenses should be paid out of

capital or income; 55 using this power the trustees do not have to
decide the point.
(2) It is sometimes convenient to pay out of income expenses which
are strictly capital expenses.
The Trustee Act 2000 has effected a significant change here. Formerly
trustees had to pay capital expenses out of capital and income expenses
out of income. Now it is considered they have a discretion.56 The contrary
view is arguable,57 so it remains best to confer an express power.
55
The modern cases are Carver v Duncan 59 TC 125 and HMRC v Clay [2009] STC 469. In Carver
v Duncan the House of Lords (obiter) took a very restrictive view of what constitutes an income
expense. An expense is capital if it is incurred for the benefit of the estate as a whole. Annual
investment management charges are on this test a capital expense! In HMRC v Clay the Court
of Appeal held that an expense is incurred “for the benefit of the whole estate” if the purpose
or object for which that expense was incurred was to confer benefit both on the income benefi-
ciaries and on those entitled to capital on the determination of the income trusts. An expense
can only be charged against income if it is incurred exclusively for the benefit of the income
beneficiaries.
56
To explain the law it is convenient to start with the power of insurance. The trustees have power
to pay insurance premiums out of the “trust funds”; this expression means any income or capital
funds of the trust: see s.19(5) TA 1925 (as amended by TA 2000). (This overrides the natural
meaning of “Trust Funds”, which is “Trust Capital”.) Plainly, trustees can pay insurance pre-
miums out of income or capital as they think fit. This is what the Law Commission intended:
Trustees’ Powers and Duties (Law Com. Report No. 260), para.6.6 accessible http://lawcommission.
justice.gov.uk/.
Now, s.31 TA 2000 authorises a trustee to be reimbursed out of “trust funds” for any expenses
properly incurred when acting on behalf of the trust. “Trust funds” is likewise defi ned as “income
or capital funds of the trust”: s.39(1) TA 2000. So the trustees must have the same discretion in
relation to expenses generally.
It is surprising that this significant change was made without express discussion in the Law
Commission paper; it appears to have been unintentional. However, it is the only natural con-
struction. It is consistent with many other statutory provisions, e.g. s.22(4) TA 1925. It is also
a highly satisfactory result as the former law was complex, uncertain, unworkable, and ignored
in practice. The old case law is still relevant as showing what is the position in the absence of an
exercise of the trustees’ powers. (Carver v Duncan 59 TC 125 would still be decided the same way,
though slightly different reasoning is needed to reach the same conclusion.)
57
It is preferred by Lewin on Trusts (18th edn, 2008), para.25–67. The consequence of the view
adopted here is not as extreme as the horrified editors of Lewin suggest, because the power must
be exercised in the context of the general duty on trustees to hold a fair balance between life
tenant and remainderman.

POWER TO AUGMENT BENEFICIARY’S INCOME FROM CAPITAL 353
This power is permitted for IP and IHT Special trusts, as it is adminis-

trative, see 16.4 (Power to pay capital expenses out of income).58
Accumulated income
The form in this book is as follows: 21.31

The Trustees may apply accumulated income as if it were income arising in the
current year.
When income is accumulated, it is converted into capital at that time.

Trustees can now accumulate income for the entire perpetuity period
of 125 years.59 This power enables the trustees to pay that accumulated
income (i.e. capital) to a person to whom income is payable. Although a
payment of accumulated income would generally be a capital receipt,60
the terms of the settlement link the payment with an income interest of a
beneficiary so that it is received as income.61 That will generally be a good
thing as the trustees will want an income receipt to reclaim the tax credit
under s.494 Income Tax Act 2007.
Power to augment beneficiary’s income from capital
The suggested form is: 21.32

The Trustees may pay money that is Trust Property to an Income Beneficiary as their
income, for the purpose of augmenting their income.
The expression “Income Beneficiary” should be defined. The suggested

form is:
58
This is consistent with the principles in 16.2 (Significance of administrative/dispositive distinc-
tion) and supported by the Trustee Act 2000 (see fn.52 above). However, in Re Rochford [1965]
Ch 111 at 123 the line was expressed slightly differently (though in practice there would rarely
be any difference between the two approaches). On the one hand, it was said, there may be
“some liability for a comparatively small amount—say counsel’s fees for an opinion given to
the trustees—which would normally be payable out of capital but trustees would probably have
no difficulty in paying it out of income, without having to resort to anything which could be
described as an accumulation of income.” On the other hand, it was said, the capital liabilities
may be “far too large to be paid out of any income payable to the next income beneficiary which
would come to the hands of the trustees before the fi rst date upon which such beneficiary might
normally expect to receive a payment of income from the trust.”
59
Section 13 PAA 2009. See 9.9 (The rule against accumulations).
60
Stanley v IRC [1944] 1 All ER 230.
61
See the comment of Knox J. in Stevenson v Wishart 59 TC 740 at 757D.

“Income Beneficiary”, in relation to Trust Property, means a Person to whom income

of the Trust Property is payable (as of right or at the discretion of the Trustees).
This power applies more widely. It is not limited to accumulated income.

It would apply if there were no accumulated income.
The power might be useful if trustees are unsure whether a receipt or
an expense is one of income or capital. However it may also be needed for
tax planning purposes. Suppose trustees wish to transfer trust capital to a
beneficiary. Under the trusts in this book there are two ways to achieve
this:
(1) The trustees may use their overriding power to advance the capital
to the beneficiary.
(2) The trustees may use this power to treat the capital as income; and
then pay that “income” to the Income Beneficiary.
From a practical, property law point of view there is no difference.

Either way, the beneficiary simply receives the same property. There
is, however, an important difference for tax. In the fi rst case the receipt
is one of capital; 62 in the other case it is a receipt of income.63 If it is
income, the beneficiary will suffer income tax, so a capital receipt will
normally be preferred. However, there will be circumstances where it
is better to have an income receipt. The common case would be where
the trustees have accumulated income and paid tax at the trust rate or
dividend trust rate: an income receipt allows the beneficiary to reclaim
that tax.64
In short, it will sometimes be better for a beneficiary to receive a sum
as income; sometimes they should receive it as capital. It is desirable that
the trustees should have power to achieve either result; so they can decide
between income or capital as appropriate. The general law only allows
this choice in restricted circumstances.65
The decision to apply trust funds as income should be documented by
an appropriate trustee resolution.
62
Stevenson v Wishart 59 TC 740.
63
That might not, exceptionally, be the case where the larger part of the trust fund is disposed of
in this way. For the mere use of the label “income” is not determinative: see Jackson’s Trustees v
IRC 25 TC 13.
64
Section 494 ITA 2007 (assuming the beneficiary does not pay tax at the higher rate). On the IHT
position, see SP E6.
65
Income accumulated during a beneficiary’s minority under s.31 TA 1925 can be applied as income
during the beneficiary’s minority, so long as the beneficiary’s interest continues. The statutory
power lapses when the beneficiary attains 18, or dies. However, the power may be modified by
express provision so that it continues: see 21.57 (Powers of maintenance: deferring income enti-
tlement to 21).

R ENT: INCOME OR CAPITAL RECEIPT? 355
Demergers
Where a company whose shares are held by a trust carries out an indirect 21.33
demerger, the shares received are treated as trust capital. Where there is
a direct demerger, however, the demerged shares were formerly treated
as income.66 The Trusts (Capital and Income) Bill 2012 (which is passing
through Parliament at the time of going to print) will provide that
shares received under any demerger which is exempt under s.1076–1078
Corporation Tax Act 2010 are capital. This will apply to trusts when-
ever made. This does not apply to foreign demergers, to which the CTA
will not apply. However use of the sinking fund power is a practical
solution.67
Rent: income or capital receipt?
Under the general law rent is income. Under SLA settlements (now obso- 21.34
lescent), in the exceptional case of mining leases granted under the statu-
tory power, rent was partly income and partly capital.68 This explains why
one occasionally sees in old trust deeds a provision to reverse the SLA rule:
No part of any mining or other rent shall be set aside as capital;
or
“Income of the trust fund” includes the net rents and profits of all land held in the Trust Fund.
These forms are now obsolete because the mining rent under a trust of land
will in principle now be regarded as wholly income, not partly capital.69
Some old precedents provide that:
No part of any mining or other rent shall be set aside as capital unless and until and except
to such extent as the Trustees in each or any case may think fit so to set aside the same.
Rather than this narrow form it would be better to have a general power
to create a sinking fund (into which this power would be subsumed).
66
“Direct” and “indirect” demergers are transactions of the kind described by s.1076 and s.1077
Corporation Tax Act 2010. See Sinclair v Lee [1993] Ch 497; the law is discussed in more detail in
Law Commission, Capital and Income in Trusts: Classifi cation and Apportionment (Law Com. Report
No. 315, May 2009) accessible http://lawcommission.justice.gov.uk/.
67
See 21.35 (Sinking fund). Specific provisions might be considered in anticipation of a direct
demerger outside the scope of the forthcoming Trusts (Capital and Income) Act, if it is of more
than ordinary significance for the trust.
68
Section 47 SLA 1925.
69
According to Gover, Capital and Income (3rd edn, 1933), this already was the position under a trust
for sale, after 1925; until 1997 that was perhaps debatable; but since the repeal of s.28 LPA 1925,
it is reasonably clear that s.47 SLA 1925 treatment does not apply to trusts of land.

Sinking fund
21.35 Income may be set aside and invested to answer any liabilities which in the opinion of
the Trustees ought to be borne out of income or to meet depreciation of the capital
value of any Trust Property. In particular, income may be applied for a leasehold
sinking fund policy.
This form would allow trustees to accumulate a sinking fund to replace

wasting assets such as a lease. This is an administrative power, permitted
in any form of trust.70 The draft is based on statutory precedent.71 There is
some support for the view that trustees have this power under the general
law72 though it is better to state it expressly. The power is not affected by
the rule against accumulations (though that rule now only concerns pre-
2009 trusts).73
The power also offers a solution to the otherwise intractable problems
of demergers and returns of capital in the form of special dividends, as a
distribution which substantially reduces the value of trust capital could be
retained as trust capital even though it was strictly classified as an income
receipt rather than a capital receipt.
We consider that this form allows fairness which the general law does
not,74 and should not in practice be difficult to apply.
The balance between income and capital
21.36 The following form is used in this book:

The Trustees are under no duty to hold a balance between confl icting interests of
Persons interested in Trust Property. In particular:
(1) The Trustees may acquire:

(a) wasting assets, and
(b) assets which yield little or no income
70
16.5 (Retention of income to provide for liabilities or depreciation of a capital asset).
71
Re Hurlbatt [1910] 2 Ch 553. Form 8(7)(b) of the Statutory Will Forms 1925 accessible www.
kessler.co.uk. The power is also probably conferred (in relation to land) by s.6(1) TLATA 1996,
but it is helpful to state it expressly.
72
Underhill & Hayton, Law of Trusts and Trustees (18th edn, 2010) para.44.17 (Depreciation
reserves).
73
Because the rule against accumulation does not apply to administrative provisions: see 16.2
(Significance of administrative/dispositive distinction). Re Gardiner [1901] 1 Ch 697.
74
The clause is administrative and not dispositive for tax purposes: see Miller v IRC [1987] STC 108.
The clause does not affect who is the settlor. In particular, the life tenant is not the settlor: see
Kessler, Taxation of Non-Residents and Foreign Domiciliaries, 11th edn, 2012, paras 75.22 (payment
of administration expenses) and 75.23 (trust retains life tenant’s income) accessible www.foreignd-
omiciliaries.co.uk.

THE BALANCE BETWEEN INCOME AND CAPITAL 357
for investment or any other purpose.75

(2) The Trustees are under no duty to procure distributions from a company in which
they are interested.
It is a general principle that trustees should maintain a fair balance between

beneficiaries interested in income and capital. Two consequences arise.
1. Investment policy.
Trustees should invest the trust fund so as to produce a reasonable amount

of income and to protect the capital values of the trust fund.76 It would be
wrong to invest the entire trust fund in a non-income producing asset (e.g.
an insurance policy) or in a building society account (leading to capital
depreciation owing to inflation). A fortiori this precludes an investment
of the entire trust fund in a wasting asset (such as a short lease). The rule
is flexible. For instance, where a life tenant is in special need of income,
trustees might adopt an investment policy which will increase his or her
income at some expense to capital.77
This rule seems sensible enough; is it wise to exclude it? On balance,
it is better to do so. There may be occasions where, for good reasons,
trustees would like complete freedom either to invest in wasting assets—
perhaps completely depriving the remainderman of his or her capital—or
in non-income-producing assets—perhaps completely depriving the life
tenant of income. For instance, the life tenant may be in state subsidised
residential accommodation and find that all the income is taken to pay the
cost of care.78
Decisions on these matters are better left to the good sense of the trus-
tees rather than the general principles—however flexible—of trust law.
A standard form in old fashioned investment clauses authorises trustees
to purchase investments “whether producing income or not”. It is con-
sidered that this form does not affect the overriding duty to act fairly.79
It addresses the (now rejected) 80 view that an asset not yielding income is
not an “investment” at all. Since it is clear that “investments” do nowa-
days include assets not yielding income, this form serves no purpose and
should not be used.
75
The words “or any other purpose” are needed, for instance, to authorise the acquisition of a short
lease for the residence of a beneficiary.
76
Re Dick, Lopes-Hume v Dick [1891] Ch 423.
77
Nestle v National Westminster Bank [1993] 1 WLR 1260 at 1279.
78
See Ch.20 (Wills and Care Fee Planning).
79
Lewin on Trusts (18th edn, 2008) para.35–75 inclines to the same view, though it describes this as
“a moot point”, and offers other explanations of the purpose of the words.
80
Marson v Morton 59 TC 381.

2. Management of company held by trust.
The same principle governs the management of the trust fund. Where
trustees exercise control over a company, they should adopt a dividend
policy which is fair to all. The rule could be inconvenient, especially if
the trust property consists of shares in a family company, and it seems best
to exclude it.
Application of trust property
21.37 Trustees will generally have power to transfer trust property to some of
the beneficiaries. Where this is the case, the following clauses offer the
trustees alternatives to a simple transfer of trust capital. The power to apply
accumulated income as income arising in the current year and the power
to augment income from capital can also be used.
Loans to beneficiaries

The Trustees may lend money that is Trust Property to an Income Beneficiary
without security, on such terms as they think fit.
Trustees should have power to make loans to beneficiaries on favourable

terms. Such loans may be convenient in practice and tax efficient. This
clause authorises trustees to do this. It is uncertain to what extent such
loans would be proper in the absence of express authority.81
This power should be made subject to the consent of the protector
where there is one.
21.39 Express mention is given in the draft to unsecured loans in view of the
general suspicion of unsecured loans expressed in the context of trustees’
power of investment.82
Some drafters provide that no loan should be made to the settlor. This
is not necessary. The settlor exclusion clause will prohibit loans on favour-
able terms. No harm arises from the mere possibility that loans could be
made on arm’s length terms. The actual making of the loan may have
severe tax consequences: but that is a matter for the trustees to consider at
the time of the loan.
81
The power of investment will authorise loans by way of investment. Loans on favourable terms
raise more problems. In Re Laing [1899] 1 Ch 593 trustees had power to invest trust funds “upon
personal credit without security”. It was assumed that trustees, under this clause, could lend
(presumably interest free) to the life tenant.
82
Khoo Tek Keung v Ch’ng Joo Tuan Neoh [1934] AC 529.

OCCUPATION AND USE OF TRUST PROPERTY 359
In IP trusts the restriction to income beneficiaries could be simplified

by saying
“Income Beneficiary” means a beneficiary entitled to an interest in possession in the
trust property.
However, that would cease to be appropriate if the trust ceased to be IP in

form. In discretionary trusts the restriction may be omitted.
To the extent that the power is dispositive, it should strictly be restricted
to the trust period. However, it is better to leave the “wait and see” rule
to have this effect rather than to complicate the drafting by saying this
expressly.
Trust property as security for beneficiaries’ liabilities

The Trustees may:
(1) guarantee the debts or obligations of an Income Beneficiary
(2) charge Trust Property as security for debts or obligations of an Income
Beneficiary.
An alternative to the trustees lending money to a beneficiary is for them

to provide security so he or she can borrow more easily elsewhere. This
requires express authorisation.
where there is one.
The restriction to income beneficiaries is the same as the power to apply
trust capital as income.
Occupation and use of trust property

(1) The Trustees may acquire any interest in property anywhere in the world for
occupation or use by an Income Beneficiary.
(2) The Trustees may permit an Income Beneficiary83 to occupy or use Trust Property
on such terms as they think fit.
(3) This clause does not restrict any right of beneficiaries to occupy land under the
Trusts of Land and Appointment of Trustees Act 1996.
83
It is assumed that “Income Beneficiary”, in relation to Trust Property, means a Person to whom
income of the Trust Property is payable (as of right or at the discretion of the Trustees).

Trustees have a statutory power to acquire land for a beneficiary’s occupa-

tion, but the power is not completely comprehensive.84 An unrestricted
power is desirable, and sub-clause (1) sets this out.
Where trustees hold land, a life tenant has certain statutory rights
of occupation.85 These could be excluded by the drafter.86 The rules
are, however, quite satisfactory, and this precedent retains them: sub-
paragraph (3). Where these rules do not apply (e.g. discretionary trusts,
or property other than land) then the matter is left to the trustees’ discre-
tion. This would probably be the position in any event, but it seems best
to cover it expressly.
where there is one.
21.42 The draft clause covers both land and chattels; it seems unnecessary to
deal with these in separate clauses. The clause rests loosely on statutory
precedent.87 Some precedents detail the terms on which the beneficiaries
may use the property (e.g. “on such terms as to payment of rent, repair,
decoration, insurance, etc.”). The formulae end with a general power
(“and such terms generally as the trustees think fit”) which must include
all that has gone before; nothing is gained.
Some drafters follow the statutory precedent and add that trustees shall
not be liable for loss. Presumably, the fear is that one beneficiary will drop
the Ming vase; and another will sue the trustees. Now, if the trustees
are acting properly and within their powers, it is hard to see that they
are liable. And in any case, should not the vase have been insured? The
matter is adequately dealt with by the general provision discussed at 6.17
(Construction of trustee exemption clauses).
In IP trusts the restriction to “Income Beneficiaries” could be simpli-
fied by saying “Income Beneficiary” means a beneficiary entitled to an
84
The statutory power only applies to freehold or leasehold land in the UK: s.8 TA 2000. On the
objection to purchasing land outside the UK see 21.24 (Power of investment).
Re Power [1947] Ch 572 is sometimes cited as authority for the proposition that a common form
power of investment never permits trustees to purchase a residence for a beneficiary because a
residence is not an “investment”. More accurately, the position is considered to be that the acqui-
sition of a residence may not be an investment, and so may be outside the scope of a common form
power of investment, but this depends on the circumstances of the acquisition. But after the TA
2000 the issue could only arise in unusual circumstances, e.g. if trustees wish to purchase property
for occupation by a person who is not a beneficiary (at a rent or rent free with the consent of a
life tenant).
85
86
In some cases the provisions of the TLATA are expressly subject to contrary terms in a trust (e.g.
ss.8, 11); in some cases the provisions expressly override any expression of contrary intent (e.g.
s.4). In ss.12 and 13, however, there is no guidance in the statute either way. It is considered that
these statutory rules can be excluded by the drafter. It is a fundamental principle of trust law that
it is up to the settlor to decide what rights to confer under the trust. Restrictions on freedom
of disposition should not be lightly inferred. Contrast the exclusion of s.15 TA 2000; see 21.64
(Delegation). (However, this question is academic. The statutory right of occupation is so limited
that in circumstances where it confers a right of occupation trustees acting reasonably would
almost invariably exercise their power to let the beneficiaries into occupation in any event.)
87
Section 8 TA 2000; s.47(1)(iv) AEA 1925.

POWER TO TRADE 361
interest in possession in the trust property; but that would cease to be

appropriate if the trust ceased to be IP in form. In discretionary trusts the
restriction may be omitted.
To the extent that the power is dispositive, it should strictly be restricted
to the trust period. However, it is better to leave the “wait and see” rule
to have this effect rather than to complicate the drafting by saying this
expressly.
Power to trade

The Trustees may carry on a trade, in any part of the world, alone or in partnership.
Trustees cannot properly carry on a trade without express power.88

In practice trustees rarely carry on a trade, though trading trusts offer
some tax89 and commercial90 advantages. The inclusion of the power does
no harm, whereas it is conceivable that its absence may be regretted. The
standard practice is to include this power in all cases.
The draft is concise, self-explanatory and, it is thought, comprehen-
sive. There is little trust law on the subject but there is a company law
precedent.91
Some drafters authorise the trustees to carry on a trade or business.
The word “business” is wider than the word “trade”.92 It is hard to see
what this adds. If it is a business of making or holding investments, there
is already ample authority for that in the power of investment. It is not
necessary to give trustees an express indemnity against the trust fund for
trading debts properly incurred by them.93
88
A standard form power of investment is wide but does not confer a power to “invest” in a trade:
Re Berry [1962] Ch 97 at p.111.
89
The IHT and CGT system generally favours trade over investment, a partial reversal of the
19th century upper class prejudice against trade. (Income tax is now heading the opposite way.)
However, the distinction the law draws between trade and investment is (inevitably) a formal one,
and often the same economic result can be achieved by an “investment” or in a form which the
law regards as a trade. For instance, trustees holding land used by a trader may arrange to trade in
partnership with the occupier of the land so as to qualify for 100% IHT business property relief,
or for CGT roll- over and entrepreneurs reliefs. This is easy if the land (often farmland) is occupied
by a beneficiary, but may be possible even if the occupier is unconnected with the trust.
90
A trading trust with a corporate trustee enjoys an element of limited liability without public
disclosure of trading accounts.
91
Section 3A of the former Companies Act 1985 (there is no direct equivalent in the current s.31
Companies Act 2006).
92
American Leaf Blending Co. Sdn Bhd v Director-General of Inland Revenue [1978] STC 561.
93
21.13 (Trustees entitled to expenses of exercising powers).

Deposit of documents and nominees

(1) The Trustees may deposit documents relating to the Trust (including bearer securi-
ties) with any Person.
(2) The Trustees may vest Trust Property in any Person as nominee, may authorise the
use of sub-nominees, and may place Trust Property in the possession or control of
any Person.
It is often convenient to use a nominee. This can save time, paperwork

and expense, especially on a change of trustees or on the sale of securities.
It also reduces the cost of investment management.
In Mason v Fairbrother 94 Judge Blackett- Ord V.C. considered:
a proviso about a nominee being a bank or something like that. But in my

view that is an undesirable complication. I will simply authorise the trustees
to appoint a nominee or nominees to hold any investment in the fund. That
is a power that the trustees can exercise in proper circumstances and if they
misuse it, they will be liable.
Quite so. All such attempts to safeguard trust property by fettering trus-
tees’ powers are misguided. This form (based on the statutory wording)
overrides the elaborate restrictions on the statutory powers set out in
ss.16–20 Trustee Act 2000.
Power to pay tax
21.45 The suggested form is:

The Trustees may pay tax liabilities of this Trust (and interest on such tax) even
though such liabilities are not enforceable against the Trustees
In the absence of express power, the trustees are only entitled to pay
foreign taxes in limited circumstances.95
Power to borrow
94
[1983] 2 All ER 1078 at 1087. (This was an application for additional powers under s.57 TA 1925.)
95
Re Lord Cable [1977] 1 WLR 7.

POWER TO GIVE INDEMNITIES 363
The Trustees may borrow money for investment or any other purpose. Money bor-
rowed shall be treated as Trust Property.
The general law gives trustees power to borrow for some purposes.96
Trustees do not have an unrestricted power to borrow, and, in particular,
trustees may not borrow money for investment purposes.97
It is thought that trustees may be entrusted with unrestricted powers
to borrow money, especially since loans made to trustees offer tax
advantages.98
. . . For investment or for any other purpose. It is desirable specifically to
override the case which held that trustees’ statutory power to borrow does
not allow trustees to borrow in order to invest.
The draft is drawn from s.71 of the Settled Land Act 1925. Some draft-
ers say that the trustees may borrow . . . On such terms as the trustees think fit.
These words (not found in statutory precedents) are strictly unnecessary;
there is certainly no authority to suggest any need for a lengthier formula
such as “on such terms and conditions relating to interest, capital” and so on.
In this book a power to give security is dealt with separately.99
Power to give indemnities

The Trustees may indemnify any Person for any liability properly chargeable against
Trust Property.
Of course trustees may give indemnities without authorisation by the

trust. The purpose of express authorisation is to permit the trustees:
(1) to reimburse themselves out of the trust fund if the indemnity is

called upon; and
(2) to use their powers of mortgage and charge so as to secure the
indemnity on the trust fund.
96
Section 71 SLA 1925; s.212 IHTA 1984; s.16(1) TA 1925; s.39(1) AEA 1925. The Law
Commission suggest (Law Com. Report No. 260, Trustees’ Powers and Duties, para.2–44) that
s.8(1) TA 2000 authorises trustees to purchase land with the aid of a mortgage, but the contrary
view is arguable.
97
Re Suensen Taylor [1974] 1 WLR 1280, [1974] 3 All ER 397.
98
An individual would not receive tax relief on interest paid unless the loan is eligible for relief
under the restrictive conditions of Part 8 ITA 2007. Interest paid by trustees effectively enjoys
higher rate tax relief; for a trustee does not pay higher rate tax, and a beneficiary would pay higher
rate tax only on the net amount of income received from the trust (i.e. income after interest has
been paid). Murray v IRC 11 TC 133; Macfarlane v IRC 14 TC 538. The settlement provisions
counteract the tax advantages in some circumstances.
99
21.48 (Power to give security for trustees’ liabilities).

In the absence of an express power other statutory powers would some-

times authorise indemnities (but not always).100
Power to give security for trustees’ liabilities

The Trustees may charge Trust Property as security for any liability properly incurred
by them as Trustees.
The duty of trustees being to preserve trust property, they need express
authority to mortgage it. The ability to mortgage trust property as security
for trustees’ liabilities is useful. The general law allows trustees to mort-
gage trust property for certain purposes only, but there seems no reason
for any restrictions.
The drafter may append the power to mortgage trust property as an
ancillary to various powers where security may be needed (power to
borrow; power to give indemnities, etc.). It is easier to put in a single self-
standing paragraph to achieve this end. The concept of liabilities incurred
“as trustees” follows statutory precedent.101
A floating charge is possible under English law, except in relation to
personal chattels.
Power of appropriation

The Trustees may appropriate Trust Property to any Person or class of Persons in or
towards the satisfaction of their interest in the Trust Fund.
Trustees need a power of appropriation to allow a division of the trust fund

into separate shares, if desired. The powers conferred by the general law
are inadequate.102
100
See Ch.31 (Indemnities for trustees).
101
102
(1) Section 41 AEA 1925 confers the power on personal representatives, but not on trustees.
(2) Section 7 TLATA 1996 confers a power of appropriation in relation to land in England or
Wales.
(3) Section 15(b) TA 1925 confers power to sever and apportion “blended trust funds or prop-
erty”. It is considered that this gives trustees power to appropriate whenever trustees hold
trust property in undivided shares—so the power overlaps with (1) and (2) above. This is
significant since this power (unlike the above) does not require any beneficiary to consent.
(4) The extent to which the common law allows appropriation is unclear. The old cases are
discussed in Kane v Radley-Kane [1999] Ch 274.

POWER OF APPROPRIATION 365
The draft is based on the statutory precedent.

This form authorises appropriation to a settled share, since the benefi-
ciaries of the settled share are a “class of persons”.
The statutory power of appropriation normally requires the consent
of the beneficiary concerned. If the power is set out independently it is
unnecessary, even for the avoidance of doubt, to say: “without the consent
of any person . . .”.103
Where trustees have this power, they may ascertain the value of the
property by qualified agents; and a valuation made by the trustees is
binding on the beneficiaries. It is not necessary to say this expressly.104
Power to appropriate at value at time of death
Executors should be allowed to appropriate assets at their values at the time 21.50
of death. We recommend the following form:
(1) Where:
(a) these provisions are incorporated into a will
(b) the Trustees have ascertained the value of Trust Property on the death of the
Testator, and
(c) the Property is appropriated within three years of that death
the Trustees may adopt that valuation so that the value for the purposes of the
appropriation shall be the value at the date of the death (instead of the value at the
date of the appropriation).
(2) Where sub- clause (1) applies to an appropriation, any other valuation which may
be required for the purposes of the same exercise of the power of appropriation
shall also be the value at the date of the death.
(3) Valuations made under this clause shall be binding upon all Persons interested
under the trust if the Trustees have ascertained those values in accordance with
the duty of care set out in section 1(1) Trustee Act 2000.
In the absence of this power, when an asset is appropriated to a beneficiary

(e.g. in satisfaction of a pecuniary legacy), the asset must be valued at the
time of the appropriation. This power is often found in practice.105
(5) Section 188 LPA 1925 confers a further power on the Court, in relation to chattels.
(6) If one is going to court an application could also be made under s.57 TA 1925, see 16.8
(Power of appropriation). If the proposed power might have a more than incidental impact
on the beneficial interests, an application would be required under the Variation of Trusts
Act 1958.
The Law Reform Committee, 23rd Report, The Powers and Duties of Trustees, Cmnd. 8733 (1982)
para.4.42 recommended that trustees should have a wide statutory power of appropriation and
this would be a desirable reform. It would simplify the law, shorten trust documents and help
beneficiaries whose trusts are not well drafted. There is, however, no current prospect of reform.
103
See s.41(6) AEA 1925.
104
105
For a textbook precedent see The Encyclopaedia of Forms and Precedents, Volume 42(1), 5th
edn (2007 reissue), para.336 [4265].

If the appropriation is not at the value when an appropriation is made,

someone is disadvantaged. So the provision is potentially unfair and open
to abuse. However it also offers two potentially significant advantages:
(1) Administrative convenience: saving of costs of a second current

valuation when executors already have a probate valuation; and
(2) A possible IHT saving: passing value down to the next generation
without a transfer of value by appropriating assets which have gone
up in value since the death.106
The main question is: how far should one trust the executors to exercise
their power reasonably? The confl ict of interest clause used in this book
stops an executor or trustee exercising the power in his or her own favour
unless he/she can persuade an Independent Trustee (as defined) to go
along with him/her. We consider that is enough protection.
The power may also only be exercised for appropriations made
within three years of death. This period could be reduced but while
that reduces the risk of unfairness, it also reduces the advantages of the
power and, in the case of discretionary will trusts, appropriations after
a two year gap have the advantage that s.144 IHTA does not apply to
them.107
Finally, the beneficiary is only bound if the trustees have discharged
their duty of care in making the valuation, e.g. by appointing suitable
valuers or by taking a careful valuation themselves if they have the exper-
tise. If a PR chooses to value a piece of land by glancing at estate agents
windows for comparables, the causal and insufficiently careful valuation
then made would not bind the beneficiary.
Receipt by charities, etc

Where Trust Property is to be paid or transferred to a charity or non- charitable associ-
ation or company, the receipt of the treasurer or appropriate officer of the organisation
shall be a complete discharge to the Trustees. A Trustee shall not be liable for making
a payment or transfer to any Person who appears to be the treasurer or appropriate
officer unless at the time of the distribution the Trustee has knowledge of circum-
stances which call for enquiry.
106
This advantage can (within two years) also be obtained by a deed of variation, if everyone con-
sents, but the costs are somewhat greater so the tax saving would have to be bigger to make it
worthwhile.
The exercise of the power is not thought to be a transfer of value so it is IHT neutral.
107
Three years is consistent with the time limit in s.191 IHTA (sale of land from deceased’s estate).

CHARITY MERGERS ETC 367
This form solves a possible administrative difficulty where trust property is

payable to a charity or association. In such cases the trustees would strictly
need to investigate who could give them a valid receipt. Trustees should
not be required to do anything in the absence of circumstances calling for
enquiry.
This is a provision of marginal significance. It is obviously unneces-
sary if the trust does not include charities or associations as beneficiaries.
Omission of the clause is unlikely to matter: in the unlikely event that
trust funds were accidentally paid to the wrong person, and then stolen,
the trustees’ conduct would not usually cause them to be liable for breach
of trust.
The draft is drawn loosely from statutory precedents.108
Charity mergers etc

If any charity ceases to exist, changes its name, or enters into insolvent liquidation,
before the time that a gift to the charity takes effect in possession, the gift shall instead
be paid to such charity as the Trustees decide having regard to the objects that were
intended to benefit.
The trustees’ power is restricted in three ways.
(1) It is only exercisable in three cases, if the charity:

(a) ceases to exist,
(b) changes its name, or
(c) enters into insolvent liquidation.
(2) In exercising the power the trustees must have regard to the objects
that were intended to benefit.
(3) The gift can only be paid to another charity.
Change of name
In the absence of this power, the validity of a gift to a charity is not 21.53
in principle affected by the fact that the charity changes its name at
108
Sections 14, 63(2) TA 1925; Statutory Will Forms 1925, Form 4 accessible www.kessler.co.uk; s.95
SLA 1925; s.27 Industrial and Provident Societies Act 1965 (which somewhat unhelpfully is to
be renamed the Co- operative and Community Benefit Societies and Credit Unions Act 1965).
Some extend this form to apply not only to the “treasurer or appropriate officer” of the charity,
but any person “appearing to be” treasurer or officer. It is difficult to see that this makes much
difference in practice, particularly since trustees will generally have the defence to a breach of
trust conferred by s.61 TA 1925 and (in the precedents in this book) a defence that they have not
been negligent.

any time. However, a charity may, in general, change its name in two
circumstances:
(1) Sometimes the change reflects a modernisation without any change

in the charity’s objects or activities. An example, perhaps, is Dr
Barnardo’s which changed its name to Barnardo’s.
(2) Sometimes the change does reflect a change in objects or activi-
ties. For example, when the charity formerly called the Centre
for the Study of Jewish Christian Relations extended its activities
to include Islam, it changed its name to “the Woolf Institute of
Abrahamic Faiths”.
The object of the above power is to help to carry out the wishes of the
testator. What would a testator wish in this case? In the first case, testators
would generally wish the gift to continue to pass to the charity, despite
its new name. In the second case, where the change reflects a change of
objects or activities, this is not necessarily so. The testator would want
the gift to pass to charity, but perhaps not the same charity. We therefore
consider that the trustees should be allowed to reflect on what the testator’s
wishes would have been. The trustees are persons chosen by the testator
and should be best placed to do that. In most situations, they will be likely
to exercise their discretion in favour of the renamed charity. Where the
name change is a simple modernisation, it is difficult to see how trustees
reasonably could do anything else, given that they must “have regard to
the objects that were intended to benefit”.
Charity mergers
21.54 A charity merger typically involves one charity (“the transferor charity”)
transferring its assets to another charity (“the transferee charity”) after
which the transferor charity may cease to exist. Where a merger is reg-
istered with the Charity Commission, a gift expressed as a gift to the
transferor charity takes effect as a gift to the transferee charity.109 The
choice is between allowing the gift to pass automatically to the transferee
charity (whose objects may differ from those which the testator intended
109
Section 311 Charities Act 2011. There is an exception for permanent endowment.
Although section 311 appears mandatory, it takes effect subject to the terms of the will. In
Re Longman, Berry v IBS-STL [2012] EWHC 666 (Ch), a will made a gift to such of six named
charities “as shall be in existence at the date of my death.” There was a registered merger and one
of the charities ceased to exist before the death. It was rightly held that the will did not, in the
words of s.311, “express a gift” to the defunct charity so s.311 did not apply.
The wording of that will was particularly appropriate for wills made before the charity merger
rules were introduced in 2006 and would not be needed now. In particular, where the form in
our book is used, we do not think it will be necessary in charitable gifts to use the wording like
“as shall be in existence at the date of my death”.

MINORS: POWERS OVER INCOME AND CAPITAL 369
to benefit) or to a charity of the trustees choosing (having regard to the

objects that were intended to benefit).
This raises the same basic points as a change of name. A merger may
involve a change in the activities and objects of a charity. So it may be
appropriate for the trustees to have the opportunity to review the position
in the light of the circumstances and what they know of the wishes of the
testator. If anything, the case is slightly stronger than where there is only
a change of name, as we think a merger is more likely to involve a change
in activities and objects.
Well advised charities have in the past retained the old bodies as (more
or less) dormant charities, in order to receive legacies given to them. They
will have to continue to do this despite s.311 Charities Act 2011 in order
to receive legacies which may otherwise fail:
(1) because the English law merger rules do not apply;110 or

(2) because the will excludes the English law merger rules.
It should not be much trouble to maintain a dormant charity.

The form used in this book is also useful:
(1) where the charity has ceased to exist and s.311 Charities Act 2011
does not apply; and
(2) where a charity is in insolvent liquidation.111
Minors: powers over income and capital

Where the Trustees may apply income or capital for the benefit of a minor, they may
do so by paying the income or capital to the minor’s parent or guardian on behalf of
the minor, or to the minor if he has attained the age of 16. A Trustee is under no duty
to enquire into the use of the income or capital unless the Trustee has knowledge of
circumstances which call for enquiry.
110
There are obviously some confl ict of law issues here which would encourage charities to retain
old bodies. In outline, s.311 only applies to gifts governed by English law to English law charities.
English charities may retain the old bodies to receive gifts from non-English law wills. There
is similar provision in the Charities (Northern Ireland) Act 2008 but that only applies to gifts
governed by Northern Ireland law to Northern Ireland charities. There is no such provision in
Scots law. In other jurisdictions there will often be no such legislation or if there is, it would not
apply to a gift to English charities. By contrast, the form in our book referring to “any charity”
will apply to English and foreign charities.
111
See e.g. Re ARMS Ltd [1997] 1 WLR 877.

Payment to parent or guardian
Trustees may, under the general law, pay funds belonging to a child to the
person who has parental responsibility for that child.112 It is therefore not
necessary to say that trustees may pay income to the parent or guardian
of a child.113 In the draft in this book, the important part of the clause is
the second sentence. This deals with the question of what responsibility
the trustees should have to ensure that income or capital is properly used
by the parent or guardian: this is discussed at 6.32 (Excluding duty to
supervise parents and guardians). The clause relieves the trustees of the
duty to monitor the parent’s use of the money or asset. This simplifies trust
administration: the sums involved are usually modest.
Payment to child
A minor cannot normally give a receipt for trust money.114 It might

possibly be convenient to relax this rule though in practice the point is
unlikely to be important. This form does not give the child a right to
demand payment: the trustees may choose whether or not to pay to the
child.115
Payment of capital
The power is extended from previous editions of this book to cover capital
as well as income. The circumstances where trustees would pay capital to
a minor (under 18) must surely be rare and if the parents/guardians did
not want that, even more so. However, there may be occasion when this
is expedient. The trustees cannot pay capital to the minor just because
the parents/guardians consent: they would have to pay to the parents/
guardians first (who alone could give a good receipt) and they then pay
the money to the minor.
Power to retain income of child
21.56 The form used in this book is:

112
Section 3(3) Children Act 1989. Alternatively the trustees may retain the property until the child
becomes 18, or they may appoint others to act as trustee under s.42 AEA 1925 or s.36 and 37(1)
(b) TA 1925.
113
One often sees a clause which says that trustees may pay income to a parent of a minor. Presumably
such drafts have not been revised since the Children Act 1989. See Denker and Haworth, “The
Property of Minors under English Law” [2004] PCB 376. That clause is not entirely without
effect. It would authorise trustees to make a payment to a parent who did not have parental
responsibility for the child. This may happen, for instance, in the case of an illegitimate child.
But the point is of trivial importance.
114
In the unlikely event that he or she is married, a minor can give a receipt for (1) trust income (s.21
LPA 1925); and (2) accumulated income payable to the minor under s.31(2)(i) TA 1925.
115
Re Somech [1957] Ch 165.

MINORS: POWERS OVER INCOME AND CAPITAL 371
Where Trustees may apply income for the benefit of a minor, they may do so by
resolving that they hold that income on trust for the minor absolutely and:
(1) The Trustees may apply that income for the benefit of the minor during his/her
minority.
(2) The Trustees shall transfer the residue of that income to the minor on attaining
the age of 18.
(3) For investment and other administrative purposes that income shall be treated
as Trust Property.
This power is intended to facilitate elementary income tax planning for
children who are beneficiaries of discretionary trusts.
For income tax purposes one might like children to have an income of
their own, so as to use their personal allowances. This offers a worthwhile
annual tax saving. Where the beneficiaries are not children of the settlor,
trustees can deal with trust income in the following ways:
(1) The trustees may accumulate it. The income will be subject to tax
at the rates set out in s.479 ITA 2007 (the trust rate and the divi-
dend trust rate).116
(2) (a) The trustees may spend it for the benefit of the minor children.
(b) The trustees may retain the income on trust for the child by
exercising this special power.117
In both these cases the income is effectively118 taxed as the
child’s income (and up to the personal allowance, escapes tax
altogether). The power to retain income for a child is therefore a
useful means of obtaining the tax advantage without spending the
income.
Where the beneficiary is an unmarried minor child of the settlor, s.629

ITTOIA 2005 counteracts the tax advantage in situation (2). This is done
by providing that the child’s income should be treated as the income of
the parent.119
116
It may be possible to reclaim this tax by making income payments to the beneficiary in later years,
but the beneficiary’s personal allowance in the earlier years is lost.
117
The child might become entitled to quite a substantial sum at 18, a result the parents may not
view with enthusiasm.
118
Since the trust is not IP in form (see 14.17 (Life tenant a minor)) the tiresome procedures set out
in ss.479 and 496 ITA 2007 must be followed: (1) The trustees will pay tax at the rate set out in
s.479 ITA 2007. (2) On exercise of the power, the retained income becomes the beneficiary’s
income: Stevenson v Wishart [1987] STC 266; Spens v IRC 46 TC 276. (3) Tax is then reclaimed
by the beneficiary under the credit system of s.496 ITA 2007. (The exercise of the power to retain
counts as a “payment” for the purposes of s.496 ITA 2007. The word “payment” in s.496 ITA
2007 has a wide meaning: see IRC v Berrill 55 TC 429 at 444.) The position is less advantageous
for dividend income.
119
It follows that a teenage marriage is an effective if drastic way round the anti- avoidance provision.
The section applies in a more attenuated form where the trust was made before 9 March 1999 (for
which see the fourth edition of this book para.15–055, accessible www.kessler.co.uk).

Powers of maintenance: deferring income entitlement to 21
21.57 The form is:

For the purposes of section 31 Trustee Act 1925 a Person shall be treated as attaining
the age of majority at the Specified Age, and the references to the age of eighteen years
in section 31 shall be treated as references to the Specified Age.
The Specified Age should be defined and we suggest:

In this clause “the Specified Age” means the age of 21 or such earlier age (not being
less than 18) as the Trustees may by deed specify.
If s.31 Trustee Act 1925 applies, the beneficiary becomes entitled to the
income at the age of 18. This allows trustees to defer entitlement to income
to the age of 21.
Beneficiaries without capacity: powers over income and capital
21.58 The form used is:

(1) Where income is payable to a beneficiary who does not have the mental capac-
ity to appoint an attorney under a lasting power of attorney which relates to the
property and affairs of the beneficiary, the Trustees may (subject to the direc-
tions of the Court or a deputy appointed under the Mental Capacity Act 2005
whose powers include receiving such income) apply that income or capital for
the benefit of the beneficiary.
(2) Where the Trustees may pay or apply income or capital to or for the benefit
of a beneficiary who does not have the mental capacity to give a receipt, the
Trustees may pay the income or capital to the Person having or appearing to
the Trustees to have the care and fi nancial responsibility for such Person. A
Trustee is under no duty to enquire into the use of the income or capital unless
the Trustee has knowledge of circumstances which call for enquiry.
Where the terms of a trust require trustees to pay funds to a benefici-

ary who lacks capacity to take possession or control of those funds they
should pay the funds to the beneficiary’s attorney under a lasting120 power
of attorney which relates to his or her property and affairs or to a deputy
appointed by the court under the Mental Capacity Act 2005 whose powers
include taking possession or control of this property. Where:
(1) it is not desired to appoint a deputy (because of the expense); and
120
Since October 2007 (when the Mental Capacity Act 2005 took effect) it is no longer possible
to create an enduring power of attorney. However, such powers created before that date remain
valid and must be registered with the Public Guardian in accordance with the Act.

R ELEASE OF POWERS 373
(2) the beneficiary cannot appoint an attorney (because he or she does

not have the necessary mental capacity),121
it is considered that the trustees may properly retain the funds and invest
them as nominee for the beneficiary, or apply the funds for the direct
benefit of the beneficiary. However it is desirable to have an express power
to confirm this. The form used in this book is self- explanatory:
Where this form has not been used, trustees may be able to use a power
of appointment or advancement to confer this power on themselves.
Release of powers

The Trustees may by deed release any of their powers wholly or in part so as to bind
future Trustees.
This clause gives trustees power to release their powers.122 It would also
allow the settlor to release their power of appointing new trustees. This has
become a standard provision in modern practice, though it is not strictly
needed: the trustees’ overriding powers could be exercised so as to have
the same effect as a release.123
The power could be used to change the structure of the trust funda-
mentally. Where there is a protector the exercise of this power should
require the consent of the protector.
The general question of when and which categories of power can be
released under the general law has attracted a difficult case law, which is
fortunately largely redundant. There is little in the cases relevant to draft-
ing. The first limb of our draft clause is self-evident, and the second for
the avoidance of doubt only. The words “wholly or in part” would be
121
The capacity needed to create a lasting power of attorney must be assessed by reference to the
principles set out in ss.2 and 3 of the Mental Capacity Act 2005. Thus, the donor must be able to
understand the information relevant to the decision, retain that information, use or weigh that
information as part of the process of making the decision and communicate his decision. The
information relevant to the creation of an EPA was considered in Re K, Re F [1988] Ch 310. The
MCA Code of Practice at para.4.33 suggests that the statutory defi nition of capacity is in line with
and not intended to replace existing case law. However, it is thought that the information set out
in Re K, Re F needs to be adapted to reflect the major differences between EPAs and LPAs. In
particular, an LPA cannot be used until it is registered, it can be revoked at any time (provided
the donor has mental capacity), the attorney must make decisions subject to the principles set out
in ss.1 and 4 MCA and s.3(4) requires the donor to be aware of the foreseeable consequences of
not executing an LPA.
122
Fiduciary powers cannot be released in the absence of an express power to release them: Re Wills
[1964] Ch 219. Section 155 LPA 1925 misleadingly appears to authorise trustees to release powers;
but it does not have that effect.
123
Muir v IRC [1966] 1 WLR 1269.

implied in any case and could be omitted.124 Some drafters authorise trus-
tees to enter into a contract not to exercise their powers. This is implied
in any event,125 and it is hard to conceive of a case where such a power
would be useful.
Some drafters begin the clause with phrases such as:
Notwithstanding any rule of law or equity to the contrary . . .
Notwithstanding the fiduciary nature of the trustees’ powers . . .
This acknowledges that the general rule (that trustees may not release their
powers) is to be overridden. But this general principle can be overridden
by any clear form of words.126
Power to disclaim127

A Person may disclaim his or her interest under this Trust wholly or in part.
This is an IHT motivated provision. Section 93 IHTA 1984 provides:

Where a person becomes beneficially entitled to an interest in settled property but
disclaims the interest, then, if the disclaimer is not made for a consideration in money
or money’s worth, the Inheritance Tax Act 1984 shall apply as if he had not become
entitled to the interest.
There are circumstances where it is desirable for a beneficiary to disclaim

an interest in settled property in order to take advantage of this rule
(though this has become less common following the 2006 IHT reforms
and the introduction of transferrable NRBs).
There are similarly circumstances where it is desirable for a beneficiary
to disclaim part of their interest. The usual rule is that a person must dis-
claim the entire interest in property given to them; they cannot disclaim
part. That rule derives from a presumption that the donor so intended. It
is therefore possible to authorise a beneficiary to disclaim an interest in
part.128 The IHT relief applies to a partial disclaimer as well as to a complete
disclaimer.129
124
Re Evered [1910] 2 Ch 147.
125
Re Evered [1910] 2 Ch 147. .
126
See (if authority is needed) Muir v IRC [1966] 1 WLR 1269. See 21.64 (Delegation) where similar
comments apply.
127
On this topic see Oerton and Wood, Capital Taxes News & Reports (1989), p.17.
128
Guthrie v Walrond (1883) 22 Ch D 573.
129
HMRC agree. See SP E18 and IHT Manual para.16180 “At English law a partial disclaimer is not
possible so that the whole of the interest must be disclaimed (this however is subject to the terms
of the trust).

STATUTORY APPORTIONMENT 375
It is considered that the IHT relief applies when a person becomes enti-
tled to an absolute interest in settled property, as well as if they become
entitled to a lesser interest.
Ancillary powers

The Trustees may do anything that is incidental or conducive to the exercise of their
functions.
On a fair construction this form should never make any practical

difference,130 but it may dispel doubts raised by any arguments in favour of
a narrow construction of trustees’ powers. The form simplifies the drafting
of the other administrative powers, since one need not scatter forms of this
kind in all the other powers. There are trust and company law precedents.131
Statutory apportionment132
Under the general law, income is where possible treated as accruing 21.62
from day to day as it is earned. It is not income of the day it happens to
be received. This means that when there is any change of entitlement to
income, the income may need to be apportioned and:
(1) one part treated as income received before the change would have
been treated; and
(2) the other part treated as income received after the change.
The implications of this are somewhat surprising and the matter is best
illustrated by examples.
130
The courts ought to apply to the construction of trustees’ powers the principle well established
in company law, that whatever may fairly be regarded as incidental to or consequent upon a
company’s objects ought not to be held ultra vires: Att. Gen. v Great Eastern Railway Co (1880) 5
App.Cas. 473 at 478.
131
Section 15 TA 1925; s.31(1) Companies Act 2006; Sch.1, para.23 Insolvency Act 1986; s.33(5)
(d) National Heritage Act 1983; s.111 Local Government Act 1972. Case law records that local
authorities have not had much success in trying to justify under this section acts (swaps, trading
in land) not otherwise within their powers.
132
See 21.63 (Equitable apportionment) for the entirely distinct rules known unhelpfully as “equi-
table apportionment”.

Example 1: Application of statutory apportionment rule on death of life tenant
Trustees hold a trust fund on trust for A for life, remainder to B. A dies
on 30 April 1992. In 1993 the trustees receive a dividend for the calendar
year 1992.
(1) One-third of the dividend will be apportioned to the period before

A’s death (and so paid to A’s estate).
(2) The remaining two-thirds is apportioned to the period after A’s
death and so paid to B.
Example 2: Application of statutory apportionment rule on death of testator
The testator dies on 30 April 1992. By his will his residuary estate is held
on trust for B for life with remainder over. In 1993 the executors receive
a dividend for the calendar year 1992.
(1) One-third of the dividend is apportioned to the period before the

testator’s death, and is retained by the executors as trust capital (just
as any sums actually received by the testator before his death would
have become trust capital).
(2) B will be entitled to the remaining two-thirds.133
The apportionment rule is intended to operate fairly between the differ-

ent beneficiaries (or their estates). The rule produces a fairness which is
expensive and inconvenient. The sums involved are usually small. Like
motorists with the urban speed limit, trustees ignore the apportionment
rule if they feel they can do so safely. So common is this practice that the
rule is scarcely if ever observed. Where figures are large, and the rule has
not been excluded by a trust, the question occasionally arises whether the
application of the rule can be overridden by the appropriate exercise of a
common form power of appointment: i.e. can a deed of appointment deal
with income not yet payable, but which time apportioned would accrue
before the date of the appointment? It is considered that the answer is yes;
but views may differ.
It is plainly desirable to avoid this pedantry and direct that the statu-
tory apportionment rule should not apply. Instead income is treated as
accruing when payable to the trustees: in the three examples above all the
dividends would be paid to B. Fortunately the apportionment rule can be
133
For an example of application of statutory apportionment rule on an A&M beneficiary attaining
an interest in possession, see the 7th edn of this book, para.20.54.

STATUTORY APPORTIONMENT 377
reversed without difficulty in trust law134 or tax law.135 The form used in
this book is as follows:
Income and expenditure shall be treated as arising when payable, and not from day to
day, so that no apportionment shall take place.
The drafting echoes the language of the statute. It is not appropriate to say:
This settlement shall be construed as if the Apportionment Act 1870 had not been enacted.
Interest was apportioned under the common law. The 1870 Act merely
brings other types of income into line. It is unnecessary to refer to the 1870
Act or its predecessor the Apportionment Act 1834.
The Trusts (Capital and Income) Bill, now passing its uncontroversial
way through Parliament, will abolish this rule for trusts created after the
Bill takes effect, including a trust created under a power conferred by an
old trust. Any entitlement to income under a new trust is an entitlement
to income as it arises. So once the Bill takes effect, this clause will no
longer be needed in trusts; though if it is retained, no harm will be done
(except to the reputation of the drafter).
Power for trustees to apply the apportionment rules?
Sometimes the trustees are given the power to decide for themselves
whether or not to apply the apportionment rules. Thus in the examples
above the trustees would pay the dividends to B but with power:
(1) on the facts of Example 1, to pay one-third of the dividend to A’s

estate; and
(2) on the facts of Example 2, to retain one-third of the dividend as
capital.
It is possible to envisage circumstances where trustees might desire to do

this, but in practice it would probably never happen. It is suggested that
the form is not worth the trouble and accordingly it is not used in this
book.136
134
Section 7 Apportionment Act 1870 directs that the provisions of the Act do not apply in any case
where it is expressly stipulated that no apportionment shall take place.
135
16.7 (Capital/income and apportionment provisions).
136
The tax implications of this power are also of concern. On the facts of examples (1) and (2) would
one third of the dividend be within the scope of s.479 ITA 2007 since it is income payable at the
discretion of the trustees? The answer is probably no, since the power is merely administrative:
see 16.2 (Significance of administrative/dispositive distinction).

Equitable apportionment
21.63 There are three cases where trustees must under the general law treat
income as if it were capital, or capital as if it were income. These are some-
times called the rules of equitable apportionment.137
Disposal of unauthorised reversionary investment. Where trustees hold an unau-

thorised investment which produces little or no income (e.g. a reversionary
interest), they should generally sell it; the life tenant then receives some of
the capital proceeds of sale to compensate them for the income which they
did not receive during the period that the trustees held the asset. This rule
is known as the rule in Howe v Earl of Dartmouth.
Disposal of unauthorised wasting investment. Likewise, where trustees hold a

wasting investment (e.g. a short lease) they should sell it; in the meantime
some of the income is treated as capital to compensate the remainderman
for the wasting nature of the asset concerned. This is known as the rule in
The Earl of Chesterfield’s Trusts.
Payment of debts. Where a testator leaves debts which are not paid imme-
diately out of the estate, the life tenant may receive income from capital
in fact required for payment of the debts. Part of that income should be
treated as capital and used towards payment of the debts. This is known as
the rule in Allhusen v Whittell.
The calculations involved are so complex that the costs and admin-
istrative difficulties are quite out of proportion to any advantage that
arises. It is hardly surprising that the rules are excluded in all well drafted
trusts, and if not excluded are more honoured in the breach than in the
observance.138
There are two common methods of excluding the rules. The first is to
exclude the rules by name:
The equitable rules of apportionment shall not apply to this Settlement; or:
The rule in Howe v The Earl of Dartmouth in all its branches shall not apply to this
Settlement.
The other technique is to say that income should be treated as income:
137
This name is unhelpful. The rules have nothing in common with the rules of apportionment
under the Apportionment Act 1870, known as the statutory apportionment rule, discussed at
21.62 (Statutory apportionment).
138
Law Reform Committee, 23rd Report, The Powers and Duties of Trustees, Cmnd. 8733 (1982) paras
3.26 et seq; Law Commission, Capital and Income in Trusts: Classifi cation and Apportionment (Law
Com. Report No. 315, May 2009) accessible http://lawcommission.justice.gov.uk/.

DELEGATION 379
The income of the Trust Fund shall, however the property is invested, be treated and applied as
income.139
Now, under trusts in this book, the trustees have a wide power of
investment which includes power to acquire wasting and non-income
producing assets.140 Such assets are therefore authorised investments. The
rules in Howe v Earl of Dartmouth and The Earl of Chesterfield’s Trusts cannot
apply. It is unnecessary to exclude them.141 Likewise, the rule in Allhusen
v Whittell does not apply to lifetime trusts, where trustees borrow under
an express power. Accordingly, provisions of this type are unnecessary. It
has been suggested that following the Trusts of Land and Appointment of
Trustees Act 1996 the rule in Allhusen v Whittell has ceased to apply even
to wills; but this is doubtful and it is still desirable to exclude the rule in
wills if only for the avoidance of doubt.
One sometimes sees a provision that it is for the trustees to decide
whether or not to apply the rules. This is open to various objections. In
particular, in trusts with wide powers of investment the clause is otiose or
its effect is unclear.
It is unnecessary to expressly exclude the equitable rules (unlike the
statutory rule) because they do not apply to the precedents used in this
book.
The Trusts (Capital and Income) Bill, now passing its uncontroversial
way through Parliament, will abolish all these rules for trusts created after
the Bill takes effect, including a trust created under a power conferred by
an old trust.
Delegation
The Trustee Act 2000 allows trustees to delegate to an agent, but imposes 21.64
many restrictions, some understandable, others quixotic.142 Four matters
cannot be delegated:
(a) dispositive powers;143
139
This precedent is derived from Statutory Wills Forms 1925, Form 8.
140
See 21.36 (The balance between income and capital). It is doubtful whether the rules apply at all
after the abolition of authorised lists of investment in the TA 2000. Ford & Lee, Principles of the
Law of Trusts, at 11150) suggest that the rule survives but in a modified form: the trustee must still
consider the appropriateness of the trust investments for maintaining a fair balance between the
life tenant and must determine an appropriate accounting procedure to maintain a fair balance
between the different classes of beneficiary.
141
Re Nicholson [1909] 2 Ch 111; Re Van Straubenzee [1901] 2 Ch 779. But see Robert Mitchell,
“Trusts for Sale in Wills—Excess Baggage” [1999] The Conveyancer 84, for another view.
142
Section 11 TA 2000. Further rules apply to charitable trusts (not discussed here).
143
Paragraph 16.2 (Significance of administrative/dispositive distinction).

(b) power to decide whether payments should be made out of income

or capital;
(c) power of appointing new trustees;
(d) power of delegation, use of nominee.
A beneficiary cannot be appointed an agent.144 This is in striking contrast

to many other statutory provisions which recognise that it may be appro-
priate for a beneficiary to act as trustee.145
Trustees may not delegate the following matters unless it is “reasonably
necessary” to do so:
(a) power to sub-delegate;

(b) limitation of liability of agent;
(c) permitting agent to act in potential confl icts of interest.
There must be considerable doubt as to what constitutes “reasonable

necessity”.
Further restrictions apply to “asset management functions”. Here we
have the regulator’s delight: written agreements and policy statements.
Applied to trusts as a whole, will the benefit of all this paper outweigh the
cost? The answer is by no means obvious; it might perhaps benefit from
research but is probably unresearchable.146
In the absence of sound research the drafter must rely on intuition
and it is considered that trustees can be trusted with a general and unre-
stricted power of delegation. All these restrictions on the power of del-
egation are needless complications. Policy statements, for instance, may
be regarded as good practice but should not be compulsory regardless of
circumstances. If they are fit to be trustees they are fit to decide how to
delegate.
The technical question then arises of whether these restrictions can be
overridden by the drafting and, if so, what wording is required. The TA
2000 has used a variety of drafting techniques to impose the restrictions,
which causes some unnecessary complexity and confusion.
The restriction that certain functions are not “delegable” and the
restriction on delegating to beneficiaries, apply only to the statutory
power of delegation. These restrictions do not apply if the trust confers its
144
The expression “beneficiary” is undefi ned and in some cases it is unclear who is a “beneficiary”.
See 5.18 (Defi nition of “Beneficiaries”).
145
See the references in 6.3 (Beneficiaries as executors and trustees).
146
Written policy statements are however the spirit of the age, and it is likely that trust practitioners
will see more of them before the tide turns. The Charity Commission, for instance, now recom-
mend charity trustees should “develop a written policy” on how to deal with confl icts of interest
relating to trustee remuneration (CC 11, Payment of Charity Trustees, Sept 2000), a charity reserves
policy (RS3, 1993), a risks policy (The Charities (Accounts and Reports) Regs 2000); etc.

DELEGATION 381
own power of delegation, e.g. as in the STEP standard form (“a trustee
may delegate . . . any of his functions to any person”). It is reasonably clear
that the same applies to the restriction relating to joint delegation and the
three matters which can only be delegated if reasonably necessary.
This leaves the restrictions relating to asset management functions. It
is considered the same applies. Section 15 Trustee Act 2000 (Asset man-
agement functions: special restrictions) only imposes its restrictions on
the statutory power of delegation. So if a trust confers an express power
of delegation, whether before or after the Act, s.15 does not apply and
there is no duty to prepare a policy statement. But the contrary view has
been suggested.147 However, even if any of these restrictions apply at all to
express powers of delegation, they only apply subject to contrary intent
in the trust itself. The restrictions can be excluded by express words or by
implication.148
Ideally one would set out at length exactly what is authorised, but the
length of the clause would be out of proportion to the importance of the
issue. Accordingly, the precedents in this book adopt the shorthand of an
exclusion by reference to the specific statutory provisions. This leads to a
simple form of draft:
A Trustee may delegate in writing any of his/her functions to any Person. None of the
restrictions on delegation in sections 12 to 15 Trustee Act 2000 shall apply. A Trustees
shall not be responsible for the default of that Person (even if the delegation was not
strictly necessary or expedient) provided that he/she took reasonable care in his/her
selection and supervision.
This draft is drawn from s.11 Trustee Act 2000. There are many other
statutory precedents.149 This clause applies to trustees and other fiduciar-
ies. This would allow the settlor to delegate their power to appoint new
trustees.150 On the use of the words “functions” as shorthand for “trusts,
powers and discretions” see 7.4 (Powers and duties: terminology). It is not
necessary to add the words “anywhere in the world”.151
Some drafters begin the clause with phrases such as:
147
This view regards s.15 TA 2000 as a self- standing section, not only applicable to the statutory
power. But the context would seem to be against this.
148
Even this has been doubted, at least in the very early days of the TA 2000, in relation to s.15 TA
2000! But the idea that Parliament should intend these petty restrictions on delegation to override
the intention of the settlor is absurd. It is also contrary to the approach of the Court in Re Turner
[1937] Ch 15 and LRT Pension Trustees v Hatt [1993] Pensions Law Reports 227, accessible www.
kessler.co.uk, in which apparently mandatory statutory words were held in context to apply subject
to contrary intent. Contrast the exclusion of provisions in the TLATA: see 21.41 (Occupation and
use of trust property); and exclusion of s.4 TA 2000: see 21.24 (Power of investment).
149
Section 25 TA 1925; s.23(2) (repealed); s.29 LPA 1925, now replaced by s.9 TLATA 1996; s.10
Powers of Attorney Act 1971; s.3(3) Enduring Powers of Attorney Act 1985 (repealed); art.5 of
the Model Articles prescribed by The Companies (Model Articles) Regulations 2008); art.25
Trusts ( Jersey) Law 1984.
150
The settlor could not delegate this power under any of the statutory powers of delegation appli-
cable to trustees.
151
See the discussion on similar wording in 6.33 (Appointment of new trustees).

Notwithstanding any rule of law or equity to the contrary . . .

Notwithstanding the fiduciary nature of the Trustees’ powers . . .
What can be the purpose of this? It acknowledges that the general rule
(that trustees may not delegate their powers) is overridden; but the general
rule can be overridden by any clear words: no particular form is needed.152
By this formula the drafter vaunts their superiority to the rule of equity;
but the additional words add nothing of substance.153
Supervision of company
21.65 The form is:

A Trustee is under no duty to enquire into the conduct of a company in which the
Trustees are interested, unless the Trustee has knowledge of circumstances that call
for enquiry.
This provision relieves trustees of a duty that they would otherwise have,
particularly in relation to unquoted family companies. It requires trustees
to take action only if they have knowledge of circumstances that call for
enquiry. For a discussion, see 6.36 (Excluding duty to supervise family
companies).
152
See (if authority is needed) Pilkington v IRC [1964] AC 612. Although s.25 TA 1925 uses this
form, it is not found in other statutory powers of delegation, listed above.
153
One drafter has even provided a clause beginning: “notwithstanding any rule of law or equity or
otherwise . . .”! One wonders what other rules the drafter had in mind.

CHAPTER 22
BARE TRUSTS
Terminology
A “bare trust” (in short)1 is one where trustees hold property on trust for 22.1
one or more beneficiaries absolutely.
We use the following terminology:
(1) A single bare trust is one where the trustees hold property on trust
for a single beneficiary absolutely.
(2) A joint bare trust is one where the trustees hold property on trust
for more than one beneficiary (“joint beneficiaries”) absolutely.
(3) A substantive trust is one which is not a bare trust.
Why use bare trusts?
Bare trusts may be used where the settlor wishes to make an absolute gift 22.2
without transferring legal title to the property to the beneficiaries. For
example, the beneficiary may be a child who is incapable of holding the
legal title. So long as the bare trust continues, the management of the trust
fund may be in the hands of the trustees rather than the beneficiaries.
1
More precisely, the term “bare trust” has various meanings, but nowadays private client
practitioners use the word specifically to mean a trust of property:
(1) within s.60 TCGA 1992 and the IT equivalent, s.466(3) ITA 2007 (nominee property, not
settled property for IT and CGT purposes), and
(2) not within s.43 IHTA 1984 (not settled property for IHT purposes).
These two defi nitions are not quite identical, but in practice they usually amount to the same.
That is the sense adopted here; it might for convenience be called a bare trust “in the tax sense”.
In the past the expression was used in a variety of quite different senses. The old cases are
assembled in Re Blandy Jenkins [1917] 1 Ch 46. This is now of historic interest only but it needs
to be kept in mind, especially when reading older cases, that references to a bare trust may not
be a reference to a bare trust in the tax sense.

384 BARE TRUSTS
Blind trusts
22.3 “Blind trust” is not a technical term, and may be used in different senses,2
but it normally means a bare trust. Assets are transferred to trustees (one
might also call them nominees) to hold on trust for the settlor (or perhaps
other beneficiaries) absolutely. The trustees have power to buy, sell and
manage trust assets as they see fit 3 without informing the beneficiary. In
most cases, only a bare trust could be contemplated, as tax considerations
would usually rule out other form of trust.
The purpose of a blind trust is to avoid a confl ict of interest which
might arise if the assets were held by the beneficiary. The questionable
basis on which this is said to be achieved is that no confl ict should arise
if the beneficiary does not know what assets are held by the trust at any
given time. In particular, blind trusts are sometimes created by politicians
to enable them not to declare an interest in the assets.4
Despite its name, a trust of this kind is not wholly blind. The benefi-
ciary’s right to trust information cannot be excluded.5 If requested, the
trustees would be required to disclose full information about the trust
assets. Blind trusts could therefore only be effective if the beneficiary
chooses not to seek that information. However, the beneficiary may need
the information. For example, the beneficiary must submit tax returns.
HMRC state that trustees need only give sufficient information to enable
the beneficiary to complete their tax return.6 This suggests that only
details of the total trust income and gains are required but this will not
always be sufficient. Knowledge of the trust assets may also be required
for other reasons.
If (as is usual) the settlor is the beneficiary, the trust does even less to
prevent a confl ict. The settlor must at least know what assets were trans-
ferred to the trust. A confl ict may therefore exist in relation to those assets
- even if they have been sold and the beneficiary is unaware of this fact.
In practice, it is unlikely that bare trustees would seriously contemplate
buying or selling important trust assets (e.g. a shareholding in a private
2
It is sometimes used to describe a substantive trust under which the only named beneficiary is a
charity (e.g. the Red Cross) but the persons who are really intended to benefit are added later.
3
In Re Lashmar [1891] 1 Ch 258, the Court of Appeal held that once a trustee holds property for an
adult beneficiary, “he was simply a bare trustee, having no duty whatever to perform”. However,
bare trustees may have express powers and duties conferred or imposed on them by the trust or
by agreement with the beneficiaries.
4
HMRC also say that “a trust may also be created to fund a political party or a particular political
campaign. Once created, it is possible for sympathisers to donate to the trust fund anonymously.
The purpose of such a trust is to allow politicians to use the funds and claim they are not aware of
the settlors/donors so cannot be influenced by them.” See Trusts, Settlements and Estates Manual
para 1150 (Blind trusts). But we wonder if that is ever done. The idea raises trust law issues as a
trust for a political purpose is not valid; tax issues; and the restrictions on gifts to political parties
would also need consideration.
5
See 29.3 (Beneficiary’s right to trust information).
6
See Trusts, Settlements and Estates Manual p.1150 (Blind trusts).

BLIND TRUSTS 385
company) without the approval of the beneficiary. It will generally be

envisaged that the trust is of limited duration, e.g. while the beneficiary
holds ministerial office. In the meantime, the beneficiary is entitled to call
for the trust assets at any time (otherwise the trust is not a bare trust). The
trustees would in principle be bound to transfer them to the beneficiary
or as they direct. The reality is therefore that trustees are unlikely to take
action without the approval of the the beneficiary. The English courts
have also held that bare trustees must use their votes on shares in accord-
ance with directions by the beneficial owner.7 The trust could provide
otherwise but, in practical terms, it seems unlikely that trustees would
exercise important voting rights without consulting the beneficiary.
It is therefore unlikely that a blind trust would effectively avoid a
confl ict. In particular, an accountant may be unable to audit a company
the shares of which are owned by a blind trust under which he is the
beneficiary.8
In our opinion, a blind trust should only be used in cases, if any, where
guidance specifically recommends it. Formerly, blind trusts were recom-
mended in the Ministerial Code. The fi rst edition ( July 1997) advised
that a minister might consider “placing all investments (including deriva-
tives) into a bare trust”9 but that “this course would normally be useful
only in the case of a widely-spread portfolio of interests”.10 The somewhat
tendentious term “blind trust” replaced “bare trust” in the second, third
and fourth editions. The advice was that “a blind trust is only blind in the
case of a widely-spread portfolio of interests managed by external advi-
sors” and that once established “the minister should not be involved or
advised of decisions on acquisition or disposal relating to the portfolio”.11
In relation to portfolios of this kind, only, it might be said that a blind
trust may achieve its object. However this advice was removed from the
fi fth edition issued in July 2007 and does not appear in the current edition
( July 2010).12 It has been replaced by a more general recommendation,
that action should be taken to ensure that no confl ict arises, or could
reasonably be perceived to arise, between the minister’s public duties and
their private interests, but without endorsing blind trusts or any similar
method as a means of achieving this aim.13
In short, blind trusts were an ill-thought through idea, from a non-
7
See Kirby v Wilkins [1929] 2 Ch 444 at p.454 and Re Castiglione’s Will Trust [1958] Ch 549 at p.558
where it was held that bare trustees must exercise voting rights over shares in accordance with
directions by the beneficiaries. The opposite conclusion was reached in the New Zealand case of
Re Kirkpatrick (2005/6) 8 ITELR 597, although the English cases were not cited.
8
See 6.9 (Accountants as trustees).
9
i.e. “one in which the minister is not informed of changes in investments or of the state of the
portfolio but is still fully entitled to both the capital and income generated”.
10
The superseded versions of the Ministerial Code are accessible at www.cabinetoffi ce.gov.uk/content/
codes- conduct-and- ethics.
11
The wording is stronger in the next two versions.
12
Accessible at www.cabinetoffi ce.gov.uk/content/ministerial- conduct-and- guidance.
13
See para.7.1 of the Ministerial Code ( July 2010); see also paras 7.2 and 7.7–7.9.

386 BARE TRUSTS
trusts lawyer, which the ministerial code has now stepped back from
endorsing.
On appointment to each new office, ministers must provide their
Permanent Secretary with a list in writing of all relevant interests known
to them which might be thought to give rise to a confl ict. The official list
of ministers’ interests includes a number of references to “Blind Trust/
blind management arrangements”.
The result has in fact been to reduce transparency (in the sense of public
knowledge of ministers’ assets), which may or may not be thought not to
be in the public interest.14
Tax advantages
22.4 A bare trust is not a “settlement” for IHT purposes and so is outside the
standard IHT trust regime. A gift to a bare trust is a PET. The trust fund
is in the estate of the beneficiaries.
The gains of a bare trust are the gains of the beneficiaries for CGT
purposes, so it is possible to use the beneficiaries’ CGT annual allowances.
This is not such a significant advantage for a single bare trust. However,
where the settlor has a number of children, or grandchildren, the CGT
advantage of a joint bare trust for all of them becomes substantial.
The income of the bare trust is the income of the beneficiaries (unless
the beneficiaries are minor children of the settlor).
Non-tax aspects of bare trusts
22.5 Beneficiary attains 18
If a sole beneficiary attains 18, they can call for the fund to be transferred
to them. If a joint beneficiary attains 18, they can call for their share of the
trust fund to be transferred to them if it is easily divisible.15
However, the beneficiary may agree not to call for the property to be
transferred to them. On attaining the age of 18, a beneficiary may be
invited to sign an agreement along the following lines:
Dear [trustees]
14
See the List of Ministers’ Interests, accessible www.cabinetoffi ce.gov.uk/resource-library/list-
ministers-interests.
15
Not if the trust fund is land: Crowe v Appleby 51 TC 457; or a majority shareholding: Lloyds Bank
v Duker [1987] 1 WLR 1324; or an insurance policy. Policies are normally issued in clusters, and
a beneficiary entitled to (say) a one quarter share of ten policies could in principle call for at least
two of them.

POWERS OF TRUSTEES OF BARE TRUSTS 387
In return for your continuing to act as trustees, I agree not to call for my share of the
[name of trust] bare trust to be transferred to me until I reach the age of 21, or I have
given the trustees one month’s notice in writing, whichever shall be the later.
Signed . . .
Death of beneficiary
There are two possibilities:
(1) Sole beneficiary of a single bare trust. On the death of the benefici-
ary under the age of 18, their share must pass under the intestacy
rules, in principle, to their parents. After the age of 18 their share
will pass accordingly to his Will (or intestacy).
(2) On the death of a beneficiary of a joint bare trust:
(a) If the beneficiary’s share is held as tenant in common, the
position is as in (1) above.
(b) If the beneficiary’s share is held as joint tenant, it passes by
survivorship to the other beneficiaries.
Whether the share is held as joint tenant or tenant in common depends

on the drafting.16
Powers of trustees of bare trusts
It is important to distinguish two distinct questions: 22.6
(1) What powers can be conferred on trustees consistent with the trust
qualifying as a bare trust in the tax sense? This is a question of law.
(2) What powers are conferred on the trustees in any particular case?
This is a question of construction of the trust document in its
context. With a well drafted document no difficulty should arise
as the answer should be clear. This question cannot be discussed in
the abstract, in the absence of any particular trust document and
its context. The question in the abstract whether a trustee of a bare
trust has any powers or duties, and if so what they are, is a mis-
conceived question; all the confusion and contradictory answers to
which it has given rise is avoided if one asks instead what powers
do these bare trustees have under this document in this context.
16
A joint tenant could sever the joint tenancy and create a tenancy in common, but in practice we
expect that will not often happen.

388 BARE TRUSTS
Power of advancement
A bare trust may contain a power of advancement; indeed, the statutory

power will prima facie be implied17 though in our precedent there is no
doubt as it is expressly incorporated. This allows the trustees to apply
capital of each beneficiary’s share for the benefit of the beneficiary.
It would authorise the trustees to transfer the beneficiary’s share to
a new, substantive trust, if this is for the benefit of the beneficiary.18
This can be done at any time, if there are good reasons why it would
benefit the beneficiary to transfer the funds to a substantive trust under
which he could not spend the capital. There would of course need to be
for the benefit of the beneficiary to divert the funds from them, which
would not usually be the case, but that might well be so in situations
where:
(1) A beneficiary is about to become bankrupt.

(2) A beneficiary is about to divorce.
(3) A beneficiary is about to die.
17
As the word “absolutely” used in s.32(1) TA 1925 makes clear, the statutory power applies where
property is held for a beneficiary absolutely. This is confi rmed (if authority were needed) in CD
(a minor) v O [2004] EWHC 1036 [2004] WTLR 751. (The correct name is CD (a minor) v O but
the case is reported under the name D v O in 7 ITELR 63; the report in [2004] 3 All ER 780
uses both names in different places.)
In CD (a minor) v O the beneficiary of the bare trust happened to be a minor but this did not
form part of the judge’s reasoning and the power would have continued to apply even after the
beneficiary became an adult (though the circumstances in which it would be reasonable to exer-
cise the power may have changed).
This view is also supported by London and County Banking Co v Goddard [1897] 1 Ch.
642 which held that (what is now) s.40 TA 1925 applies to a bare trust as well as to a substantive
trust.
A contrary view has been suggested, based on a passing comment in Pilkington v IRC [1964]
AC 612 at p.641 which referred to:
“really extravagant cases of resettlement being forced on beneficiaries in the name
of advancement, even a few months before an absolute vesting in possession would have destroyed the
power.”
Of course the vesting in possession would normally be followed by a transfer of legal title which
would have destroyed any power of advancement and in that sense the comment is clearly right.
It should not be taken as authority for the proposition that “absolute vesting” necessarily destroys
a power of advancement because that would be contrary to the clear words of the section, it
would (as stated) apply to a minor who has an absolute interest as much as to an adult which is
contradicted by CD (a minor) v O, the comment is of course obiter and the judge would not have
heard argument on or fully considered or needed to consider the point. His concern is focused
on the (mis)exercise of the power rather than its scope.
In appropriate cases, the documentation construed in context may well exclude s.32:
no- one suggests that a bank or stockbroker holding shares as nominee for a customer has
a power of advancement, but that is because the trust documentation in its context would
be construed as excluding a power of advancement, not because the power cannot be conferred
at all.
18
See 11.11 (Power of advancement used to create new trusts).

DRAFT BARE TRUST 389
The creation of the substantive trust is not in principle a transfer of value

for IHT purposes.19 It is considered that the beneficiary is the settlor for
tax purposes, but the contrary is arguable.20
Power to appropriate and to mix funds
The trustees may have power:
(1) to blend funds of joint beneficiaries together;

(2) to appropriate assets to a beneficiary.
Draft bare trust
Investment companies have for some time offered standard forms of a 22.7
single bare trust to use for their own funds. That should be satisfactory as
the drafting is straightforward. However, in practice, advisors may prefer
their own drafting.21 Here is a precedent of a joint bare trust:
This trust is made [date] between:
1 [Name of settlor] of [address] (“the Settlor”) of the one part and
2 2.1 [Name of fi rst trustee] of [address] and
2.2 [Name of second trustee] of [address]
(“the Original Trustees”) of the other part.
Whereas
(A) The Settlor has [10] grandchildren now living (“the Grandchildren”) namely
(1) [name] who was born on [date].
[continue with each grandchild on a new line]
(B) This trust shall be known as the [Name- of- Settlor] Trust [2010].
1 Defi nitions
In this trust:
1.1 “The Trustees” means the Original Trustees or the trustees of this trust
for the time being.
1.2 “The Trust Fund” means:
1.2.1 property transferred to the Trustees to hold on the terms of this
Settlement; and
19
Because the beneficiary does not make a disposition, unless s.3(3) IHTA 1984 is in point.
20
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.75 (Who is
the settlor?) paras 75.7 and 75.12 accessible www.foreigndomiciliaries.co.uk.
21
For the difficulties of standard forms, see 23.2 (Insurance company standard form).

390 BARE TRUSTS
1.2.2 all property from time to time representing the above.

1.3 “Trust Property” means any property comprised in the Trust Fund.
2 The Trust Fund shall be held on trust for the Grandchildren as beneficial joint
tenants absolutely.22
3 Section 32 Trustee Act 1925 (Power of Advancement) shall apply with the fol-
lowing modification: the words “one-half of ” in section 32(1) shall be deleted.23
4 Appointment of Trustees
The power of appointing trustees is exercisable by the Settlor during [his/her]
life and by will.
5 Further Provisions
The provisions set out in the schedule below shall have effect.
The beneficiaries of the bare trust should not be a party to the deed.24
Additions to bare trust
22.8 If the bare trust is intended to benefit children or grandchildren equally,

the settlor may wish to add property to it after another child or grandchild
is born. This may be done by a transfer of property to the trustees together
with a declaration of trust:
To [names of trustees]
[Name of Bare Trust]
I have transferred [specify property] to you. I direct you to hold that property:
(1) on the terms of the [name of bare trust] but as if references to the “grandchil-
dren” were references to all my grandchildren now living (including [name]
who was born on [date: specify those born after date of bare trust])
(2) in such shares so as to ensure that each grandchild’s share in the Trust Fund is
equal.
If the settlor is concerned to provide for further grandchildren who may

be born after his death, he may enter into a lifetime covenant or make
provision by his will.
22
This wording creates a joint tenancy: see 22.5 (Non-tax aspects of bare trusts). If a tenancy in
common is desired, say: “ . . . for the Grandchildren in equal shares absolutely”.
23
This is the wording of the STEP standard provision. It seems better to use the statutory power,
since no- one could suggest that could prevent a trust from being a bare trust in the tax sense.
24
See 10.8 (Who should be parties).

CHAPTER 23
TRUSTS OF LIFE INSURANCE POLICIES
Introduction
This chapter considers straightforward life insurance policies, i.e. policies 23.1
which pay a sum of money on death. Different considerations apply to:
(1) Seven year reducing policies to cover the risk of IHT on a PET.
These should usually be given to the donee of the PET.
(2) Policies to pay a sum on survival to a specified age or prior death.
The complication here is that the policyholder may want to give
away the death benefit but retain the other benefit. More bespoke
drafting is needed.
(3) Policies (often called bonds) which contain only a nominal
element of life insurance. In substance these are simply investments
wrapped up in a life insurance package, and they do not require
any particular form of trust.
(4) Pension schemes (which may of course confer death benefits).
A life insurance policy should not normally1 be kept by the life assured.
For the proceeds of the policy (which ex hypothesi the life assured will not
live to see) would be subject to IHT on their death. A policy could be
given to the individual’s children or to a bare trust for them. It is often
more appropriate to transfer it to a trust for the benefit of the individual’s
children and widow.
Insurance company standard form
The drafter of a trust for a life policy has an easy option; this is to adopt 23.2
the standard form supplied free of charge by the insurance company
1
One exception is when the policy is to be security for a loan taken out by the life assured.

392 TRUSTS OF LIFE INSURANCE POLICIES
concerned. This is generally more or less adequate.2 But even where

all possible care is taken on behalf of the insurance company, the forms
suffer from a number of defects. First, they are standardised. The drafter
had to devise a single form which was short, comprehensible, and which
requires a minimum of subsequent attention. This is by no means easy.
Secondly, the insurance company standard documentation is drafted to
deal with one policy only, but where a client has a number of policies it
is convenient to use a single trust (or possibly a series of similar trusts)
but not to use separate trusts in different forms. The reader will not be
surprised that the insurance company’s forms come supplied with a stiff
disclaimer so if problems do arise, an action against the insurance company
may not be easy.3
How much more satisfactory to draft a proper trust drafted with the
individual’s circumstances in mind. If there is some other trust in the
family, that may be a suitable trust to hold the life insurance policy; one
should not multiply trusts unnecessarily.
Trusts created pursuant to contract of insurance
23.3 The contract with the insurance company (and the policy provided pursu-
ant to that contract) may provide that the policy is from its inception to be
held on trust.4 It is necessary to check that this is not the case, so that the
client owns their policy and can transfer it into a trust.
Trust created over existing policy
23.4 There are two usual methods to create a trust of a life insurance policy
belonging to the client:
2
But there are (or at least have been) a few rotten eggs in this basket. It usually takes many years for
the problem to emerge (which conveniently helps the company’s limitation defence to any claim).
For instance, Pappadakis v Pappadakis [2000] 1 WTLR 719 accessible www.kessler.co.uk discloses
some shoddy practice in Abbey Life in the 1980s.
3
Another short cut, mentioned here for completeness, is to express the life insurance to be “effected
for the benefit of the individual’s wife and children.” This is a short form, which brings into effect
a primitive trust for those objects: s.11 Married Women’s Property Act 1882. The form of 1882
would not today be regarded as adequate. It would be better to use the life insurance company’s
standard form.
4
This is a convenient way of creating trusts in the life insurance company standard form. The
question whether particular wording created a trust is discussed in a number of cases, summarised
in Re Foster [1966] 1 WLR 222. A shameful, unnecessary case law because competent drafting
should always make it plain whether or not a trust is intended. The absence of modern case law
suggests this lesson may have been learned.

TRUST CREATED OVER EXISTING POLICY 393
(1) Declaration of trust by settlor:

(a) the settlor executes a declaration of trust, under which he or
she declares that he or she holds the policy on trust;
(b) it is then usual (not strictly essential but convenient) for the
settlor to appoint one or more additional trustees to act with
him or her.5
(2) Transfer to trustees to hold on trust:
(a) the settlor (and trustees) execute a trust deed; and
(b) the settlor assigns the policy to the trustees.6
The simplest course is that:
(1) the trust is not set out in the contract or the terms of the policy
(2) the settlor and trustees execute the trust;7 and
(3) in a separate deed, the settlor assigns the policy to the trustees.
IHT implications of using a trust
When the policy is transferred to the trust it will normally have relatively 23.5
little value. So a gift of the policy to the trust will not usually8 give rise
to IHT, because of the annual exemption or the NRB.9 The payment of
5
This appointment may be:
(i) set out in the deed of declaration of trust; or
(ii) set out in a separate deed of appointment.
Either way, the appointment has the effect of an assignment of the policy to the new trustees: s.40
Trustee Act 1925. Notice should be given to the insurance company.
6
This assignment may be:
(1) set out in the trust deed, or
(2) set out in a separate deed.
Notice should be given to the insurance company.
7
Of course if the trust exists already and new policies are to be assigned to it, then only a simple
deed of assignment will be required.
8
The only exceptions are if the settlor has made a substantial chargeable transfer in the last seven
years; or if the “normal expenditure” IHT exemption will not apply on payment of the premiums.
9
This assumes that:
(1) the settlor has made no chargeable transfers in the seven years prior to creating the trust;
and
(2) the settlor assigns the policy to the trust as soon as it is taken out; or if there is a delay, the
settlor is not so ill or so old that he or she is likely to die soon (making the policy a valuable
asset);
(3) the policy is paid out of annual premiums and not by a single substantial one- off payment.
If these assumptions were wrong there might be an IHT charge on the transfer of the policy to a
trust.

regular premiums for the life insurance policy will normally be an exempt
transfer.10
The gift of the policy to the trust will not give rise to a gift with
reservation provided that the owner of the policy is excluded from
benefit under the trust. Likewise, the payment of premiums will not
give rise to a gift with reservation for IHT purposes provided that
the person who pays the premiums is excluded from benefit under the
trust. Thus in a simple case where the settlor takes out the policy and
pays the premiums, the settlor must be excluded from benefit. Strictly
speaking, their spouse/CP need not be excluded. The usual course is to
exclude settlor and spouse/CP, but not the surviving spouse/CP of the
settlor.
The position is different where a couple take out a joint policy, payable
on the death of the survivor of the two of them. In such cases the pre-
miums will normally be paid by the couple jointly, and the policy would
belong to them jointly. It is then necessary to exclude them both from the
trust; see 10.11 (Form where trust made by joint settlors).
Ten year charges and exit charges during lifetime of settlor
23.6 The trust will be within the IHT trust regime of 10-year charges and exit
charges. The amount of the 10-year charge would normally11 be nil if the
value of the trust property (the policy) falls within the NRB at that time.
That will be the case if:
(1) the death benefit is within the NRB, or

(2) the life assured is in good health on the 10-year anniversary.12
The trustees should therefore review the position shortly before each 10-
year anniversary.13 The amount of an exit charge before the first 10-year
anniversary would be nil, so a 10-year charge can be avoided if necessary
by an appropriate appointment. It would only be desirable to make some
appointment at that stage if the settlor is old or in very poor health at that
time and the policies have a value above the nil rate band.
It is just possible that the settlor might die unexpectedly immediately
before the 10-year anniversary. In that case there could be a charge on the
10-year anniversary. The maximum rate is 6% but normally the rate will
10
Section 21 IHTA 1984 (normal expenditure out of income). It follows that s.67 IHTA 1984
(added property) will not apply in computing 10 year charges.
11
Assuming the settlor had not made chargeable transfers in the last seven years.
12
Note for completeness that s.167 IHTA 1984 has specific rules on the valuation of life policies.
However, in practice this section will not make a great deal of difference.
13
To avoid the necessity for this, insurance company standard forms usually confer IP on the chil-
dren of the settlor. This works passably well, but the flexibility of a discretionary trust will usually
be slightly better.

TRUST CREATED OVER EXISTING POLICY 395
be much less or nil. That risk is an acceptable price to pay for the signifi-
cant advantage of flexibility offered by the trust.
Tax returns
No IHT return is normally14 required on the creation of the trust. IHT 23.7
returns would be required on:
(1) subsequent 10-year anniversaries; and

(2) on the termination of the trust.
If this was accidentally overlooked (which perhaps often happens when the
trust fund is small and the charge nil) the maximum penalty is £100.15 No
other returns are required while the trust has no taxable income or gains.
Advantages of multiple discretionary trusts
A client who has created a trust over a life policy may wish to take out 23.8
another policy to increase their life cover. The question arises whether
the client should use the same trust for both policies or create a new trust.
A single trust is all that is needed where the total death benefit of all
policies in the trust is within the NRB. The trust is in principle outside
the scope of IHT because the exit and 10-year charges are nil.
The advantage of separate trusts is that each will have in effect its
own NRB, so 10-year charges and exit charges which would apply to a
more substantial discretionary trust (above the NRB) will be reduced or
avoided. This assumes that the law remains broadly as it now is, which
(following the 2006 reforms) is a questionable assumption. The disadvan-
tage is complexity and additional administration costs. Also, other trusts
made by the same settlor will enjoy a smaller CGT annual exemption,
though in practice this may not concern many settlors.
Everyone would prefer to use a single trust for all of a client’s policies.
But it depends on the circumstances and values involved. If the total death
benefit of all policies is less than £300,000, say, then a single trust is cer-
tainly preferable. In such cases there need not normally be any significant
10-year or exit charge. As the values increase, the balance of advantage
shifts to some extent towards separate trusts. If the death benefit exceeds
£1 million then multiple trusts would be better. For cases in between, the
answer depends on how much trouble and expense one is prepared to take
in order to optimise the tax position. The tax problem is not so much the
14
This assumes that the value transferred by any gift to the trust does not exceed 80% of the NRB.
For this purpose PET may be ignored: they are not “chargeable transfers”. See 30.14 (Returns
and other matters).
15
Section 245 IHTA 1984. One hopes that HMRC would charge no penalty in practice.

10-year charges during the lifetime of the client (which will usually be
nil or manageable, as explained above). The advantage of multiple trusts
is very long term: if one single trust is used, and has a very substantial
trust fund, the trustees will be reluctant to keep the trust once the poli-
cies mature, after the death of the settlor. This is because the IHT cost of
doing so (the 10-year charges) will make this unattractive.16 If there are
a number of separate trusts, the 10-year charges will be much reduced or
nil, and this would allow the trustees to let the trusts remain.
A similar question arises if the client is taking out substantial life cover,
say £1 million. It would be best from a tax point of view to create four
separate trusts, each holding separate policies for £¼ million rather than
one single policy. The question is whether the costs incurred will justify
the long-term IHT saving. As a rule of thumb it is suggested that the
balance of advantage favours the use of multiple separate trusts (each with
a trust fund within the NRB) only if the total sum insured exceeds £1
million. In practice that will be rare. If there is to be more than one trust,
care is needed in the execution of the arrangements. The trusts should
not be identical in form.17 They should not commence on the same day.18
Some drafting points
23.9 Tr usts of life insurance policies tend to be held in store and not reviewed
for many years. Standard forms of life insurance companies often contain
a “missing trustee” form. This may help solve a problem which no doubt
arises occasionally in practice:
Where one trustee (“the Missing Trustee”) cannot be found and the other trus-
tees (“the Remaining Trustees”) have made all reasonable efforts to trace him, the
Remaining Trustees being not less than two in number or a company may by deed
discharge the Missing Trustee. A recital in that deed stating that the Missing Trustee
cannot be found and that the Remaining Trustees have made all reasonable efforts
16
At 2012/13 rates some sample computations of the IHT 10-year charge are as follows:
Value of trust fund on TYA £500,000 £750,000 £1,000,000 £2,000,000
Tax rate 2.1% 3.4% 4.05% 5.025%
10-year charge £10,500 £25,500 £40,500 £100,500
17
In Rysaffe v IRC [2002] STC 872 five settlements identical in all but formal respects were held
to be separate settlements but “it would have been clearer if there had been a few differences
between them at the outset” (para.25). An HMRC argument based on associated operations was
also rejected.
18
This aggregates the IHT charge: see ss.62, 66(4)(c) IHTA 1984. A settlement commences when
property fi rst becomes comprised in it: s.60 IHTA 1984. In Rysaffe v IRC [2002] STC 872 the
settlor wrote a single cheque for £50 to his solicitors. The judge found, on the basis of evidence
not set out in the judgment, that £10 became comprised in the five settlement on separate days.
It would have been clearer to write five separate cheques, banked on separate days.

PRECEDENT TRUST FOR LIFE POLICY 397
to trace him shall be conclusive evidence in favour of any person dealing with the
Trustees in good faith.
It would be sensible to appoint a professional trustee younger than the

settlor, along with the settlor (if desired) and a friend or member of the
family (if desired).
Some standard forms provide:
No lien shall be created on the policy as a result of any payment of a premium by the Settlor.
This does no harm but is not necessary. The question of whether a payment
of a policy premium (or any other sum for the trust) creates a right to
reimbursement (by a lien) is not determined by the terms of the trust. It
is determined by the intention of the payer at the time of the payment. In
normal circumstances one would assume that the intention of the settlor
paying a premium was to benefit the trust, and the settlor did not intend
they should have a right of reimbursement.19
Precedent trust for life policy
The standard discretionary trust will be appropriate. 23.10
This Trust is made [date] between:

1. [Name of settlor] of [address] (“the Settlor”) of the one part and
2. 2.1 [Name of fi rst trustee] of [address] and
Whereas:
1. The Settlor has [two] children:
1.1 [Adam Smith] (“[Adam]”) who was born on [date] and
1.2 [Mary Smith] (“[Mary]”) who was born on [date].
2. This Trust shall be known as the [ John Smith] Life Policy Trust [2012].

1. Defi nitions
In this Trust:
1.1 “The Trustees” means the Original Trustees or the trustees of this Trust
for the time being.
19
Re Smith [1937] Ch 636, De Vigier v IRC 42 TC 24 at 40 (lien intended); Re Roberts [1946] Ch 1
(no lien intended).


1.2.1 property transferred to the Trustees to hold on the terms of this
Trust; and
1.3 “Trust Property” means any property comprised in the Trust Fund.
1.4 “The Trust Period” means the period of 125 years beginning with the
date of this Trust.
1.5 “The Beneficiaries” means:
[set out standard defi nition]
1.6 “Person” includes a person anywhere in the world and includes a Trustee.
2. Trust Income

2.1 The Trustees may accumulate the whole or part of the income of the Trust
Fund during the Trust Period. That income shall be added to the Trust
Fund.
2.2 The Trustees shall pay or apply the remainder of the income to or for the
benefit of any Beneficiaries, as the Trustees think fit, during the Trust
Period.
The Trustees shall have the following powers (“Overriding Powers”):
[set out standard overriding powers]
4. Default Clause
Subject to that, the Trust Fund shall be held on trust for [Adam and Mary in
equal shares — or specify default trusts as appropriate] absolutely.
5. Appointment of Trustees
5.1 The power of appointing trustees is exercisable by the Settlor during [his]
life and by will.
5.2 Where one trustee (“the Missing Trustee”) cannot be found and the other
trustees (“the Remaining Trustees”) have made all reasonable efforts to
trace him, the Remaining Trustees being not less than two in number or a
company may by deed discharge the Missing Trustee. A recital in that deed
stating that the Missing Trustee cannot be found and that the Remaining
Trustees have made all reasonable efforts to trace him shall be conclusive
evidence in favour of any person dealing with the Trustees in good faith.
6. Further Provisions
[For a shorter form, omit the schedule and say instead of the above:

PRECEDENT TRUST FOR LIFE POLICY 399
“The standard provisions and all of the special provisions of the Society of Trust
and Estate Practitioners (2nd Edition) shall apply.”]
7. Irrevocability
This Trust is irrevocable.
[Set out form to exclude settlor and (if desired) spouse/civil partner20 ]
In witness, [etc.]
THE SCHEDULE: FURTHER PROVISIONS
[Here set out the administrative provisions suitable to the discretionary

settlement.]
20
Since the policy produces no trust income or gains, it may be satisfactory to exclude the settlor
(for IHT reasons) and not the spouse/civil partner.

CHAPTER 24
TRUSTS OF PENSION DEATH BENEFITS
Overview of pension rules
24.1 This chapter deals with lump sum death benefits payable under registered
pension schemes within the meaning of FA 2004, Pt 4, Ch 2.1 Registered
schemes benefit from favourable tax treatment, e.g. contributions are tax
deductible2, part of the fund can be paid as a tax–free lump sum3 and
income and gains from investments held for the purposes of the scheme
are exempt.4
24.2 A single set of pension rules applies to all registered pension schemes
from 6 April 2006 (known as “A-Day”). In short, the rules allow any type
of payment which is an “authorised member payment” to be made to or in
respect of a member. Penal tax charges apply if an “unauthorised member
payment” is made. The rules changed again on 6 April 2011.5
The following are authorised member payments:
(1) A member may take a pension from age 55 (before 6 April 2010 the
“normal minimum retirement age” was 50).6
(2) Before April 2011, the member generally had to take a pension by
75. This involved either:
1
This includes any of the following types of approved scheme in existence on 6 April 2006 which
were automatically registered:
(1) retirement benefit schemes (also known as exempt approved or occupational pension
schemes) approved under ICTA 1988, Pt 14, Ch 1;
(2) personal pension schemes (including stakeholder pension schemes) approved from 1 July
1988 under ICTA 1988, Pt 14, Ch 4; and
(3) retirement annuity schemes approved before 1 July 1988 under ICTA 1988, Pt 14, Ch 3.
Unapproved schemes (e.g. FURBS and UURBS) continue as unregistered schemes.
2
Section 188 and 196 FA 2004.
3
Section 636A ITEPA.
4
Section 186 FA 2004 and s.271 TCGA 1992.
5
See Finance Act 2011, s.65 and Sch.16.
6
A pension may be taken from an earlier age if the ill-health condition is met.

OVERVIEW OF PENSION RULES 401
(a) buying an annuity (a secured pension) or

(b) income drawdown (called “an unsecured pension” or
“USP”)7
(3) At age 75, the member had to take a pension or a type of income
drawdown called “an alternatively secured pension” or “ASP”.
(4) After April 2011, the member no longer has to buy an annuity or
draw income at 75. USP and ASPs are replaced with a single form
of pension called “drawdown pension”.8
(5) The member may also take up to 25% of the pension as a tax-free
cash lump sum. Previously, it had to be taken before 75. Now, it
may be taken at any age. If it exceeds 25% of the lifetime allowance
(£1.5m for 2012/13), there is a 55% IT charge (known as “the life-
time allowance charge”).9 This is a liability of the person to whom
the benefit is paid.10
(6) Now that it is no longer necessary to take a pension at 75, a
pension fund may remain uncrystallised (i.e. not used to provide a
pension or drawdown pension) until death. It may then be used to
pay:
(a) A dependant’s pension (secured or drawdown pension); or
(b) A lump sum death benefit; or
(c) A combination of the two.
Any funds not designated as available for drawdown pension may
also be used to make such payments.
(7) The lump sum death benefit is free of income tax11 if the member
died under the age of 75. A 55% IT charge applies if it exceeds the
lifetime allowance (known as “the special lump sum death benefit
charge”).12 The scheme administrator is liable for this tax.13
(8) If the member died over 75 or the fund was crystallised (e.g. it was
7
Income drawdown allows the pension fund to remain invested and the member to choose how
much to receive and when (either direct from the scheme (called income withdrawal) or from an
insurance company using a short-term annuity or a mixture of both).
8
Capped drawdown works in the same way as income withdrawal before 6 April 2011. There is a
limit on the amount of income that can be taken each year. Now, that limit is 100% of an equiva-
lent annuity that could be purchased with the pension fund. Previously, it was 120% for those
under 75 and 90% for those over 75. This limit is regularly reviewed. There is no minimum.
With flexible drawdown, there is no minimum or maximum amount. The member can take
as much or as little from their pension fund as they like. However, the member must have at least
£20k of secure pension in payment.
9
See ss.214–219 FA 2004.
10
Section 217(2) FA 2004.
11
Section 636A ITEPA 2003.
12
Section 206(1), (4) FA 2004.
13
Section 206(2) FA 2004.

402 TRUSTS OF PENSION DEATH BENEFITS
in drawdown), any lump sum death benefit is subject to the 55%

special lump sum death benefits charge.14
Types of lump sum death benefits
24.3 A “lump sum death benefit” is defined as a lump sum payable on the death
of the member.15 Such payments are only authorised member payments if
they are permitted by the “lump sum death benefit rule” contained in FA
2004, s.168(1) and Part 2 of Schedule 29.16 This rule is that no lump sum
death benefit may be paid other than:
(1) A defined benefits lump sum death benefit;

(2) A pension protection lump sum death benefit;
(3) An uncrystallised funds lump sum death benefit;
(4) An annuity protection lump sum death benefit;
(5) A drawdown pension fund lump sum death benefit (previously
called an unsecured pension fund lump sum death benefit);
(6) A charity lump sum death benefit;
(7) A trivial commutation lump sum death benefit; and
(8) A winding-up lump sum death benefit.
24.4 Types (6)–(8) must be paid to a dependant/charity.17 The others may be

paid into a lifetime trust and are therefore relevant to consider. All of them
can now be paid whatever age the member was when he died.18 Type (3)
is paid tax-free (subject to the lifetime allowance).19 Type (1) is also tax-
free if the member had not reached the age of 75 (otherwise it is subject
to the 55% income tax charge).20 They are the most likely to be encoun-
tered in the context of pension death benefit trusts. Type (1) can only be
paid from a defined benefits arrangement and (more commonly) type (3)
from a money purchase arrangement in respect of relevant uncrystallised
funds (i.e. funds not yet used to provide a pension or drawdown pension
14
If the member died before 6 April 2011, the rate of tax is 35%. However, there is an IHT charge
(at 40%) if the member died over the age of 75. No such IHT charge arises if the member dies
after 6 April 2011: 24.7 (Pensions and the IHT trust regime).
15
Section 168(2) FA 2004.
16
Transitional provisions about lump sum death benefits are set out in Sch.36.
17
FA 2004, Sch.29 paras 7–9, 18 and 21.
18
Before April 2011, the rule required that the member died under the age of 75.
19
ITEPA 2003, s.636A(1)(d), (e).
20
This is subject to the transitional provisions in FA 2011 Sch.16.

PENSIONS AND THE IHT TRUST REGIME 403
for the member or a dependant).21 Both types must be paid within two
years of the date on which the scheme administrator first knew or could
first reasonably have known of the member’s death (“the Special Two-year
Period”) otherwise they will be unauthorised member payments. The
other types are subject to a 55% income tax charge.22 Types (2) and (4)
relate to members who were in receipt of a pension. They must not exceed
certain limits.23 Type (5) relates to members (or their dependants) who
were in receipt of an unsecured pension. They must be paid from funds
not designated for the payment of the unsecured pension.24
Pensions and the IHT trust regime
Most pension funds are held in trust under the scheme rules.25 This is a 24.5
settlement for IHT purposes.26 However, special relief is given. Property
“held for the purposes of a registered pension scheme” is not relevant prop-
erty.27 It is not therefore subject to the IHT trust regime of 10-year and
exit charges. Property applied to pay lump sum death benefits is taken to
be “held for the purposes of the scheme” from the member’s death until
the payment is made.28
However, if the property becomes comprised in a settlement, the
IHT trust regime then applies.29 A lump sum death benefit paid out to
a lifetime settlement or held on trust30 under the pension scheme rules
will therefore normally be subject to the usual 10-year and exit charges.
(The 10-year anniversary is taken from the date on which the trust was
created or, if it was already held in trust under the scheme rules, when the
member joined the scheme.31)
A pension or annuity which comes to an end on death is also left of account
in valuing the individual’s estate.32 No charge arises on the termination of
that pension or annuity (an IP), whether during lifetime or on death. 33
21
FA 2004, Sch.29, paras 13 and 15.
22
ITEPA 2003, s.636A(4) and FA 2004, s.206. If the member died before 6 April 2011, the rate of
tax is 35%.
23
FA 2004, Sch.29, paras 14 and 16.
24
FA 2004, Sch.29, para.17.
25
Some are contract-based, e.g. retirement annuity contracts.
26
i.e. within the meaning of s.43(2) IHTA 1984.
27
Section 58(1)(d) IHTA 1984.
28
Section 58(2A)(a) IHTA 1984 inserted by the FA 2007 for payments on or after 6 April 2006.
29
30
HMRC used to take the view that it had not “become comprised in a settlement”: see the (now
withdrawn) SP10/86. The view now expressed in the IHT Manual is that it is a settlement
(IHTM17123), which is clearly right, although it is arguable that no payment is made until the
discretion is exercised.
31
See IHTM17126 and s.81 IHTA 1984.
32
33

24.6 The lump sum death benefit is often held on discretionary trusts under
the scheme rules. In principle, if the pension trustees exercise their discre-
tion to pay out the lump sum death benefit, this may give rise to an IHT
exit charge. However, HMRC accept 34 that no charge arises provided the
payment is made within two years of the member’s death.
If the pension trustees exercise their discretion in favour of a lifetime
trust, the lump sum death benefit will normally then become subject to
the IHT trust regime. It follows that a payment out of the lifetime trust
to the beneficiaries (even within the two-year period) will give rise to
an exit charge. The member is treated as the settlor35 and the property is
treated as comprised in the original settlement (i.e. the pension trust) for
the purposes of calculating the IHT charges.36
If they are obliged to pay the lump sum death benefit to a lifetime trust,
HMRC’s view is that the trustees of that trust have two years from the
member’s death within which to distribute the money without an exit
charge.37
24.7 From April 2011, IHT no longer generally applies to registered
schemes. Previously, a pension fund was subject to a penal IHT charge
where the member had an ASP (i.e. the member was over 75 and in
receipt of income drawdown).38 Also, HMRC might argue that a member
had made a transfer of value by failing to take retirement benefits.39 This
no longer applies for registered schemes (even if the member is over 75
or in ill-health).40 However, IHT continues to apply to unregistered
schemes, e.g. FURBS.
34
IHTM17123. This treatment is said to be concessionary.
35
36
Section 81(1) IHTA 1984. This means that there is no IHT advantage to establishing multiple
pilot trusts to receive the lump sum death benefit. However, if multiple pensions have been taken
out, each pension will, if trust-based, have its own NRB: see the ABI Technical Q&A on Pensions
and IHT Points: Consolidated Version, accessible http://wingatefp.com/uploads/2011.06.20_abi_
pensions_q_and_a_paper_2.pdf.
37
IHTM17124. Again, this is considered to be concessionary.
38
Section 151A IHTA 1984. In addition to any income tax charges, IHT was charged (at 40%) on
the value of the fund less any dependant’s benefits paid within six months of death:. Similarly, a
charge arose on the death of a dependant over 75 under s.151B.
39
Section 3(3) IHTA 1984. See Fryer v HMRC [2010] UKFTT 87 (TC) where it was held that the
deceased had made a transfer of value for the purposes of s.3(3) by failing to take her retirement
benefits. She had declared a discretionary trust for her beneficiaries of any benefits which might
become payable. The pension rules provided that if she died before the start of her pension the
trust would receive the death benefits. She was diagnosed with cancer a few months before her
60th birthday (the normal retirement age under the pension). A “maturity pack” was sent to her
just before her birthday outlining her options. The judge of the FTT found that her omission to
take her retirement benefits was deliberate and that her estate was diminished and the value of the
settled property had increased as a result. The three elements of s.3(3) were therefore fulfi lled.
There were good arguments against this which were not put before the court.
40
Section 12(2ZA) IHTA 1984.

R EVIEW THE PENSION SCHEME RULES ! 405
Summary of tax treatment of lump sum death benefit payment
In summary, the payment of a lump sum death benefit will normally be 24.8
free of income tax and IHT. IT will be payable (at 55%) if the member dies
over 75 or was in receipt of a drawdown pension or if and to the extent
that the lump sum death benefit exceeds the lifetime allowance (£1.5m
for 2012/13). No IHT exit charge arises if the lump sum death benefit is
held in trust provided the trustees (if they have a discretion, the pension
trustees or, if they are obliged to pay it to a lifetime trust, the trustees of
that trust) pay it out within two years of the member’s death.
Review the pension scheme rules!
It is important to check the pension scheme rules to ensure that the right 24.9
steps are taken to keep the lump sum death benefit out of the member’s
estate and, if appropriate, the estate of their surviving spouse/civil partner.
How the lump sum death benefit is dealt with will be different from
pension to pension.
In general terms, the rules will normally deal with the lump sum death
benefits in one or more of the following ways:
(1) The member or their estate may be entitled to the lump sum
death benefit (this is rare except in the case of retirement annuity
schemes);
(2) The member may have a general power of nomination over the
lump sum death benefit;
If (1) or (2) applies, the member should create a lifetime trust of the lump
sum death benefit.
(3) The pension trustees may be obliged to pay the lump sum death
benefit to any lifetime trust created by the member for that purpose;
If (3) applies, the member should also create a trust of the lump sum death
benefit.
(4) The lump sum death benefit may be held on discretionary trusts.
The beneficiaries will normally include the member’s surviving
spouse and dependants. Check that the scheme rules actually allow
the benefit to be paid to trustees rather than individuals. The rules
may require that the member notifies the scheme administrator of

any intended recipients, e.g. by a non-binding letter of wishes. If so,

such notification must be given to the scheme administrator during
the member’s lifetime.
If (4) applies, the member will need to (a) create the trust, e.g. with a
nominal sum, and (b) notify the scheme administrator during their life-
time in accordance with the scheme rules.
24.10 (4) will often be a fall-back under the scheme rules to (3), i.e. if the
lump sum death benefit is not subject to a lifetime trust it will be held on
discretionary trusts under the scheme rules.
The recommended course for a member with substantial death benefits
is to create a trust of the lump sum death benefits, so it is dealt with under
(3). Trustees of the member’s choosing are likely to be more familiar with
his or her wishes, and with the circumstances of the beneficiaries, than the
pension trustees. This also gives the member scope to draft an appropriate
trust for their benefit.
An alternative would be to notify the Scheme Administrator of a suit-
able trust pursuant to (4). The trust might be created for the purpose or
an existing family trust. The difference between this and (3) is that the
pension trustees would have to consider whether to exercise its discretion
in favour of this trust, or whether to pay it to other beneficiaries named
in the rules.
Member’s estate entitled to lump sum death benefit
24.11 If the member’s estate is entitled to the lump sum death benefit (or has a
general power of nomination over it) then it will be subject to IHT on their
death. No charge will arise to the extent that it is within the member’s
NRB (including any transferable NRB) or passes to the surviving spouse/
civil partner or charity. However, it is usually more appropriate to transfer
it to a trust (so that the NRB is not wasted and the property does not form
part of the surviving spouse/CP’s estate on their death).
The recommended approach is for the member to create a trust of the
lump sum death benefit excluding him or herself from benefit. The tax
position is as follows:
(1) No IT charge arises. HMRC have confi rmed that the assignment
to the trust will not be treated as an unauthorised member payment
under s.172(2) FA 2004 (Assignment).41
(2) The declaration of trust will not normally give rise to an IHT
41
See s.5 of HMRC’s Pension Taxation Simplification Newsletter 17, dated 31 July 2006, accessible
at www.hmrc.gov.uk/pensionschemes/pts- newsletters.htm.

LUMP SUM DEATH BENEFIT SUBJECT TO TRUSTS 407
charge because the lump sum death benefit will have no significant
value at that time42 (provided the member is in good health and so
expected to take their retirement benefits).43
(3) There will be no GWR problem as the member will be excluded
from benefit.
(4) No POA charge arises.44
The payment of pension contributions will not usually give rise to a trans-
fer of value for IHT purposes45 or a GWR.46
Lump sum death benefit subject to trusts under the pension

scheme
Most pension schemes provide for the lump sum death benefit to be held 24.12
on discretionary trusts which ensure that it is not automatically payable to
the member’s estate. However, the pension rules require that the lump sum
death benefit must be distributed within two years of the day on which the
scheme administrator first knew or could first reasonably be expected to
have known of the member’s death. The trusts cannot therefore be used
long-term (“the Two-year Problem”).
The lump sum death benefit could be distributed to the member’s sur-
viving spouse (or surviving civil partner—all references in this chapter to
spouses include civil partners). The problem here is that it may then be
subject to IHT on the survivor’s death (assuming that it has not been spent
and the survivor’s estate is sufficient to give rise to an IHT charge on their
death) (“the IHT Problem”).
The recommended approach is for the member to create a trust to
receive the lump sum death benefit during their lifetime. The lump sum
death benefit will generally be paid to the trustees either:
(1) In accordance with the rules of the pension scheme (i.e. the trustees
are obliged to pay it to the lifetime trust); or
42
The lump sum death benefit will not be payable if the member reaches 75 or takes a pension before
that age or if a dependant’s pension or unsecured pension is paid.
43
In practice, if the trust was made more than two years before death, HMRC will usually accept
that the member was in good health at that time (absent evidence to the contrary).
44
This is accepted by HMRC: see Income tax and pre- owned assets guidance, appendix 1 (under
the heading “insurance policies”), accessible at www.hmrc.gov.uk/poa/poa_guidance5.htm. The
whole policy (an intangible) will often be transferred with the pension benefits other than the
lump sum death benefits held on bare trust for the member. This is not a settlement and so can be
ignored. The lump sum death benefits are held in trust but the member is excluded so the POA
charge does not apply. See FA 2004, Sch.15, paras 8 and 9.
45
Section 12(1) IHTA.
46
Because the payment is not a disposal by way of gift.

(2) At the discretion of the pension trustees (although it will usually

be necessary for this purpose for the member to have notified the
scheme administrator of the trust during their lifetime).
This solves the Two-year Problem and the IHT Problem.

24.13 Trusts set up to receive death benefit are often called “spousal by-pass
trust”. However, this term is misleading. The spouse will usually be the
principal beneficiary of the trust. What is by-passed is her estate for IHT
purposes. The lump sum death benefit will not form part of the spouse’s
estate and so not attract IHT on death. However, the spouse can and
usually will continue to benefit from it during their lifetime.
Declaration of trust/assignment
24.14 There are two methods to create a trust of a lump sum death benefit:
(1) Declaration of trust:

(a) The settlor executes a declaration of trust, under which he
declares that he holds the entire pension policy on trust.
However the trust will only deal with the lump sum death
benefits, so that the other benefits remain in the beneficial
ownership of the settlor.
(b) It is then usual (not strictly essential but convenient) to appoint
one or more additional trustees to act with the settlor.47
(2) Transfer to trustees:
(a) The settlor (and trustees) execute a trust; and
(b) The settlor assigns the lump sum death benefits to the trustees
of the trust.48
The right to the lump sum death benefit is part of the single chose in action
which is the pension policy,49 and one cannot at law assign part of a chose
47
This appointment may be:
(1) set out in the declaration of trust or
(2) set out in a separate deed of appointment.
The appointment has the effect of an assignment of the policy to the new trustees: TA 1925, s.40.
Notice should be given to the pension provider.
48
This assignment may be:
(i) set out in the trust deed, or
(ii) set out in a separate deed.
Notice should be given to the Pension Provider.
49
No authority is needed for the proposition that a policy is, in principle, a single chose in action,
but for an example of this, see Foskett v McKeown [2001] AC 102.

PENSIONS AND THE RULE AGAINST PERPETUITIES 409
in action.50 However, the assignment is valid in equity and no difficulty

should arise out of the use of an equitable assignment.
The simplest course is (2), using a separate deed of assignment, i.e.:
(1) the settlor and trustees execute the settlement; and

(2) In a separate deed, the settlor assigns the death benefits to the
trustees.
Of course if the trust exists already and new death benefits are to be
assigned to the trust then the separate deed of assignment will be required
in any event.
If the pension trustees have a discretion whether the lump sum death
benefit is paid (or used to pay a dependant’s pension), the trust will not
come into effect until the payment is actually made. This should not cause
a problem since it will usually be clear from the pension scheme rules that
the trustees have power to make the payment.
Pensions and the rule against perpetuities
The rule against perpetuities does not apply to “an interest or right arising 24.15
under a relevant pension scheme”.51 However, this exemption does not
apply to instruments (a) nominating benefits under the scheme or (b) made
in exercise of a power of advancement arising under the scheme.52 If the
lump sum death benefit is paid out to a lifetime trust, the perpetuity rule
then applies because the interests arise under that trust (not the pension
scheme). What perpetuity period applies to the trust?
The PAA 2009 only applies in relation to instruments made in the
exercise of a “special power of appointment” if the instrument creating
that power takes effect on or after 6 April 2010 (the Act’s commencement
day).53 A power of appointment includes:
(1) a discretionary power to create a beneficial interest in property

(such as a power of nomination in a pension scheme);54 and
(2) a power to transfer a beneficial interest in property (such as a power
of advancement which allows the pension trustees to choose the
beneficiaries).55
50
LPA 1925, s.136.
51
52
53
Section 15(1)(b) PAA 2009.
54
Section 20(2)(a) PAA 2009.
55
Section 20(2)(b).

Only general powers of appointment are excluded from the definition of

special powers.56
What is “the instrument creating the power”? A member generally
makes a trust when he joins the pension scheme.57 The trust is separate
from the pension scheme itself (even though the scheme is often estab-
lished as a trust). It follows that the date on which the member joined the
scheme determines whether the PAA applies. The date of the scheme itself
is irrelevant.
New pensions
24.16 If the member joined the scheme on or after 6 April 2010 (“New
Pensions”), the PAA 2009 applies because that is the date when the trust
was made. The PAA 2009 applies as if the arrangements made under the
pension were contained in an instrument.58 The exercise of the special
power (e.g. the power of nomination or the power of advancement) to
pay the lump sum death benefit into the discretionary trust will therefore
be 125 years.
The 125-year period starts when the member joined the scheme.59
Different periods will therefore apply where death benefits are payable
under two or more pensions taken out at different times.
Old pensions
24.17 If the member joined the scheme before 6 April 2010 (“Old Pensions”),
the PAA 2009 does not apply. It would be rare for the pension scheme
to provide for a perpetuity period (whether a period of 80 years or a
Royal lives clause). The scheme itself would have been exempt from the
rule.60 The relevant period will therefore be measured by the relevant life
(probably the member) plus 21 years.61 Such trusts will therefore often be
short-lived.
56
57
See Air Jamaica Ltd v Charlton [1999] 1 WLR 1399. In the absence of legislation in Jamaica exempt-
ing pension schemes from the rule, it was held that the common law rule against perpetuities
applied but that although the pension trusts were perpetual they were not void. Lord Millett said
(at p.1409d) that at least in relation to a defi ned benefit scheme:
“In their Lordships’ view such a scheme can properly be regarded as comprising a series of
separate settlements. Every time an employee joins the scheme, a new settlement is created.
The settlement comprises the contributions made in respect of the employee whether by him
or by the company. The rule against perpetuities must be applied separately to each individual
settlement, and each employee must be treated as a life in being in relation to his own settle-
ment. On this footing, any benefits, whether payable as a lump sum or by way of an annuity,
which are payable on the death or earlier retirement of the employee are valid.”
58
Section 19 PAA 2009.
59
60
Section 163 Pension Schemes Act 1993.
61
See Thomas on Powers, 2nd edn, 2012, p.238.

PENSIONS AND THE RULE AGAINST PERPETUITIES 411
However, it is worth noting that:
(1) The rule against perpetuities only applies to vesting. It is pos-

sible to create vested interest which continue beyond the 21-year
period. For example, the member’s surviving spouse might be
given a life interest with remainder to their children in equal
shares absolutely. If the widow survives for more than 21 years, the
trusts are still valid (although no dispositive powers would then be
exercisable).
(2) Other lives in being may be chosen. For example, the period could
be changed to 21 years from the death of the widow or children
if living at the date the member joined the scheme.62 The power of
appointment could be used for this purpose but care is needed to
ensure that the rule against accumulations is not then infringed.63
(3) A payment to a trust with a 125-year trust period will not be void.
The “wait and see” rules will apply. If the property vests within the
21 year period, the trust will be valid.
(4) If a member transfers from one pension to another, the applicable
period is that of the fi rst pension.
Drafting
The different start dates for the perpetuity period for New Pensions and 24.18
the possibility of a shorter period for Old Pensions causes a problem for
the drafter (using a single trust period will not satisfy the rule for all the
pensions) and the trustees in terms of administration (the funds may need
to be kept separate) (“the Pension Perpetuity Problem”).
It is not safe to rely on the “wait and see” rule. The payment is void if
it does not vest within the applicable perpetuity period. This could have
disastrous consequences. There is a drafting solution to avoid reliance on
this rule.
The drafter could in principle deal with the Pension Perpetuity
Problem by adopting the following form64 :
“Trust Period” means 125 years beginning with date of this Trust or, in the case of any
property transferred to this Trust from another trust (including a pension scheme), the
perpetuity period applicable to that trust
We would not adopt this form. Our preferred solution is as follows:

62
It is also probably necessary that the widow was married to the member at that time in order for
that widow to be a “relevant” life in being.
63
See 24.20 (Pensions and the rule against accumulations).
64
A change of proper law may also be used in our view to escape the perpetuity and accumulation
restrictions: see 28.4 (Power to change the governing law).

(1) If the trust is set up with one existing pension scheme in mind;
apart from a nominal £10 initial trust fund it is anticipated that it
will only have assets transferred from that pension scheme. In that
case, we recommend that the Trust Period is simply defined as the
125-year or 21-year period as appropriate for the particular pension
scheme in mind.
Either:
“125 years beginning with the date on which the Settlor became a member of the [give details of
the pension scheme]”
or
“21 years beginning with the death of the Settlor”
That is much simpler to understand.
(2) If the trust is set up with more than one existing pension scheme in
mind; apart from a nominal £10 initial trust fund it is anticipated
that it will only have assets transferred from those specific schemes.
In that case, we would take the shortest period (125 years from the
first pension joined by the member or 21 years from their death if
the first pension was joined before 6 April 2010). Suppose:
(a) The trust periods of the schemes in mind are roughly similar.
We would simply define The Trust Period as the 125-year or
21-year period appropriate to the oldest scheme used (which
will work for them all.) We would not worry much about
losing a few years life of the trust, the complexity is not worth
the advantage.
(b) The trust periods of the schemes in mind are different. You
might have one pre-2010 scheme and one post-2010 scheme.
We would recommend keeping to the simple solution and
adopt the shorter of the two periods, i.e. the period ending 21
years from the death or 125 years from joining the post–2010
scheme, whichever is the shorter.
24.19 If the sums are very large, the member could:
(a) have separate pilot trusts; or
(b) in theory, go in for more bespoke drafting, fund A (one per-
petuity period) and fund B (another perpetuity period) with
power to merge the funds so that A% of the merged fund is
held on the terms of fund A and B% of the merged funds is
held on terms of fund B. But we regard this as a somewhat
over complex solution.

A SINGLE TRUST COMBINING INSURANCE POLICIES AND PENSIONS? 413
We would not set up trusts with future scheme in mind until those schemes
come into existence. Nor do we think it is realistic to set up a pilot trust for
existing and future pension schemes since the drafter will need to review
the position when the future pension scheme exists. In any case, the law
will no doubt change from time to time, and this cannot be predicted.
Pensions and the rule against accumulations
The rule has been abolished for trusts receiving lump sum death benefits 24.20
from New Schemes but continues to apply in respect of Old Schemes. No
problem arises if accumulations are permitted during the Trust Period
because that period will be either 125 years (acceptable for New Schemes)
or 21 years from the death of the member (acceptable for Old Schemes).
A single trust for several pensions?
If a number of pensions have been taken out, there will be a number of set- 24.21
tlements for IHT purposes.65 Even if the lump sum death benefits are paid
into a single trust, they will be treated as still comprised in the original set-
tlements, i.e. the pension scheme from which they derive, each with their
own NRB. Accordingly, there is no IHT advantage to establishing sepa-
rate trusts. However, a single trust could give rise to problems. HMRC
consider that the 10-year anniversary dates are different for each pension
and that multiple IHT100s are therefore required. If the funds have not
been kept separate, the trustees may face difficulties tracing them back to
the originating pensions. On balance, we consider that a separate trust for
each pension is preferable. This also has the advantage that the maximum
trust period can be specified for each of them.
A single trust combining insurance policies and pensions?
It has been suggested that one trust might hold (1) pension lump sum 24.22
death benefits and (2) policies of life assurance. Although the pension
death benefit is generally outside the scope of IHT during the life of the
member, the simple insurance policies are not. So it will in due course
become necessary to compute the 10-year charge and the exit charge on
the life insurance policy. The value of the death benefits is strictly to be
65
Assuming they are trust-based and not contract-based e.g. retirement annuity contracts.

taken into account in making this computation. The value of the death
benefits could theoretically have a significant effect on the amount of the
charge on the life policy.66 For this reason it would on balance be preferable
to have two separate trusts, made on separate days, one dealing with death
benefits under pension schemes and the other dealing with life policies.
This is not unduly onerous in practice. In most cases the lump sum death
benefits would never be payable since the member will survive to take his
pension. If the member dies before taking the annuity, the two trusts can
be combined later.
Precedent
24.23 This book contains a precedent pension death benefit trust. The
precedent is similar to the lifetime discretionary trust. A life interest trust
could also be used.67 The main modifications are:
(1) A recital that “The Settlor is a member of the [give details of the
registered pension scheme] (“the Pension Scheme”)”.
(2) To the definition of “Trust Fund” as meaning “any lump sum
payable under the Pension Scheme on the death of the Settlor68
which may be transferred to be held on the terms of this Trust”.
(3) To the definition of “Trust Period” as meaning either 125 years
beginning with the date on which the Settlor became a member of
the Scheme or 21 years from the death of the Settlor.
(4) The settlor’s estate and legal personal representatives are specifi-
cally excluded from benefit. The reference to the estate and legal
personal representative is not strictly necessary. However, they are
included to deal with the common requirement in pre–A–Day
scheme rules that under the trust “no beneficial interest in a benefit
can be payable to the member, the member’s estate or the member’s
legal personal representatives”.69
66
Even though the right to the death benefit is not relevant property; see ss.66(4)(b), 69(5)(a) IHTA
1984. But normally the death benefits have no or little value.
67
The spouse’s life interest is not an IPDI (because it was not established by will) and so the lump
sum death benefit will not be subject to IHT on death.
68
This mirrors the wording the FA 2004, s.168.
69
See r.9.25(2) and 10.1(2) of HMRC’s Integrated Model Rules for Personal Pension Schemes
(2003 issue). The reference to the estate and the legal personal representatives is not strictly nec-
essary but is the wording used in the Model Rules.

CHAPTER 25
CHARITABLE TRUSTS1
Introduction
Charities take a variety of forms and can be categorised in different ways. 25.1
A distinction should be drawn between:
(1) a charity set up by an individual as a vehicle for personal charitable

donations (here called a “family charity”); and
(2) a charity of a more active, specialist or independent nature.
A family charity is generally a fairly standard piece of drafting. Part 2 of

this book contains a precedent.
Other types of charity vary widely and need more bespoke drafting.
An unincorporated association, a company or (perhaps) a charity incor-
poration organisation2 would often be a more suitable vehicle than a trust.
The standard drafts of the Charity Law Association and of the Charity
Commission are a useful drafting resource for these.3
An alternative to a donor creating their own family charitable trust is to
use the services of the Charities Aid Foundation.4 This charity manages
charitable funds on behalf of donor on terms which place the donor in a
position similar to a charitable trustee. For smaller funds the cost ought to
be lower, and it allows greater privacy and confidentiality as an independ-
ent charity would be on the public charity commission register, and its
accounts and trustees names are in the public domain. This also avoids the
1
On charity tax generally, see Kessler and Brown, Taxation of Charities and Non-Profit Organisations
(8th edn, 2011) accessible www.taxationofcharities.co.uk.
2
We think it would be safer, for now, to use charitable companies than CIOs, as the law of chari-
table companies is well known and reasonably satisfactory, whereas the law governing CIOs is
new, unknown and untested.
3
Obtainable from www.charitycommission.gov.uk; and www.charitylawassociation.org.uk (at a small
charge to non-members).
4
www.cafonline.org.

416 CHARITABLE TRUSTS
publicity associated with a self-standing charitable trust (which needs to

be on the Charity Commission’s public register).
Some drafts contain a good deal of material implied by law, e.g. an
express duty to prepare accounts. That is perhaps useful for a charity with
lay trustees who may not have access to legal advice and might mistake
the legal position. It should not be necessary for a standard family charity
with a professional trustee.
Remember that fundraising literature is important—as donations may
be held on the terms of that literature and not on the terms of the trust! An
appalling prospect if drafted by fundraisers and not reviewed by a lawyer.
If a charitable trust is in a non-standard form, it is advisable to register it
with the Charity Commission before making substantial gifts to it.
Name
25.2 A charitable trust needs a name, under which it will be registered: s.29(2)
Charities Act 2011.
The Charity Commission will rightly object if an existing charity has
the same name, and discourage use of names of former charities.5 With
180,000 registered charities there is a real possibility of accidental dupli-
cation of names! So check the Charity register online before choosing a
name.
Charities which are not family charities do occasionally like to change
their name. The Charity Commission have recommended the form:
The charity shall be called XXX but the trustees may by resolution change
the charity’s name from time to time. Before doing so they must obtain the written
approval of the Charity Commission for England and Wales for the new name.
It is considered the words in italics should be omitted. The Charity

Commission have certain powers to require a new name6 but there is no
point in spelling this out in the deed or in extending their powers so that
no name change can take place without their approval. But this point is
almost completely theoretical.
Trustees
25.3 The Charity Commission states:

5
See OG330 accessible www.charitycommission.gov.uk/About_us/POGs/pogslist.aspx.
6
Section 42 Charities Act 2011. Briefly, the powers apply if the name is too similar to that of
another charity or is in some other way misleading or misrepresentative or offensive.

PROVISIONS GOVERNING CAPITAL AND INCOME 417
It is for each organisation to decide what number of charity trustees best

meets its needs. As a general guide, every charity usually has at least 3
charity trustees and most charities find that between 3 and 9 trustees is
adequate.7
In practice one could expect the Charity Commission to object to a

charity having a single individual as trustee, or two related trustees (e.g.
husband and wife).
In the case of a family charity, the settlor will want the power to
appoint new trustees and no provisions are needed for trustees’ meetings.
Where the charity is more of an independent organisation, the trustees of
the charity will usually appoint their successors. In that case there should
be a provision that:
A trustee may be appointed or discharged by resolution of a meeting of the Trustees.
This brings in the relatively informal method of appointment and retire-

ment of trustees authorised by s.334 Charities Act 2011. There should also
be a power for charity trustees to resign:
A Trustee may resign by giving notice in writing to the other Trustees. On receipt of
such notice the retiring Trustee shall cease to be a Trustee provided that there shall be
remaining at least two persons to act as Trustees or a Trust Corporation (within the
meaning of the Trustee Act 1925).
Where there are more than three trustees, a quorum clause is desirable.
The Charity Commission guidance on the point seems sensible: “If there
are three, four or five charity trustees we would suggest that the quorum
should be two, but if there are six or more charity trustees, we would
suggest that the quorum should be stated as ‘three, or one third of all the
current charity trustees, whichever is more’”.8
The Model Articles for charitable companies and CIOs offer precedents
for a quorum clause and regulation of charity trustees’ meetings.9
Provisions governing capital and income and definition of

“charity”
The form in this book gives the trustees the maximum flexibility: 25.4
7
See publication CC22 Choosing & Preparing a Governing Document, April 2008, para.60.
8
See CC22 Choosing & Preparing a Governing Document, April 2008, para.66.
9
See arts 17–21 accessible www.charitycommission.gov.uk. See also arts 7–16 for the Model Articles
for Private Companies and 7–19 of the Model Articles for Public Companies prescribed by the
Companies (Model Articles) Regulations 2008. See cl.11(5) of the CIO association model acces-
sible at www.charitycommission.gov.uk/Library/start/assoc_model_cio.pdf.

Trust Income
1.1 Subject to the Powers over Capital below, the Trustees shall pay or apply the
income of the Trust Fund to such Charities or for such charitable purposes
as the Trustees think fit.
1.2 The Trustees may accumulate any part of the income of the Trust Fund
during the Accumulation Period or such other period as may be permitted
by law.
Powers over Capital

2 Power of appointment:
2.1 The Trustees may appoint that they shall hold any Trust Property on such
charitable trusts as the Trustees think fit.
2.2 An appointment may create any provisions and in particular:
2.2.1 discretionary trusts
2.2.2 dispositive or administrative powers
exercisable by any Person, but at all times this Charitable Trust shall remain
a Charity.
2.3 An appointment shall be made by deed and may be revocable or irrevocable.
2.4 The Trustees shall send to the Charity Commissioners a copy of any
appointment (but failure to do this shall not invalidate the appointment).
3 Power of advancement
The Trustees may pay or transfer any Trust Property to any Charity and may
apply any Trust Property for any charitable purposes.
This is based on the standard discretionary trust in this book but restricted
to charities.
A key issue is the definition of Charities and charitable purposes.
Unless there is an indication to the contrary, “charitable purposes” has the
English law meaning10 and no definition is needed. It is not necessary to
say “exclusively” charitable.
In the absence of an indication to the contrary it is considered that
“charity” would also have the English law meaning, which restricts it to
English charities.11 Since UK tax relief is in principle applicable to chari-
ties established in the EU (and Norway and Iceland) it is considered that
10
Section 2(2) Charities Act 2011.
11
Section 1(1) Charities Act 2011 provides: “For the purposes of the law of England and Wales,
(a) is established for charitable purposes only, and
(b) falls to be subject to the control of the High Court in the exercise of its jurisdiction with
respect to charities.”
In the absence of contrary indication, one would expect that a document governed by English law
uses the word “charity” with the meaning which applies for English law. It is true that section 1
does not expressly say that this defi nition applies in the construction of any document (contrast
s.2(2), made the point clearly in relation to the expression “charitable purposes”) but it is consid-
ered that that makes no difference.

EXCLUSION OF SETTLOR AND NON- CHARITABLE PURPOSES 419
the term “charity” could be extended to include all such charities. Our
proposed definition is:
“Charity” means any company, body or trust which:
1.1 is a charity for the purposes of English law; or
1.2 is established for charitable purposes only and to which HMRC have given
intimation, which has not subsequently been withdrawn, that tax relief is due in
respect of its income which is applicable and applied to charitable purposes only.
The drafting of clause 1.2 is based on s.104 Charities Act 2011.12 Under this
definition all English charities are included, but non-English charities are
included only if they qualify for tax relief.
The draft should normally confer a power to expend capital and avoid
permanent endowment which is a terrible nuisance.
Rule against accumulation
Under a charitable trust, accumulation is only permitted for the longer 25.5
of 21 years and the lifetime of the settlor.13 Nevertheless, a charity has an
implied power to hold income in reserve for any period of time, instead of
expending it promptly, if it is in the charity’s interests to do so. This power
may be exercised after the accumulation period has expired. This is not
“accumulation” but merely “retention” of income.14 In practice, if there is
any reason to do so, charity trustees can continue to accumulate (calling
it “retention”) indefinitely.
Exclusion of settlor and non- charitable purposes
Notwithstanding anything else in this deed, no power conferred by this Charitable 25.6
Trust shall be exercisable, and no provision shall operate so as to allow Trust Property
or its income:
12
Section 104(3) Charities Act 2011 adds a defi nition of “tax relief ” but that is not included in the
draft as the meaning is clear enough without it.
13
Section 14 PAA 2009.
14
The Charity Commission agree: see CC19 (Charities’ Reserves) para 32 accessible www.
charitycommission.co.uk; the Law Commission also agree: Law Com. No. 251, The Rules Against
Perpetuities and Excessive Accumulations, para.10.18 accessible http://lawcommission.justice.gov.uk.
This does read quite a significant exception into the statutory rule against accumulation (or
gives the word “accumulation” a more limited meaning that one might expect). But this was
the intention of Parliament. The explanatory notes to the PAA 2009 contain a glossary of terms
which states that “accumulate” means: “The conversion of income arising from trust property
into capital. It should be distinguished from the administrative retention of income”. The term
“administrative retention of income” is then explained as follows: “The temporary retention of
income, usually as an administrative precaution against unseen future deficiencies. The reten-
tion of income for such purposes does not convert it to capital; it is a separate concept from the
accumulation of income.”
The distinction between retention and accumulation (in the context of a charitable trust)
is meaningless. As Quint points out in “The Perpetuities and Accumulations Bill—Clarity or
Confusion?” [2009] PCB 126, the statutory restriction on accumulation is therefore a dead letter.

(1) to become payable to or applicable for the benefit of the Settlor or the spouse or
Civil Partner of the Settlor
(2) to be applied for any purpose that is not charitable.
This is a useful precaution. Contrast 16.17 (Protection clauses). There

is no need for a settlor exclusion clause15 but one is generally included and
it can do no harm. Certainly do not have an extended one!
Administrative provisions for charities
25.7 The Charity Commission model charitable trust introduces its powers
with the words:
In addition to any other powers they have, the Trustees may exercise any of
the following powers in order to further the objects (but not for any other
purpose).
This is not strictly necessary but is now standard wording.

The administrative powers should be conservatively drawn. Starting
with the standard form in this book, the following amendments are
suggested.
(1) A statutory power of investment, without the provisions disapply-

ing the obligation to diversify the Trust Fund or permitting specu-
lative or hazardous investments.
(2) No power of joint investment.
(3) Limited powers relating to capital and income.
(4) No provisions about use of trust property.
(5) Only the statutory powers of nominees and custodians.
(6) No exemption for supervision of company.
(7) A trustee exemption clause is consistent with charitable status16 and
was formerly a standard form. Many registered charitable trusts
contain such clauses. The clause is not however appropriate to a
charity and nowadays the Charity Commission are likely to object
to its inclusion.
15
Normally, a payment to or for the benefit of the settlor would not be a charitable payment and
so impossible; exceptionally, it might be possible (e.g. if the settlor becomes destitute) but such a
payment would not breach s.624 ITTOIA 2005.
16
Bogg v Raper (1998) 1 ITELR 267 at [47]: A trustee exemption clause “does not confer a benefit
on the executors and trustees but defi nes the extent of their potential liabilities”.

TRADING 421
(8) No provisions dealing with waiver, disclaimer or statutory

apportionment.
(9) No power to change the proper law.17 Express powers to appoint
foreign trustees or to carry on the administration outside the
UK are also not generally appropriate to a charity. (The statutory
power can be used to appoint a foreign trustee if this is actually
appropriate to the circumstances of the charity.)
(10) A confl ict of interest clause which authorises the trustee to act in
confl ict cases but only if there are at least two Independent Trustees
and the trustee whose interests confl ict with their duty to the trust
withdraws from the meeting where the relevant item is under
discussion.18
Trading
The Charity Commission model charitable trust provides the trustees 25.8
have power:
to raise funds. In exercising this power, the Trustees must not undertake any
substantial permanent trading activity . . .
The Charity Commission say:
Our view is that any charity may trade within the limits of this exemption,
provided that the governing document does not generally prohibit non-
primary purpose trading. The familiar provision which, in the context of
conferring a power to raise funds, prohibits “substantial” trading should not
be treated as prohibiting trading which falls within [the exemption for small
trades - s.46 FA 2000].19
While in practice that should resolve doubts about the meaning of “sub-
stantial” we prefer the following wording:
The Trustees may carry on any Qualifying Trade either alone or in

partnership.
A “Qualifying Trade” here means a trade the profits of which would qualify
for any income tax exemption given to Charities.
17
A power to change the proper law to a jurisdiction with the EU would strictly be permitted now
that EU charities qualify as charities for tax law purposes: Kessler and Brown, Taxation of Charities
and Non-Profit Organisations (8th edn, 2011) accessible www.taxationofcharities.co.uk.
18
See 6.16 (Confl ict of interest).
19
OG 63 B2 ( July 2009) accessible www.charitycommission.gov.uk/About_us/OGs/g063b002.
aspx#_Toc234221768.

Remuneration of charity trustees
25.9 A charity trustee has a statutory entitlement to receive remuneration for

providing services to the charity in the absence of an express power pro-
vided that certain conditions are met.20 In broad terms, the conditions are
that:
(1) the number of trustees receiving payment must be in a minority;

(2) the amount paid must be reasonable and set out in a written agree-
ment between the trustee and the charity; and
(3) the governing document must not contain any specific provision
forbidding this type of payment.21
However, this entitlement does not extend to “remuneration for services

provided by a person in their capacity as a charity trustee”.22 It is therefore
suggested that charitable trusts should normally have a power to remuner-
ate professional trustees. Even if there is no immediate intention to use
the power, trustee remuneration may become appropriate in the future.
A trustee remuneration clause is consistent with charitable status:
the clause does not prevent what would otherwise be a charitable trust
20
Section 185 Charities Act 2011.
21
See s.185(1) Charities Act 2011. The Charity Commission’s Model Trust Deed now allow a
trustee to be paid for supplying goods to the charity in addition to (and subject to the same con-
ditions as) the statutory power for them to provide services. The recommended clause does not,
however, allow trustees to receive payments for acting as a trustee.
22
See s.183(2)(a) Charities Act 2011. The Charity Commission’s guidance summarises the law and
the distinction between services provided by a trustee in their personal capacity and as trustee as
follows:
While there is a general power to pay a trustee for providing services, there is no such general
power to pay a trustee for carrying out trustees duties. Charities cannot do this unless they
have a suitable authority, either in the charity’s governing document or one provided by us
or the Court . . .
Paying a trustee for the provision of a service usually involves a charity making a one- off or
occasional payment to a trustee who is to provide it with a specific service that is quite separate
from their normal trustee duties. Many charities already have a specific power to do this in
their governing documents. If not, they can usually rely on the power contained in the 1993
Act [now the 2011 Act]. . .
In contrast, payment for trustee means that a trustee receives payment from a charity for
carrying out their normal trustee duties. In some cases, payment will be made on a continuous
basis whenever these duties are carried out; or it may take the form of a periodic or annual
allowance; or it may be made on an occasional basis, intended to reflect only a certain aspect
of the trustee role, or to enable a trustee to attend a specific meeting. . .
Crucially, there is no general power in charity law for trustee boards to make such payments,
and normally they cannot do so unless their governing document specifically allows it, or
unless they have authority from the Commission or the Court.
See CC11 (Trustee expenses and payments), March 2012, accessible www.charitycommission.gov.
uk/publications/cc11.aspx.

R EMUNERATION OF CHARITY TRUSTEES 423
from qualifying as a charity, for charity law or tax law purposes. This is
accepted by the Charity Commission:
Where a charity is being set up the trusts may include a provision for the
remuneration of the trustees. Provided that this provision is couched in terms
which tie the nature and level of remuneration to the services undertaken by
the trustee (even as trustee) we shall not object to its inclusion in the charity’s
trust deed.23
It is suggested that the restrictions set out below should be included in the
trustee remuneration clause in normal cases:
(1) The majority of trustees should not be remunerated.

(2) A trustee must withdraw from a meeting where their remuneration
is under discussion.
This follows the policy of the Charities Act 2011. It helps to avoid the risk
of laxity (or worse) in the remuneration of charity trustees. The Charity
Law Association model draft imposes further safeguards.
A charging clause in a charitable trust should expressly authorise charg-
ing for services capable of being provided by a lay trustee.24 Trustee Act
2000 s.28(3) enacts a presumption that professional trustees of a charitable
trust cannot charge for non- professional work. This should be reversed in
the wording of the charging clause.
Trustee/director remuneration. A charity may own a non-charitable subsidi-

ary; either because a private company has been given to the charity, or in
order to avoid IT on trading income.25 If the trustees are directors of that
company, they will need express authorisation in the trust in order to be
paid remuneration for work done for the company: see 6.58 (Trustee/
director remuneration). It is considered that the law is the same as for direct
trustee remuneration: the standard clause authorising retention of trustee
remuneration is consistent with charitable status though some restric-
tions along the lines of trustee remuneration would be wise. The Charity
Commission now accept this view,26 though in the past they have refused
to register a charity with such a clause.
23
Decisions of the Charity Commissioners Vol. 2 p.14 (April 1994). The same view is taken in the
Charity Commission’s Trustee Remuneration Consultation Document, September 1999 and booklet
CC11 (Trustee Expenses and Payments). This view is also supported by s.30 TA 2000.
24
In the absence of such a clause the power for a charity trustee to charge for lay services is governed
by the unnecessarily complex rules of s.28 TA 2000. For the position for non- charitable trusts see
6.52 (Layman’s work).
25
Kessler and Brown, Taxation of Charities and Non-Profit Organisations (8th edn, 2011), Ch.9
(Trading Companies held by Charities) online version www.taxationofcharities.co.uk.
26
See the Charity Commission’s booklet CC 35 (Trustees, trading and tax) section D15 provides:
“A charity trustee cannot be paid for his or her services as a director or employee of the

Insurance for claims against charity trustees
25.10 The law should distinguish between:
(1) Insurance where the proceeds belong to the trust fund. This is per-
mitted under general trust law, or at least, under the general power
of management used in this book.27
(2) Insurance where the proceeds belong beneficially to the trustees.
This is not permitted under general trust law except in special
cases.28 However charity trustees now have statutory power to
take out insurance indemnifying them against the risk of personal
liability arising from:
(1) breach of trust or duty in their capacity as trustees; and
(2) any negligence, default, breach of duty or breach of trust
committed by them while acting as directors or officers of a
charitable company or any company carrying out activities
on behalf of the charity
provided certain conditions are met.29
The statutory duty of care in the TA 2000 applies to the trustees when
making the decision to take out insurance.30
The trustees must be satisfied that the insurance is in the “best
interests” of the charity.31 The Charity Commission’s guidance on this is
that:
The trustees must be clear their decision to purchase TII is based on a genuine
need, and that risks and potential liabilities have been identified that justify
spending charity funds on insurance cover. They should ensure the cost is
reasonable, and will not be a drain on the charity’s fi nances, or in any way
charity’s trading subsidiary unless either [1] unless the governing document of the charity specifi cally
provides for this or [2] there is some other specific authority, such as an order from the Charity
Commission.”
(Emphasis added)
27
All insurance of this class may benefit trustees, in the sense that they are personally liable for
claims (with an indemnity against the trust fund) and so concerned to ensure that the trust fund
is solvent, but that should not matter.
28
The case law is thin but there have been two cases in category (2). A £525 missing benefi ciary
insurance policy was permitted in the case of Re Evans [1999] 2 All ER 777 in circumstances
where an application to the Court for directions would have given rise to far greater expense.
By contrast, insurance was not permitted to cover (i) far fetched claims of (non-fraudulent)
breach of trust and (ii) claims by overlooked beneficiaries which could be dealt with by a notice
under s.27 TA 1925: Kemble v Hicks [1999] OPLR 1 [1999] Pens. LR 287 accessible www.kessler.
co.uk.
29
See s.189 Charities Act 2011.
30
31

CHARITABLE WILL TRUSTS 425
adversely affect its activities. They will need to be satisfied the insurance policy
they take out is suitable for the charity, and that they are clear on the extent of
insurance cover – after taking expert advice if necessary.32
The insurance policy must include a clause to ensure that it will not
cover:
(1) liability in respect of fines imposed in criminal proceedings, or

penalties arising from regulatory action;
(2) liability arising from defending criminal proceedings in which the
trustee is convicted of fraud, dishonesty, or wilful or reckless mis-
conduct; and
(3) liability arising out of conduct which the trustee knew, or should
have known, was not in the interests of the charity.33
We suggest that the statutory power to insure is sufficient.
Procedure after execution of charitable trust
The steps to be taken are set out in the HMRC Guidance Note for 25.11
Charities.34
The Charity Commission refuse to register a charity unless it contains
some funds, but nominal funds will suffice. So some funds must be trans-
ferred to the trustees before the application for registration. The draft
charity trust in this book takes into account drafting comments made by
the Charity Commission. The Commission could take further points in
particular cases, but in practice this should not happen.
Transfers to the charity are exempt from stamp duty and SDLT.35
Charitable will trusts
It is possible to create a charitable trust by will or to make a gift by will to 25.12

an existing charitable trust. It is good practice to create a lifetime trust (if
need be, a pilot trust with a nominal trust fund) and make a gift to it by
32
See the Information Sheet (Trustee Indemnity Insurance) accessible www.charitycommission.gov.
uk/about_us/ogs/g100c004.aspx.
33
34
Sections 2.3–2.5 accessible www.hmrc.gov.uk/charities.
35
See 30.15 (Stamp duty and SDLT) and Kessler and Brown, Taxation of Charities and Non-Profit
Organisations (8th edn, 2011), Ch.34 (Stamp duties) accessible www.taxationofcharities.co.uk.

will. The trust can then be registered and its charitable status will not be
in dispute when the will takes effect: this will simplify the administration
of the estate and avoid the risk that the trust may fail. This should not be
necessary if the trust is in an absolutely standard form.

CHAPTER 26
TRUSTS OF DAMAGES
This chapter is concerned with trusts set up to hold damages, sometimes

called “personal injury trusts”. Different (though overlapping) considera-
tions apply depending whether the claimant is (1) an adult with mental
capacity, (2) a child under 18, or (3) a person lacking mental capacity.
Benefit “disregard” of trust of damages
Trusts of damages have welfare benefit advantages.1 For the purposes of 26.1
income support, one must disregard:
Where the funds of a trust are derived from a payment made in consequence
of any personal injury to the claimant, the value of the trust fund and the value
of the right to receive any payment under that trust.2
This applies whether the claimant is an adult, child or patient. Any form
of trust will satisfy this; even a bare trust.3
Trust of damages for adult with mental capacity
Adults with mental capacity can of course transfer their damages to a trust 26.2
if they want this advantage. They have a free choice what sort of trust to
create.
It is suggested that the most appropriate form for a fund producing
1
On this topic generally, see Coldrick on Personal Injury Trusts (4th edn, 2008).
2
Paragraph 46 and Sch.10, para.12 Income Support (General) Regulations 1987. Similar exemp-
tion applies for other benefits.
3
This follows from the words of the regulation and no authority is needed. Some further support
could be drawn from a curate’s egg of a Social Security Commissioner’s decision, CIS 368/1994,
[1996] 3 JSSL D136 and Ryan v Liverpool Health Authority [2002] Lloyd’s Rep Med 23 at para.25,
accessible www.kessler.co.uk.

428 TRUSTS OF DAMAGES
income is normally a discretionary trust, of which the settlor is a benefici-

ary. The settlor may be one of the trustees.
The benefit “disregard” does not apply for tax purposes. The IT settle-
ment provisions will apply to the trust, but for a client of modest means
that will happily be a more satisfactory result than if they did not apply.
The gift to the settlement is a chargeable transfer so the sum given should
not exceed the NRB. The gift will also be a gift with reservation for IHT,
but this is not a problem if the entire estate of the settlor can be expected
to fall within the NRB.
For property not producing income, an IP trust for the settlor or a bare
trust may be preferable.
For property in excess of the NRB, a bare trust would be preferable
(if appropriate, investing the fund in non-income producing assets). An
IHT disabled persons trust (where possible) may be better: see 27.8 (IHT
deemed IP for disabled beneficiary).
Jurisdiction to transfer child’s damages to bare trust
26.3 The problem for a child is how to create a trust, if one is desired, as the
child lacks legal capacity to do so him or herself. Rule 21.11 of the Civil
Procedure Rules 1998 provides:
(1) Where in any proceedings—
(a) money is recovered by or on behalf of or for the benefit of a child or patient;
or
(b) money paid into court is accepted by or on behalf of a child or patient,
the money shall be dealt with in accordance with directions given by the court
under this rule and not otherwise.
(2) Directions given under this rule may provide that the money shall be wholly or
partly
[a] paid into court and invested or
[b] otherwise dealt with.
(Paragraphing added)
It is considered that rule 21.11(2)[b] empowers the court to direct the
payment of money to a bare trust, that is, a trust where the trustees hold
property on trust for the minor beneficiary absolutely.4 This rule does
not empower the court to order the payment of the money to a substan-
tive trust (i.e. a trust which is not a bare trust, for instance, a trust under
which the principal beneficiary is only entitled to the income of the fund
4
A bare trust involves in a sense a delegation of the Court’s power to deal with the funds, but such
delegation is a method of “dealing with” the funds and so authorised.

A PRECEDENT BARE TRUST FOR CHILD 429
during their life, with remainder to some other beneficiary after their
death).5
A precedent bare trust for child
The following precedent is proposed: 26.4

This Trust is made [date] by
(1) [Name of fi rst trustee] of [address] and
(2) [Name of second trustee] of [address]
(“the Original Trustees”).
Whereas:
(A) [Name of Judge] ordered on [date] [set out terms of Order]
(B) This Trust shall be known as the [Peter Smith] Trust [2010]

1. Defi nitions
In this Trust:
(1) “The Trustees” means the Original Trustees or the trustees of this Trust
for the time being.
(2) “The Trust Fund” means:
(a) Property transferred to the Trustees to hold on the terms of this
Trust; and
(b) All property from time to time representing the above.
(3) “Trust Property” means any property comprised in the Trust Fund.
(4) “[Peter]” means [Peter Smith] of [address].
(5) “Person” includes a person anywhere in the world and includes a Trustee.
2. Trust Income and Capital
(1) The Trustees may pay or apply the income of the Trust Fund to or for the
education, maintenance or benefit of [Peter] and shall hold the remaining
income on trust for [Peter] as an accretion to the Trust Fund absolutely.
5
There are two reasons for reaching this conclusion:
(1) Rule 21.11(2)[a] is an administrative (not dispositive) power. So 21.11(2)[b] “otherwise
dealt with” should be construed ejusdem generis so that only administrative matters can
be dealt with. The payment to a bare trust is an administrative matter but payment to a
substantive trust would be dispositive.
(2) Allen v Distillers Co Ltd [1974] QB 384 reached this conclusion in relation to identical
wording in RSC Ord. 80.12, stating as the general rule that the Court has no power to
order a substantive settlement of a child’s property.

(2) The Trustees shall hold the capital of the Trust Fund on trust for [Peter]
absolutely.
3. Power of Advancement
Section 32 Trustee Act 1925 shall apply with the deletion of proviso (a).
4. Appointment of Trustees
The power of appointing trustees is exercisable by the Trustees.
5. Further Provisions
In witness, [etc.]
The Schedule: Administrative Provisions
[The administrative provisions should be conservatively drawn. Starting with the

standard form in this book, the following amendments are proposed:
Use the fi rst sentence of the standard form power of investment only.
The following administrative provisions should be deleted as inappropriate to a bare

trust of this kind:
income and capital: sub- clause 1.5.4; supervision of companies; appropriation;

payment to charities; confl ict of interest; power to appoint foreign trustees.]
Consequences of using bare trust
26.5 The consequences of using a bare trust are as follows:
(1) If the child attains 18, and has mental capacity, they can call for the
fund to be transferred to them.
(2) On the death of the child under the age of 18 the fund must pass
under the intestacy rules, in principle, to their parents. After the
age of 18 the fund will pass according to the will of the child. The
Court of Protection could of course make a will for an adult who
does not have mental capacity to do so him or herself.
(3) For tax purposes the fund is treated as the child’s, so that they are
subject to tax on trust income and gains, and the funds form part
of their estate for IHT.
A bare trust satisfies the benefits “disregard”, and meets the administra-
tive need of finding a manager for the funds during the minority of the
beneficiary. The court would normally appoint solicitors to act as trus-

CREATION OF A SUBSTANTIVE TRUST OF CHILD’S DAMAGES 431
tees.6 The trust is not really satisfactory for a fund of any size since it is
not appropriate that the child should be given power over a large fund on
attaining the age of 18.
Exercising the power of advancement to turn a bare trust into a substantive trust
The bare trust may contain a wide power of advancement. This would
authorise the trustees to transfer the funds to a new substantive trust if
this is for the benefit of the beneficiary.7 That is a matter which could
be considered further (at any time after the creation of the trust and in
particular before the beneficiary’s 18th birthday) if there are good reasons
why it would benefit the beneficiary to transfer the funds to a substantive
trust under which they could not spend the capital.
Creation of a substantive trust of child’s damages by

compromise
If: 26.6
(1) the parties agree a compromise of the claim;

(2) the terms of the compromise include the transfer of funds to a sub-
stantive trust; and
(3) the compromise is for the benefit of the child
then the court can approve the terms of the compromise, even though the
court has no power to order the creation of a substantive trust on its own
initiative.
An appropriate form of trust would be somewhat narrower than the
standard trusts used elsewhere in this book. If the child is not disabled (in
the IHT sense) the following is suggested: 8
(1) While the child is under the age of 25 (power to maintain the child
and to accumulate surplus income).
(2) A life interest to the child on attaining the age of 25.
6
It would not normally be appropriate to appoint parents to act as trustees, because of the confl ict
of interest and risk of breach of trust, though there is no real objection to parents acting as trustees
jointly with a solicitor. (Theoretically parents could seek to have the funds transferred to them by
virtue of their powers over the children’s property conferred by s.3 Children’s Act 1989. In such
cases trustees should seek the guidance of the court, and it is suggested that the court would have
a discretion whether or not to allow the parents control of the funds.)
7
CD (a minor) v O [2004] EWHC 1036 (Ch) [2004] WTLR 751; see 11.11 (Power of advancement
used to create new trusts).
8
A draft along these lines was used for Thalidomide victims: Allen v Distillers Co. [1974] QB 384.

(3) Power of advancement in favour of the child.

(4) On the child’s death the fund would be held;
(a) on such terms as the child may appoint; subject to which
(b) on the intestacy rules; subject to which
(c) for such charities concerned with disabilities similar to those
suffered by the child as the trustees shall select.
The consequence of such a trust would be:
(1) The trust is subject to 10 year charges on a standard IHT trust, but
there is no IHT charge on creation of the trust because the child
does not make a transfer of value.
(2) From the point of view of state benefits, the trust income and capital
may not be regarded as the child’s income and capital (except to the
extent that the fund is used to pay income to the child).
(3) For IT the position would depend on whether the child would be
regarded as settlor for tax purposes. It is considered that the child
would not be a settlor.9
(4) When the child attains 18—even if they have mental capacity—
they cannot call for the fund to be transferred to them because it is
not their fund.
If the child is disabled in an IHT sense, the alternative is an actual or

deemed IP trust, avoiding the 10 year charges but (in principle) incurring
an IHT charge on the death of the child instead.10
Trusts for minors: commentary
26.7 Minors may be awarded damages of several million pounds. No-one

would make a gift of such a sum on terms that the minor becomes abso-
lutely entitled to it at the age of 18. At the very least, entitlement should
be deferred to the age of 25. Fortunately this result can be achieved by
indirect methods under the present law. It is suggested that the court ought
to have jurisdiction to create appropriate trusts directly.11
9
See Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), para.75.27
(Settlement made by compromise of claim of minor/person lacking capacity) accessible www.
10
26.6 (actual estate-IP for disabled beneficiary); 26.8 (IHT deemed IP for disabled beneficiary).
11
The court had some power to do this under the Infant Settlements Act 1855, until its repeal
by the Family Law Reform Act 1969. For damage limitation by trustees, see 5.1 (Too much
money).

AWARD UNDER CRIMINAL INJURIES COMPENSATION SCHEME 433
Trusts of damages for person lacking mental capacity
There are two methods of setting up a trust. The court has power to make 26.8
a settlement for a person lacking capacity.12 The parties to litigation may
create a settlement under a compromise; this needs the consent of the
Court of Protection.13
Award under Criminal Injuries Compensation Scheme
There is jurisdiction for an award under the Criminal Injuries Compensation 26.9
Scheme to be transferred to a settlement.14
12
Sections 16, 18(h) Mental Capacity Act 2005. It is considered that the person lacking capacity is
the “settlor” of a settlement created under this power. See Kessler, Taxation of Non-Residents and
Foreign Domiciliaries (11th edn, 2012), para.75.26 (Settlement made by court for person lacking
capacity) accessible www.foreigndomiciliaries.co.uk.
13
See the Court of Protection Practice Note on the settlement of personal injury awards to patients,
15 November 1996. Although issued under the MHA 1983 (now repealed), the factors relevant
in deciding whether consent is given are still relevant. See also the recent Court of Protection
decision of SM v HM (4 November 2011).
14
Section 3(1)(d) Criminal Injuries Compensation Act 1995; The Criminal Injuries Compensation
Scheme 2001 r.50.

CHAPTER 27
TRUSTS FOR DISABLED BENEFICIARIES
Mentally handicapped beneficiaries
27.1 Trusts are the traditional means of providing for a mentally handicapped
beneficiary. It is plainly inadvisable to transfer funds absolutely to a person
who is not well able to manage them. If a mentally handicapped person
with assets in their own name is unable to manage their property or appoint
an attorney under a lasting power for this purpose, it would generally be
necessary for a deputy to be appointed under the Mental Capacity Act
2005. The appointment of a deputy inevitably imposes formal procedures
and may involve substantial costs and should be avoided where possible.
Choosing provisions for disabled beneficiaries
27.2 For administrative provisions see 21.58 (Beneficiaries without capacity:

powers over capital and income). Drafting beneficial provisions for the
benefit of the disabled is more difficult than normal because account
must be taken of two additional considerations: welfare benefits and tax
reliefs.
Welfare benefits
27.3 This is a daunting topic, nearly as large as IT, and even more volatile.
When advising on wills or lifetime gifts for persons qualifying for benefit
the adviser must consider the impact on benefits. It is not possible to
examine this topic in detail but two general propositions will be made:
(1) The benefit system discourages gifts of capital (beyond a small

limit) to any person claiming means-tested benefits.
(2) The benefit system penalises beneficiaries who receive trust
income, withdrawing benefits pound for pound. Accordingly ben-
eficiaries on means tested benefits should not be life tenants if the

IHT DEPENDENT RELATIVE RELIEF 435
trust fund produces income: the trusts should generally be discre-

tionary in form.1
Tax reliefs for disabled beneficiaries
In this area tax planning and trust drafting are so interwoven that it is not 27.4
possible to discuss one without the other.
There are now nine tax reliefs for disabled beneficiaries which can be
categorised as follows:
(1) IHT dependent relative relief

(2) IHT reliefs for disabled beneficiaries:
(a) actual estate-IP
(b) deemed estate-IP
(3) IHT reliefs for prospectively disabled settlor:
(a) actual estate-IP
(b) deemed estate-IP
(4) CGT full annual allowance
(5) CGT hold-over relief
(6) IT/CGT transparency for:
(a) disabled beneficiary
(b) orphan beneficiary
These reliefs have a variety of disability and drafting requirements.
IHT dependent relative relief
A lifetime gift is not a transfer of value (and so is broadly outside the scope 27.5
of IHT) if:
(1) it is made in favour of a dependent relative of the donor, and

(2) it is reasonable provision for their care or maintenance.2
1
The possibility of benefit under discretionary trusts does not at the present time affect means tested
benefits. It has in the past and may again in the future. The risk is greater for trusts qualifying for
IHT and CGT disabled person’s reliefs. There is little the drafter can sensibly do to anticipate such
changes in the law. The provision of benefits from a trust may or may not affect welfare benefits,
depending on the circumstances.
2

436 TRUSTS FOR DISABLED BENEFICIARIES
The disability requirement here is in the term “dependent relative”.3

The drafting requirement is that the disposition must be “in favour of ”
that relative. Trusts which satisfy any of the other reliefs discussed below
will usually be suitable.
Is it worth qualifying for this relief? Unless the donor is old, insurance
against the risk of death within seven years of the gift is usually cheap.
Then the relief is not worth the trouble. However in the case of an elderly
donor (or in any case where insurance against the IHT on death within
seven years is expensive) the relief is valuable and should be used.
Actual estate-IP for disabled beneficiary
27.6 The conditions for this relief are relatively straightforward. The relief
applies to:
an interest in possession in settled property to which a disabled4 person

becomes beneficially entitled on or after 22nd March 2006.5
We take this to mean that the relief applies where the beneficiary is disa-
bled when the property is transferred into the settlement. The relief is
not lost if the beneficiary later ceases to be disabled, and the relief is not
applicable if the beneficiary becomes disabled after the settlement is made.
What is the position if a beneficiary acquires an interest in reversion,
which later falls into possession? For instance suppose:
(1) Year 1, S makes a gift to A for life, remainder to B for life, with
remainder over. B has an interest which is a reversionary interest.
(2) Year 2, A dies and B’s interest becomes an IP.
It is considered that for the purposes of this relief, B’s interest is a “disabled
person’s interest” if B is disabled (in the IHT sense) in year 1, on the gift
by S. It is irrelevant whether or not B is disabled in year 2, when the inter-
est falls into possession.6 In the case of a will trust, it is not clear whether
3
The defi nition is in s.11(6) IHTA 1984:
“dependent relative” means, in relation to any person—
(a) a relative of his, or of his spouse or civil partner, who is incapacitated by old age or infirmity
from maintaining himself, or
(b) his mother or his father or his spouse’s or civil partner’s mother or father.”
4
See Appendix 7 for a defi nition of this term.
5
See s.89B(1)(c) IHTA 1984. The relief is not needed for an interest in possession to which a
disabled person became entitled before 22 March 2006, because the (rather more generous) tran-
sitional rules apply.
6
See s.89B(2) and 89(4) IHTA 1984.

ACTUAL ESTATE-IP FOR PROSPECTIVELY DISABLED SETTLOR 437
the relevant time is the time of death or the time that the administration
is complete. A strict construction favours the later view, but a purposive
construction favours the former view, and it is suggested that a purposive
construction is to be preferred. What matters is whether the beneficiary is
disabled at the time of the testator’s death.
The effect of the relief is that the beneficiary’s IP, called a “disabled
person’s interest”, is an estate-IP for IHT purposes.7 In consequence:
(1) The trust property is in the estate of the life tenant.

(2) The trust is not subject to the standard IHT regime of 10-year and
exit charges.
The practical consequences of this relief are important:
(1) A settlor may provide for a disabled beneficiary by making a life-

time gift to an IP trust for their benefit.
(2) The termination of any estate-IP (e.g. an IPDI) may be followed by
this “disabled person’s interest” so as:
(a) to qualify for the IHT spouse exemption, if applicable; or
(b) the termination of the life tenant’s interest during their life-
time, followed by the disabled person’s interest, would in
principle be a PET.
Disabled Person Trap
The relief for a disabled person’s interest therefore poses a trap. Suppose, 27.7
after 2006, a lifetime gift is made to a settlement for A for life, remainder
to B for life. A’s interest is not an estate-IP and the trust is a standard IHT
trust, subject to 10-year charges. But if B is disabled when the trust is made,
then the property falls into the estate of B, and subject to IHT at the rate
of 40% on B’s death. The only solution in these cases is to provide that B’s
IP should not come into effect if it would be a disabled person’s interest.
This means it is, in many circumstances, wholly impractical ever to give
an IP to an elderly disabled life tenant.
Actual estate-IP for prospectively disabled settlor
A settlor who is actually disabled (in the IHT sense) may make a gift to 27.8
a settlement under which they have an IP and qualify for the relief set
out above. The following relief applies to a settlor who is prospectively
7
See s.89B(1)(c) and s.52(3A)(b) IHTA 1984.

disabled—that is, in due course they expect to become disabled (in the
IHT sense8 ). The relief is not important, and is only mentioned here for
completeness.
The condition for the relief is that:
(1) the settlor has an IP; and

(2) if any of the settled property is applied during the lifetime of the
settlor for the benefit of a beneficiary, it is applied for the benefit of
the settlor. (It would appear, nevertheless, that there is some scope
for overriding powers of appointment.)
The effect of the relief is that the settlor’s IP is an estate-IP for IHT pur-
poses: it qualifies as a “disabled person’s interest”.9 But in practice it will
generally be more convenient to create a lasting power of attorney in
respect of the settlor’s property and affairs, than to create a life interest
trust of this restrictive kind. For then on the death of the settlor it is pos-
sible to create an IPDI, which is impossible if one takes advantage of this
(apparent) relief.
IHT deemed IP for disabled beneficiary
27.9 Under a deemed IP trust:10
(1) The disabled beneficiary is treated as having an IP for IHT

purposes.11
(2) A gift to the trust is in principle a PET for IHT purposes.12
These rules are compulsory: it is not possible to disclaim them by making

an election.
A deemed IP is a mixed blessing. The trust is not subject to IHT 10-year
and exit charges under the standard IHT trust regime. This seems like an
advantage. However, the property is in the estate of the disabled benefici-
ary and in principle suffers IHT on the death of the disabled beneficiary.
If the disabled beneficiary has an actual estate-IP in the trust property the
8
For the full meaning of disabled, see Appendix 7.
9
Section 89A IHTA 1984
10
Our terminology for a trust which satisfies the conditions of s.89 IHTA 1984. The trusts are there
called “trusts for disabled persons”. The term “disabled trust” is used in s.3A IHTA 1984. But that
terminology is inadequate to distinguish between the many different types of trusts which carry
some kind of disability relief.
11
12
Section 3A IHTA 1984. If the disabled beneficiary makes the gift, or if IHT dependent relative
relief applies, the gift is not of course a transfer of value for IHT so there is no PET.

IHT DEEMED IP FOR DISABLED BENEFICIARY 439
IHT position is the same and it is better for CGT: the trust qualifies for
the CGT tax-free uplift on the death of the beneficiary. The deemed IP
trust allows the practical advantage of accumulating trust income without
loss of means-tested benefits, but at the cost of the CGT uplift on death.
The conditions are as follows:
(1) Disability requirement The beneficiary must be disabled (in the IHT
sense).13 This condition need only be satisfied at the time of the gift
to the trust. It does not matter if the beneficiary later ceases to be
disabled.
(2) Drafting requirement The terms of the trust must provide:
(a) during the life of the disabled beneficiary, no IP in the settled
property subsists, and
(b) not less than half of the settled property which is applied
during their life is applied for their benefit.14
Condition (b) is the same as the condition for CGT full annual allowance.
Condition (a) is different. Since accumulation is now possible throughout
the life of the disabled beneficiary, this condition and the condition for a
full CGT annual allowance trust can both be satisfied. Condition (2)(a)
prevents one from allowing any person, (even the disabled person) an IP,
so if the decision is made to use a deemed IP trust, it is impossible later to
move to a disabled estate-IP trust.15
13
The defi nitions of “disabled” are discussed in Appendix 7.
14
In Barclays Bank Trust Co (as trustees of the Constance Mary Poppleston Will Trust) v RCC [2011]
EWCA Civ 810, the Court of Appeal held:
(1) A power to pay income or capital to any person, hospital or organisation caring for E (a
disabled person) contained in his parents wills did not infringe the requirement of s.89(1)
(b). It was interpreted as an addition to the trusts for the “benefit of [E]” in the sense of
providing an additional means of applying such property for E’s benefit. The power could
therefore only be exercised for E’s benefit.
(2) A power to accumulate surplus income for 21 years and apply it as if it were income of
the then current year only contemplated distribution of accumulated income to E in that
period.
(3) The provision in the wills removing the restriction contained in s.32 TA 1925 to one half
of the trust fund (so that there was unlimited power to advance capital to E’s children and
nephews and nieces during his lifetime) did not prevent s.89(1)(b) applying because the
trusts further provided that no power or provision was to be exercised to “prevent any
person who would (in the absence of such power or provision) have had an interest in pos-
session (within the meaning of the IHTA 1984) in any fund or part or share of a fund from
having such an interest in possession as aforesaid”. The reference to IP had to be read as
including deemed IPs.
The court adopted a purposive interpretation of the wills assuming (somewhat implausibly, in
our view) that that the drafter was aware of s.89, and must have intended the section to apply
“particularly as the will was intended to make provision for a person known to be disabled”.
15
Unless an application is made under the Variation of Trusts Act 1958.

IHT deemed IP for prospectively disabled settlor
27.10 This relief applies where a settlor who is prospectively disabled (in the IHT
sense) creates a trust similar to the deemed IP trust for a disabled benefici-
ary. We can see almost no circumstances in which a well advised settlor
would possibly want to create such a trust, which loses the benefit of CGT
uplift on death, as well as the possibility of creating an IPDI on death. This
can therefore be regarded as a dead-letter relief.
CGT full annual allowance
27.11 All trusts qualify for a CGT annual allowance. Normally this is set at one
half the amount of the individual’s allowance (2012/13 £10,600 for indi-
viduals so £5,300 for trustees). Certain trusts for disabled beneficiaries
enjoy the full and not the half allowance. This tax advantage is therefore
worth £1,484 in a year in which a trust realises chargeable gains. It is not
a very significant tax relief.
The conditions are as follows:
(1) Disability requirement: The beneficiary must be “disabled” (in the

CGT sense).16
(2) Drafting requirement: The terms of the trust must provide that,
during the lifetime of the disabled beneficiary:
(a) not less than half of the property17 which is applied is applied
for the benefit of the disabled beneficiary, and
(b) [i] the disabled beneficiary is entitled to not less than half of
the income arising from the property, or
[ii] no such income may be applied for the benefit of any other
person.18
A trust loses the benefit of this relief if the disabled beneficiary dies or
ceases to be disabled. A trust does not qualify for the relief unless it is
known at the outset that condition (2)(b) will be satisfied throughout the
life of the disabled beneficiary.19 Thus trust income must be (i) (at least as to
half ) paid to or applied for the benefit of the disabled beneficiary; or (ii)
accumulated. It is no longer necessary to give the beneficiary an IP. The
16
Sch.1 para.1(1)(6) TCGA 1992. For the defi nitions of “disabled”, see Appendix 7.
17
“The property” means the capital of the trust fund.
18
This is a roundabout way of saying that the income must be accumulated. HMRC accept this:
CG Manual 18061.
19
HMRC take this view: CG Manual 18061A.

CGT HOLD- OVER RELIEF 441
trust can authorise or direct the accumulation of trust income during the
disabled beneficiary’s lifetime and so satisfy this condition.
Mixed trusts
The CG Manual provides: 27.12
18067. Mixed settlements

It is possible that only part of a settlement may fulfi l the qualifying conditions.
For example, the trust may secure that during the lifetime of the disabled
person the income and any capital applied of a specified fund is to be applied
as described above. If the fund itself meets the conditions, then the trustees
of the settlement are entitled to the main exemption. Paragraph 1(1) refers
to ‘settled property’ and not to ‘all the settled property comprised in the
settlement.’
By way of contrast if the disabled beneficiary is entitled to an undivided
share of the property, as in the example in CG18064, then the tests are to be
applied to the whole of the settled property. So if there are three life tenants,
each entitled to one-third of the income, and one is disabled, the conditions
are not met.
This is surprising but there it is. Accordingly one way to draft a trust
qualifying for a full CGT annual allowance is to split the trust fund into
two parts:
(1) A specified fund which is restricted to satisfy the conditions. It may

be most convenient to provide that the disabled beneficiary is life
tenant of this fund.
(2) The balance may be held on whatever trusts seem most appropriate.
CGT hold- over relief
Section 169B TCGA 1992 disapplies hold-over relief on a gift to a settlor- 27.13
interested trust. There is an exemption for disabled trusts: s.169D TCGA
1992. Trusts qualifying for either the full CGT annual allowance or IHT
deemed IP will qualify for this relief. The relief applies in a case where a
disabled beneficiary makes a gift to a settlement under which he or she is
the principal beneficiary (which will not happen in practice) so it is dead-
letter law.20
20
See 27.7 (Actual estate-IP for prospectively disabled settlor).

Income tax/CGT transparency: disabled beneficiary
27.14 The FA 2005 introduced an extraordinarily complex code of IT and

CGT reliefs for two types of trust: trusts for disabled beneficiaries and for
orphans. The reliefs for the two types of trust are the same, but the require-
ments are entirely different and it is necessary to consider them separately.
We refer to this relief (slightly inaccurately) as IT/CGT transparency.
Two elections are required for the reliefs to apply: a vulnerable person
election (made once) and an annual claim by the trustees (made in their
tax return). The vulnerable person election is (technically) irrevocable
but since it is supplemented by an annual claim, the relief is effectively an
optional one. A vulnerable person election without an annual claim is of
no effect.21
Disability requirement: The beneficiary must be disabled (within the IT

definition).22
Drafting requirement:
27.15 The requirements are in s.34 FA 2005 and we set them out as a paraphrase
cannot do them justice:
34 Disabled persons
(1) For the purposes of this Chapter where property is held on trusts for
the benefit of a disabled person those trusts are qualifying trusts if they
secure that the conditions in subsection (2) are met—
(a) during the lifetime of the disabled person, or
(b) until the termination of the trusts (if that occurs before his death).
(2) Those conditions are—
(a) that if any of the property is applied for the benefit of a beneficiary,
it is applied for the benefit of the disabled person, and
(b) either that the disabled person is entitled to all the income (if there
is any) arising from any of the property or that no such income may
be applied for the benefit of any other person.
21
Nevertheless if a vulnerable person election is in effect, trustees must inform HMRC within 90
days if:
(1) the person ceases to be a vulnerable person,
(2) the trusts cease to be qualifying trusts, or
(3) the trusts are terminated.
Section 37 FA 2005. Readers may wish to contemplate how this relates to Government promises
to reduce regulation (e.g. 2005 Budget: “The Government wants to increase the emphasis at the
heart of the regulatory process upon the simplification and removal of regulations. . .”).
22
For full details, see s.38 FA 2005. The defi nitions of “disabled” are discussed in Appendix 7.

INCOME TAX/CGT TAX TRANSPARENCY: ORPHAN BENEFICIARY 443
This is different from the CGT full annual allowance relief as it need only
apply until the termination of the trusts. On the other hand all the trust
income must be applied for the disabled beneficiary or accumulated. This
allows a wide overriding power of appointment (perhaps it is best to draft
it in a form which refers to “terminating the trusts” which take effect in
default). However, if one does that you cannot qualify for IHT deemed IP
treatment or a full CGT annual allowance. The section continues:
(3) The trusts on which property is held are not to be treated as failing to
secure that the conditions in subsection (2) are met by reason only of
[statutory or similar powers of advancement].
(4) The reference in subsection (1) to the lifetime of the disabled person is,
where property is held for his benefit on trusts of the kind described in
section 33 of the Trustee Act 1925 (protective trusts), to be construed
as a reference to the period during which such property is held on trust
for him.
Income tax/CGT tax transparency: orphan beneficiary
We mention this only for completeness as its practical importance is 27.16

minimal.
IT /CGT transparency applies to certain trusts for the benefit of a
person one or both of whose parents have died. Statute calls this a “rel-
evant minor”; we use the (slightly inaccurate) term “orphan”.
Three types of trust will qualify:
(1) Trusts under the intestacy rules.

(2) Trusts under the will of a deceased parent of the orphan.
(3) Trusts under the Criminal Injuries Compensation Scheme.
The conditions are in short:23
(a) that the orphan will, on attaining the age of 18, become absolutely
entitled to the property and its income,
(b) that, until that time, for so long as the orphan is living, if any of the
property is applied for the benefit of a beneficiary, it is applied for
the benefit of the orphan, and
(c) that, until that time, for so long as the orphan is living, either—
(i) the orphan is entitled to all the income (if there is any) arising
from any of the property, or
23
For full details, see s.35 FA 2005.

(ii) no such income may be applied for the benefit of any other
person.
Since no sensible parent will want an 18-year-old to become entitled to a

substantial sum, this can be regarded as another dead-letter relief.
Effect of income tax/CGT transparency relief
27.17 The relief is wonderfully complex, and a full discussion would require a
book to itself. In short, trustees will pay tax at the rate applicable if the
beneficiary had received the trust income and gains.24 The tax saving could
be as much as £10,000 per year because of the stiff tax rates applied to
small discretionary trusts, but it will generally be far less than that, and
after allowing for the professional costs involved it would be surprising if
there were any overall saving.
It is possible for a claim for the relief to increase tax liabilities. This may
happen if the individual realises gains of their own, because the trust loses
its CGT annual allowance if a claim is made.
Settlor-interested settlements do not qualify for this relief 25 but the set-
tlement provisions have the same effect.
Disabled beneficiaries: conclusion
27.18 How then should one provide for disabled beneficiaries?
Small funds
27.19 The amounts involved may be too small to justify a trust. The best course
then must be to seek a suitable individual who will take the funds and
(without obligation) use them for the beneficiary.
If no suitable individual is found, a scheme operated by Mencap26 may
be considered. Under this scheme an individual creates a discretionary
trust, with a nominal trust fund, and bequeaths additional funds by will.
The Mencap trust company acts as trustee. Mencap only administers
trusts set up under its standard form and does not act with co-trustees
(though it does of course work with the family of the individual). Charges
are raised on a non-profit making basis. Administrative costs should
24
See ss.26 to 32 FA 2005.
25
Section 25 FA 2005.
26
www.mencap.org.uk.

COMMENTARY 445
therefore be less than for comparable private trusts. The minimum trust
fund is £10,000.
Substantial funds: provision by will
The uncertainties are so great that the most sensible form of will must be 27.20
a discretionary will trust: this course allows the important decisions to be
deferred until after the death of the testator.
Substantial funds: lifetime provision
Where sums involved are within the IHT NRB (or twice that amount, if 27.21
husband and wife are making gifts) then the best course would be to make
a gift to a discretionary trust.
Where sums involved are large, and means tested benefits not a consid-
eration, and the beneficiary is disabled in the IHT sense, the best course
will generally be to create an actual estate-IP trust.
Should one use standard form IP or discretionary trusts; or make
amendments in order to satisfy the conditions for (1) IT/CGT transpar-
ency or (2) full CGT annual allowance? This course would somewhat
limit the trustees’ flexibility but for CGT that drawback could be mini-
mised by creating a trust with two separate funds for point (2), see 27.12
(Mixed trusts). It is a question of how much trouble and expense one is
prepared to take in order to optimise the tax position:
(1) Where a trust accumulates income, and the disabled beneficiary

has no other income or gains, income tax/CGT transparency is just
about worthwhile.
(2) If both the beneficiary and the trust realise chargeable gains annu-
ally, a full CGT annual allowance is just about worthwhile.
It is possible to envisage circumstances where the IHT deemed IP Trust

is the most suitable form of trust, but in practice this is not often likely to
be the case: only where a trust has a beneficiary with a good life expect-
ancy, claiming benefits, where the fund is so large that IHT 10- year
changes are a serious burden.
Where the settlor cannot expect to survive seven years, it is important
to take trouble for the gift to qualify for IHT dependent relative relief.
Commentary
What is needed is a single, coherent set of rules for IT, IHT and CGT. 27.22
The FA 2005 is a textbook example of disproportionate complexity

arising from well-meant tinkering; the post-FA 2006 position can only
be described as a shambles. A shallow consultation paper on vulnerable
beneficiary trusts proposes to apply one set of rules (adopting the approach
of the narrowest of the present reliefs) to all the reliefs; it falls well short
of a full review of the area.27
27
HMRC, “Consultation on vulnerable beneficiary trusts” (August 2012).

CHAPTER 28
GOVERNING LAW, PLACE OF

ADMINISTRATION AND JURISDICTION
CLAUSES
The governing law
A trust must have a “governing law”1 whose significance is as follows: 28.1
(1) The law governs the validity, construction, effect and administra-
tion of the trust.2 But only occasionally will the many differences
between trust jurisdictions matter in practice to a well-drafted
trust.
(2) It cannot be a breach of trust to comply with rules of the governing
law relating to tax, a settlor’s (or beneficiary’s) right of recovery for
tax, or exchange control. It may be a breach of trust to comply with
other countries’ rules on such matters.3
(3) The law is occasionally relevant for tax.4
1
A note on terminology. The terms “applicable law” and “governing law” and “proper law” are
synonymous. All of them have found favour with statutory drafters. “Governing law” is the
term used in modern offshore legislation: e.g. the Bahamian Trusts (Choice of Governing Law)
Act 1989; the Bermudan Trusts (Special Provisions) Act 1989; Cayman Islands Trusts Law.
“Applicable law” is the term used in the Hague Convention. “Proper law” has been used twice
in English statutes: s.22 FA 1949 (estate duty); s.304 Copyright, Designs & Patents Act 1988
(trust for Great Ormond St Hospital). As noted in Philipson-Stow v IRC [1961] AC 727 the word
“proper” is somewhat inapt. “Governing law” is the best term as it is the most transparent term
of the three.
2
Hague Convention on the Law Applicable to Trusts and their Recognition (referred to in this
chapter as “the Hague Convention”) implemented by the Recognition of Trusts Act 1987. Article
8 explains the meaning of this phrase in some detail.
3
“It is difficult to see how the will trustees could possibly be in breach of trust in complying with
the provisions of that system of law which the testator, by necessary implication, selected to regu-
late the rights of the parties under the trusts constituted by his will.” Re Cable [1977] 1 WLR 7
at 23. See also Re Latham [1962] Ch 616.
4
This is rare, which is not surprising, since the settlor has power to choose the governing law.
However:

448 GOVERNING LAW, PLACE OF A DMINISTRATION AND JURISDICTION
(4) The law is one factor (no more) in determining whether a Court
has or will exercise jurisdiction over the trust.5
(5) The law is one factor (no more) in determining the situs of an
equitable interest under the trust.6
Selection of English governing law
28.2 The settlor of a lifetime trust may in principle choose any governing law
which recognises trusts.7 The same applies to a trust created by will.8
If no express choice is made a trust is governed by the law with which
it is most closely connected.9 So in the usual case it is unnecessary for the
drafter expressly to select the governing law. A trust in a standard English
(1) Some IHT double tax treaties apply different rules depending on the governing law of the
trust: see Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th edn, 2012), Ch.65
(IHT DTTs: India, Pakistan, Italy, France); accessible www.foreigndomiciliaries.co.uk.
(2) The source of a life tenant’s income (for UK tax purposes) will normally be the underlying
assets. However, if the governing law (unlike English law) does not give the life tenant
the right to the trust income as it arises, but only the right to a sum from the trustees, then
the source will be the trust. However this is not often significant. See Kessler, Taxation of
Non-Residents and Foreign Domiciliaries (11th edn, 2012), para.25.1 (Taxation of life tenant);
accessible www.foreigndomiciliaries.co.uk.
(3) The governing law may be relevant for foreign law or tax purposes. For instance, every
chargeable instrument declaring or evidencing a trust of which the proper law is that of
the BVI, and every written instrument changing the proper law of a trust to the laws of the
BVI, is liable to $100 BVI trust duty: see Kessler, Chand and Pursall, DTWT in the BVI
(2012).
5
See 28.6 (Exclusive jurisdiction clause). For the purposes of EU Council Regulation on
Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial
Matters 44/2001; Brussels and Lugano Conventions on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters, a trust is “domiciled” in England if English Law “is
the system of law with which the trust has its closest and most real connection”. The governing
law chosen is in most cases the deciding factor in applying this test: see Gomez v Gomez-Monch
Vives [2009] Ch 245 at [72].
6
The situs of an equitable interest is not usually important, but it could matter, e.g. in ascertaining
the jurisdiction whose rules govern dispositions of the equitable interest (matters such as formal-
ity, capacity, intestacy); or for tax. On situs see Kessler, Taxation of Non-Residents and Foreign
Domiciliaries (11th edn, 2012), Ch.77 and 78 (Situs of Assets for IHT and CGT). accessible www.
7
Hague Convention Art. 6; this was also broadly the position at common law: Dicey, Morris and
Collins, Conflict of Laws (14th edn, 2006), Ch.29. There is a good discussion of the older cases in
Dymond’s Death Duties (15th edn, 1975), p.1286. For exceptions see below.
8
The law governing a trust created by the will must be distinguished from:
(1) Formalities (governed by the Wills Act 1963).
(2) The material or essential validity of the will (governed by the domicile of the testator).
(3) The administration of the estate (governed by the law from which the administrators
derives their authority.
There is no freedom to alter these. See Tod v Barton [2002] WTLR 469.
9
Hague Convention, art.7 (which further explains the concept of “closely connected”). The same
principle applies at common law: Chellaram v Chellaram [1985] Ch 409 at p.431 and Chellaram v
Chellaram (No. 2) [2002] 3 All ER 17, at [166].

SELECTION OF FOREIGN GOVERNING LAW 449
form, with English settlor and beneficiaries, English trustees and trust
property will, by clear implication, be governed by English law. Where
there is a foreign element — for instance where the settlor and the trustees
are not all domiciled and resident in England — then the trust should
expressly direct which governing law is to apply. Otherwise it may be
difficult to identify the governing law.10 A draft for a lifetime trust11 is:
English law governs the validity of this Settlement, and its construction, effects and
administration.12
It is not correct to say: “the law of the United Kingdom”: different legal
systems apply in Scotland and Northern Ireland. In the past, those sensitive
to regional nationalism would refer to “the law of England and Wales”.13
Since the Government of Wales Act 1998, the law of England and Wales
may differ, though this seems unlikely in relation to trust law.
Selection of foreign governing law
A settlor may choose a foreign governing law. This opens an agreeable 28.3
prospect: a free market in legal systems, where the settlor may select
whichever offers the most suitable rules and institutions.
The selection of a foreign governing law might offer the following
advantages:
Taxation. In practice tax advantages will be rare: see above.
Protection from expropriation. A foreign governing law would be a defence

against enforcement (in foreign jurisdictions) of future UK confiscatory
legislation. Until the ninth edition of this book we added that “the pos-
sibility of such legislation seems remote” we are now somewhat less san-
guine about that.
10
Dicey, Morris and Collins, The Conflict of Laws, 14th edn, paras 29- 016 to 22 and 29- 66 to 70,
assembles many authorities illustrating the courts’ travails in determining the governing law in
the absence of a choice of law clause; all unnecessary had the drafter specified the law.
11
In a will the form “This will takes effect in accordance with English law” was held to be an effec-
tive choice of law in relation to such aspects as are governed by a testator’s choice: Tod v Barton
[2002] WTLR 469. But it would be better to be more explicit and say:
“This Will takes effect in accordance with English law. In particular, English law governs the
validity of the settlement constituted by this Will, and its construction, effects and administra-
tion. The English Courts have exclusive jurisdiction in any proceedings involving rights or
obligations under that settlement.”
12
The wording is derived from art.8 of the Hague Convention.
13
Since s.4 Welsh Language Act 1976 abolished the earlier rule that statutory references to England
included Wales, the Parliamentary drafter has referred to “the law of England and Wales” much
more often than “the law of England”.

Ease of administration. If foreign trustees are appointed, they may prefer

their local law to govern their trust. The retention of English governing
law is unlikely ever to be a serious handicap to trust administration.
These are somewhat tenuous advantages. There is also a drawback
to the selection of a foreign governing law. A person dealing with the
foreign-law trust may need to familiarise him or herself with the local
law or seek local professional advice; or very likely, both. The choice of a
foreign governing law may give rise to extra expense.
The freedom to select a foreign governing law is not absolute: the
choice of a foreign governing law may be ineffective if “manifestly
incompatible with public policy”.14
In determining whether United Kingdom public policy requires the
rejection of an express selection of a foreign governing law, some com-
mentators suggest that a relevant factor would be whether the foreign
governing law has any real connection with the trust. Thus they recom-
mend that where a foreign governing law is selected, the initial trustees or
trust property should be in the same jurisdiction. It is then harder still to
question the governing law of the trust. While this might be adopted as a
precaution it is not in our view necessary.15
It is in principle possible to arrange that the law of one jurisdiction
should govern the validity of a trust, and the law of another jurisdiction
should govern its administration.
The conclusion is that the drafter of a UK resident trust should not in
normal circumstances select a foreign governing law.
Power to change the governing law
28.4 A power to change the governing law of a trust is valid in English law.16
A change of governing law may significantly alter the effect of a trust.
For example, a change of governing law may be used to do the following:
14
Hague Convention, art.18.
15
Difficulties and absurdities arise if (contrary to our fi rm view) the English Courts were to hold
that a trust is governed by English law, notwithstanding an express selection of a foreign govern-
ing law. The foreign jurisdiction would almost certainly take the view that the same trust was
governed by its law. (Some foreign trust laws state this expressly — e.g. s.4 Bahamian Trusts
(Choice of Governing Law) Act 1989: “A term of a trust expressly declaring that the laws of the
Bahamas shall govern the trust is valid, effective and conclusive regardless of any other circum-
stance.” But the same conclusion would generally be reached at common law.) The resulting
battle of jurisdictions might be determined by factors such as residence of trustees and situs of
trust assets. So if an Irish law trust more than 21 years old decided to invest in English land, the
trustees would suddenly be unable to accumulate income and a beneficiary may acquire an inter-
est in possession! These difficulties go to show that the Courts should not impose English trust
law against the principles of the Hague Convention.
16
Hague Convention, Art.10 envisages such a power, subject to the public policy considerations of
art.18. This view was adopted in Chellaram v Chellaram (No. 2) [2002] 3 All ER 17.

POWER TO CHANGE THE GOVERNING LAW 451
(1) Override the English law restriction that the statutory power of
advancement is limited to one half of the trust fund.17 (This may be
useful in the surprising number of trusts that include a power to
change the governing law but do not extend the statutory power of
advancement.)
(2) Extend the perpetuity period.18
(3) Confer on the court power to vary the trust without the consent of
the beneficiaries.19
(4) Make an action for breach of trust harder to pursue.
(5) A receipt classified as income under English law may be regarded
as capital under a foreign law (or vice versa).20
(6) Alter the class of beneficiaries, by reversing the English law rules
that:
(a) “children” include illegitimate and adopted children;21 and
(b) “spouse” does not include a partner in a same sex marriage.
(7) Make a settlor’s statutory indemnity for tax harder to enforce.22
(8) Alter the definition of “charity/charitable” which differs between
jurisdictions.
17
For instance, there is no such restriction in art.38(5) Trusts ( Jersey) Law 1984 or s.24 Trustee
Act 1975 (Bermuda). The Law Commission propose to extend the statutory power to the entire
trust property, but this will not apply to existing trusts: see Law Com no 331 Intestacy and Family
Provision Claims on Death (December 2011) para.4.72 and cl.9, 10 of their proposed Inheritance
and Trustees’ Powers Bill.
18
For instance the Cayman Islands have a 150-year perpetuity period, and many jurisdictions
have (sensibly) abolished the rule against perpetuities altogether, including: Republic of Ireland;
Jersey, Guernsey, The Bahamas, Bermuda, Manitoba, Saskatchewan, South Australia, and several
states of the USA; this list will continue to increase.
19
There are a number of jurisdictions where the Court’s power to vary trusts is wider than in
English law, including the following:
(1) Bermuda: see GH v KL [2011] SC (Bda) 23 Civ (2 December 2010).
(2) New South Wales: see Ford & Lee, Principles of the Law of Trusts.
(3) Some US jurisdictions: see s.412 (a) and s.416 of the US Uniform Trust Code:
“The court may modify the administrative or dispositive terms of a trust or terminate the
trust if, because of circumstances not anticipated by the settlor, modification or termination
will further the purposes of the trust. To the extent practicable, the modification must be
made in accordance with the settlor’s probable intention. . . . To achieve the settlor’s tax
objectives, the court may modify the terms of a trust in a manner that is not contrary to the
settlor’s probable intention. The court may provide that the modification has retroactive
effect.”
(4) Liechtenstein: see arts 910 para.5 and 932a para.165 of the Personen und Gesellschaftsrecht.
20
In particular, the provisions of the Trusts (Capital and Income) Act 2012 only apply to trusts
governed by English law.
21
See 5.22 (Illegitimate beneficiaries); 5.23 (Adopted beneficiaries).
22
There are too many such rights to compile a complete list, but the most important is Sch.5 para.6
TCGA 1992. The questions raised by such indemnities have become very important since the
reforms of the FA 1998, but have not yet been fully explored in the Courts.

The following draft is proposed:

The Trustees may during the Trust Period by deed with the consent of the Settlor
during the life of the Settlor or of two Beneficiaries after the death of the Settlor
declare that from the date of such declaration:
(1) The law of any Qualifying Jurisdiction governs the validity of this Trust, and its
construction, effects and administration, or any severable aspect of this Trust;
and
(2) The courts of any Qualifying Jurisdiction have exclusive jurisdiction in any
proceedings involving rights or obligations under this Trust.
In this paragraph a “Qualifying Jurisdiction” is one which recognises trusts (as defi ned
in the Hague Convention on the Law Applicable to Trusts and on their Recognition).
The power to change the governing law should be subject to the safeguard
that it should only be exercised with the consent of the protector, settlor
or two beneficiaries.
Sometimes the trustees are given power to make alterations in the
terms of the trust which are consequential to the change in the governing
law, but this only duplicates the standard overriding powers.
Sometimes the power is made subject to the condition that no part
of the trust should become unenforceable in the new jurisdiction; but
this raises difficult questions as to what is meant by “part of a trust” and
“unenforceable”. Sometimes the power is made subject to the condition
that all (or substantially all) the terms of the trust should be capable of
taking effect in the new jurisdiction. However, the purpose of changing
the governing law may be precisely to alter the effect of the terms of the
trust. It is suggested that the only appropriate restriction should be that the
new governing law is one which recognises trusts.
Sometimes the power is made subject to the condition that the trust
should not be revocable in the new jurisdiction. It is important that the
power to change the governing law cannot be exercised to allow the
settlor or the settlor’s spouse/civil partner to benefit from the settled
property (assuming they are meant to be excluded from the trust, as will
usually be the case); or to prevent the trust from qualifying as an interest
in possession trust (if appropriate). However the usual settlor exclusion
clause and protection clause will ensure that this is the case and no addi-
tional wording is needed.23
Place of administration of trust
23
HMRC lost an argument along these lines before the Special Commissioners: IRC v Schroder
[1983] STC 480 at p.489. There was, wisely, no appeal on this point.

EXCLUSIVE JURISDICTION CLAUSE 453
The Trustees may carry on the administration of this Settlement anywhere they think
fit.
The place of administration 24 of a trust is relevant for some tax and minor
confl ict of law issues.25
Trustees can as a matter of general principle carry on the administra-
tion of a trust wherever they think fit.26 The clause is therefore strictly
unnecessary. However if it is desired to move the place of administration
to a new jurisdiction, it is good practice to exercise this power by formal
resolution.27
The choice of place of administration does not significantly affect the
beneficiaries’ rights. It is unnecessary to require a protector’s consent to
the exercise of the power or to restrict the power in any way.
Exclusive jurisdiction clause
In the absence of an exclusive jurisdiction clause, the English Court 28.6

has jurisdiction to administer a trust with English governing law,28 or
24
“Place of administration” is one of a cluster of concepts expressed in slightly different ways, with
slightly different nuances of meaning. Contrast:
1. The “place of effective management” of a trust which is relevant to determine trust resi-
dence for the purpose of double tax treaties using the OECD Model. This concept is not
quite the same as “place of administration” as the emphasis is on “top management”.
2. “Central management and control of the trust estate” which is relevant for trust residence
for Australian tax purposes.
25
The place of administration does not determine the law applicable to matters of administration:
Chellaram v Chellaram [1985] Ch 409; Hague Convention, art.8. (This needs stressing as the con-
trary view was once generally held, and still survives in some textbooks.) However:
1. The place of administration is relevant in deciding whether a Court has (or will exercise)
jurisdiction over the trust: see Chellaram v Chellaram. In some foreign trust laws the point is
made expressly: e.g. art.5(d) Trusts ( Jersey) Law 1984 (“the Court has jurisdiction where
. . . administration of any trust property of a foreign trust is carried on in Jersey.”)
2. “The place of administration of the trust designated by the Settlor” is relevant to ascer-
tain the applicable law of the trust, if no applicable law has been chosen expressly: Hague
Convention art.7.
3. The place of administration may be relevant to a clause in a trust which refers to the place
of administration (this book does not use that drafting technique).
4. The place of administration is not relevant for UK trust taxation, but it is relevant for some
foreign tax purposes (e.g. Ireland retains UK’s pre-2007 CGT rules).
26
We cannot fi nd authority for this proposition, but only since it has never been questioned. Of
course in practice it would be normal for administration to be carried on where the trustees are
resident.
27
The resolution is no more than a step in the right direction. What matters is not where the trustees
intend, or are required to carry on the administration, but where it is actually done. Contrast Unit
Construction v Bullock [1960] AC 351; 38 TC 712.
28
A claim form may be served outside England and Wales to execute trusts which “ought to be
executed according to English law”: Practice Direction 6B (Service out of the Jurisdiction)
para.3.1(12).

a foreign governing law.29 The English Court has jurisdiction under

the VTA 1958 to vary a trust with a foreign governing law though
“where there are substantial foreign elements in the case . . . the Court
must consider carefully whether it is proper for it to exercise the
jurisdiction”.30
Various international conventions provide that an exclusive jurisdiction
clause is in principle effective:
The court or courts of a Contracting State on which a trust instrument has

conferred jurisdiction shall have exclusive jurisdiction in any proceedings
brought against a settlor, trustee or beneficiary, if relations between these
persons or their rights or obligations under the trust are involved. 31
In jurisdictions which are not party to these Conventions, a Court has a

discretion to disregard an exclusive jurisdiction clause but only does so in
exceptional cases.32
The recommended practice is to include an exclusive jurisdiction clause
where there is an express selection of governing law, but not otherwise.
The wording should be based on the Conventions:33
29
Re Cable [1977] 1 WLR 7.
30
Re Paget [1965] 1 WLR 1046.
31
Article 22(4) EU Council Regulation on Jurisdiction and the Recognition and Enforcement of
Judgments in Civil and Commercial Matters 44/2001; art.17(2) Brussels and Lugano Conventions
on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.
32
Koonmen v Bender 6 ITELR 568, 4 Butterworths Offshore Trust Cases 774, [2004] TLI 44,
[2007] WTLR 293 at [49]; Green v Jernigan [2003] BCSC 1097 accessible www.canlii.org.
The discretion to disregard the clause may be exercised slightly more readily if the claim
is by beneficiaries, not the settlor: Capricorn v Compass [2001] JLR 205, accessible www.jerseylegal-
info.je.
33
Koonmen v Bender (above) discussed a form commonly used in offshore trusts:
“(1) ‘The Proper Law’ means the law to the exclusive jurisdiction of which the rights of all
parties and the construction and effect of each and every provision of this settlement shall
from time to time be subject and by which such rights, construction and effect shall be
construed and regulated. . . .
(2) Proper law. This settlement is established under the laws of Anguilla and subject and
without prejudice to any transfer of the administration of the trusts hereof to any change
in the Proper Law and to any change in the law of interpretation of this settlement
duly made according to the powers and provisions hereinafter declared the Proper Law
shall be the law of Anguilla which said Island shall be the forum for the administration
hereof.”
The drafting is muddled. Clause (1) purports to be a defi nition of “proper law” but is actually
a substantive provision. It also purports to give exclusive jurisdiction to a “law” instead of to
a court. Clause (2) uses the expression “forum of administration” which is (as noted below)
ambiguous. But the court rightly held (at [45]to [48]) that the correct construction was that this is
an exclusive jurisdiction clause. More recently, the courts have adopted a narrower interpretation
of the expression, so that it does not cover breach of trust (Helmsman Ltd v Bank of New York Trust
Company (Cayman) Ltd (2010–11) 13 ITELR 177 (Cayman Islands)) and other hostile proceedings
(Representation of AA [2010] JRC 164; (2010–11) 13 ITELR 690) against former trustees. There
is no strict rule for construing exclusive jurisdiction clauses (comparable to exclusion clauses in
contracts).

“FORUM OF ADMINISTRATION” 455
The English Courts have exclusive jurisdiction in any proceedings involving rights or
obligations under this Settlement.
Governing law and exclusive jurisdiction clauses do not exclude the UK

jurisdiction to vary trusts on divorce.34 However, the English court order
will need to be enforced against the trustees in the foreign jurisdiction;
some jurisdictions will (generally) recognise an order of the English court
but others may not.35
“Forum of administration”
Old precedents used to specify a governing law and, separately, a “forum 28.7
of administration” of the settlement.36 The purpose of the latter was:
(1) To specify the country whose courts had jurisdiction over

administration.
(2) To specify the law governing matters of administration.
Now, however:
(1) The issue of jurisdiction is better dealt with in a form based on

the EU Council Regulation on Jurisdiction and the Recognition
and Enforcement of Judgments in Civil and Commercial Matters
44/2001.
(2) The governing law governs matters of administration.37
Therefore it is not now appropriate or meaningful38 for the drafter to

34
C v C [2005] Fam 250 paras 27–43, also reported under the name of Charalambous v Charalambous
[2004] WTLR 1061. See 5.12 (Variation of settlement on divorce).
35
For the position in Jersey, see CI Law Trustees Ltd v Minwalla [2006] WTLR 821. In T v T [1996]
2 FLR 357 foreign trustees were joined as parties to English matrimonial proceedings. See 5.12
(Variation of settlement on divorce).
36
There was likewise power to alter the governing law and, separately, power to alter the forum of
administration, e.g. the trust in Chellaram v Chellaram [1985] Ch 409 at p.419: “a power for the
trustees by deed to declare that the settlement shall take effect in accordance with the law of some
other place in any part of the world and that the forum for the administration hereof shall thenceforth be
the laws of that place.”
37
The form goes back to the time when it was thought that
(1) the governing law only governed issues of validity and construction; but
(2) the place of administration (or “forum of administration”) governed issues of
administration.
Since 1987 at least it has been clear that the governing law in principle determines issues of
administration along with everything else; see above.
38
The expression “forum of administration” is often used in a way where it is unclear whether the
meaning is (i) Courts with jurisdiction over administration; (ii) law governing administration;

specify a “forum of administration” in addition to specifying a governing

law and a place of exclusive jurisdiction.
or (iii) place where administration is carried on. The drafter of s.89(3) Cayman Islands Trust
Law (2001 revision) wanted to include (i) and (iii), referring to a provision that “the Islands or the
courts of the Islands are the forum for the administration of the trust”. Dymond’s Death Duties (15th
edn, 1973), p.1299 states that in the older cases the term was used to refer to what is now called
the governing law. This lack of clarity is a reason to avoid the expression.

CHAPTER 29
RESTRICTING RIGHTS OF
BENEFICIARIES
This chapter discusses techniques intended to restrict rights of beneficiar-

ies. None of them are used in the precedents in this book.
Restrictions on disclosure of information
A settlor may wish to restrict rights of information in different ways and 29.1
for different reasons:
(1) So that individual beneficiaries are not entitled to fi nd out what

other beneficiaries receive.
(2) So that younger beneficiaries do not find out about the trust until
they reach a more mature age.
(3) So that distant “fall back” beneficiaries who are not (in practice)
likely to receive benefits do not receive any information.
There are two main ways in which a beneficiary may obtain information:
(1) when a grant of administration is made in relation to a will, then

that will is open to public inspection;
(2) in any case, from the right of a beneficiary to information from the
trustees.
A third method is by seeking disclosure in the course of litigation. The

drafter cannot, however, restrict the Court’s power to order disclosure in
the course of litigation.

458 R ESTRICTING R IGHTS OF BENEFICIARIES
Disclosure of Will
29.2 Upon grant of administration, a will is a public document.1

One can avoid disclosure by using a secret trust.2 Although the will is
open to inspection, the will itself will only show that there is a gift of the
residuary estate to the executors. The reader of the will may guess that
there is a secret trust, but will not find out its terms from the will. Of
course the actual beneficiary of the secret trust will be entitled to infor-
mation about their trust.
A testator who is married 3 might make two wills:
(1) One will taking effect if the spouse survives, giving the entire
estate to the spouse absolutely.
(2) A second will taking effect if the spouse predeceases.
This solves the problem for testators who want to keep the knowledge of
the anticipated4 dispositions on the second death confidential until the
time of the second death. A will is the aggregate of a testator’s testamentary
wishes and a testator can only leave one will.5 But if the drafting makes it
clear that one document is valid and the other invalid, it is considered that
only the valid document is required to be proved and made public. This
solution only works for the will where the disposition on the first death
is to the spouse absolutely. It is however much easier than a secret trust.
Whatever the terms of the will, the value of the testator’s estate will,
however, be made public. If it is desired to avoid that disclosure, the client
might create one or more trusts during their lifetime. This might be a
trust under which the client has an interest in possession, with power to
advance capital to them. The trust fund will not form part of their free
estate. So its value will not be included in the value of their free estate,
which is the value that is made public. However in most cases tax consid-
erations make this proposal impractical.
1
Section 124 Senior Courts Act 1981; r.58 Non- contentious Probate Rules 1987.
2
An alternative to a secret trust is a “half secret trust”. That is, a gift to the executors combined
with a direction in the Will that the executors are to hold the property on appropriate trusts.
The Will itself will not say what the terms of these trusts are. Some commentators take the view
that this type of trust rests on the principle of “incorporation by reference”. If that is so then the
underlying trust documentation should be publicly available with the Will. To avoid this uncer-
tain question a fully secret trust is preferable to a half secret trust.
3
Similar arrangements could sometimes be made for unmarried testators e.g. in the case of cohab-
itees, but that would be less common.
4
The surviving spouse would not be bound to leave the estate as the testator wanted.
5
Douglas-Menzies v Umphelby [1908] AC 224 at p.233; Re Berger [1990] Ch 118 at p.133.

BENEFICIARY’S RIGHT TO TRUST INFORMATION 459
Beneficiary’s right to trust information6
The general law position
The Court has a discretion to require trustees to disclose information to 29.3

beneficiaries (including mere objects of trustees’ powers). This discretion
is based on the essential requirement of a valid trust, that trustees must be
under an effective obligation to deal with the trust fund for the benefit of
beneficiaries.7 Duties to disclose are part of the irreducible core obliga-
tions of trustees which cannot be excluded.8 A clause which purports to
remove or exclude the right to information entirely will be ignored as
inconsistent with a trust.9 The fact that a protector has a right to informa-
tion is merely a factor that the Court may take into account in deciding
whether to grant disclosure to a beneficiary. It does not justify removing
beneficiaries’ information rights.10
It is considered that a restriction on information rights in a trust deed
would not have any effect.11
Practical means of restricting information rights
One viable route is to arrange that:
(1) Each beneficiary has a settlement creating appropriate trusts for the
benefit of that beneficiary and (say) their future family.12
(2) Each settlement is a separate settlement for trust law purposes.
(3) Each beneficiary is not a beneficiary under the other settlements.
Since a beneficiary of one settlement is not a beneficiary under the

other settlements, there is no entitlement to information about the other
settlements.
Where confidentiality of a statement of wishes is important it is sug-
gested that the statement should be expressed to be confidential and give
reasons for confidentiality (if not obvious). If appropriate the settlor might
6
See International Trust Laws (looseleaf ) section B7 (Disclosure of Information by Trustees,
Campbell and Hilliard).
7
Schmidt v Rosewood Trust [2003] 2 AC 709.
8
See Lightman, “Trustees Duty to Provide Information to Beneficiaries”, [2004] PCB 23, acces-
sible www.judiciary.gov.uk/media/speeches/2004.
9
The only way to restrict information may be to select a governing law which authorises or imposes
restrictions on information rights.
10
Schmidt v Rosewood Trust [2003] 2 AC 709.
11
See Bathurst v Kleinwort Benson (Channel Islands) Trustees [2007] WTLR 959 (Royal Court of
Guernsey), accessible www.guernseybar.com at [126] to [129]. If restrictions are desired (they can
after all do no harm) then art.38 Trust (Guernsey) Law 2007 is a suitable precedent.
12
Or, of course, if appropriate, beneficiaries may be given their share absolutely.

record two statements; one to be disclosed, the other expressed to be

confidential, and setting out the further confidential material. This pro-
cedure places the maximum obstacles in the way of a beneficiary seeking
disclosure. However a statement of wishes will normally be disclosed as
a matter of good administration and refusal to disclose might encourage
disappointed beneficiaries to litigate.13
No named beneficiaries or unascertainable default beneficiary
29.4 Some drafters make it hard to ascertain who the default beneficiaries
will be. They hoped this would weaken claims to information or to the
trust fund. But Schmidt v Rosewood shows that this technique does not
help. The furthest that we would go down this road would be to provide
that the default beneficiary should be “such charities as the trustees shall
determine”.
Sometimes the default beneficiary is expressed to be:
The persons who would have been entitled to the settlor’s estate (and in the share or amounts and
for the interest in and for which such persons respectively would have become so entitled thereto)
under the law relating to the distribution of the moveable estate of a person dying intestate under
the law in force in the jurisdiction of the proper law of the trust at the expiration of the trust period
if the settlor had died on that date (but after the death of any other person dying on that date)
wholly intestate and domiciled in the jurisdiction of the proper law of this trust without leaving
any spouse him surviving and possessed only of an absolute benefi cial interest in the net proceeds
of sale and conversion of the trust fund.
This form will often breach the rule against perpetuities.

Some tax lawyers have suggested that an appropriate default benefici-
ary might be the Chancellor of the Exchequer on the expiry of the trust
period. Some academics propose the Warden of All Souls. But since there
is (one may assume) no genuine intention to benefit the Chancellor or the
Warden, this might be regarded by a hostile Court as a sham.14
A variant of this idea is that there should be no beneficiaries named in
the trust deed at all. The risk that a hostile court would regard this as a
sham is greater than ever.
Extension of powers of disclosure
29.5 We have seen a form authorising disclosure to Government departments:

13
Scott v National Trust [1998] 2 All ER 705 and Breakspear v Ackland [2009] Ch 32. See 7.15 (Letter
of wishes).
14
It should not be held to be a sham, applying the well established case law test; but hostile courts
have sometimes applied a looser test of sham. See Kessler, “What is (and what is not) a Sham”
(1999) OTPR, vol. 9, p.125 accessible www.kessler.co.uk.

NO- CONTEST CLAUSES 461
The Trustees may make such disclosures concerning this Trust or Trust Property (including
disclosure of any direct or indirect benefi cial interests therein and of any dealings therein) as may
be properly required by any competent authority or person whether or not such disclosure may be
enforced upon the Trustees.
No-one has ever doubted that the general law allows trustees to dis-
close information properly required; this form is only appropriate
in foreign jurisdictions where the local law imposes greater secrecy
requirements.
No- contest clauses
A no-contest clause is one which provides that a beneficiary who contests 29.6
a will or trust forfeits their interest. The clauses are fairly common in off-
shore trusts.15 The object is to discourage litigation by beneficiaries. The
clauses are not much used in England, but they may catch on here. They
are not included in the precedents in this book: it is suggested they should
not be a standard form. (The clause might increase litigation, given the
uncertainties: the validity of the clause constituting a further issue to add
to any other issue in the proceedings.)
There are many forms that the clause may take. There are also many
reported cases, though most of them are antique or only marginally rel-
evant. The only two recent cases (hereafter Nathan16 and AN 17) are not
enough to deal with all the issues which arise, the more so because they
are not consistent on all points, and the former concerned a home-made
will with bodged drafting.
Certainty
A no- contest clause must meet a requirement of certainty. The test of

certainty here is that one can know from the outset the exact event the
happening of which will result in forfeiture.18 It seems clear on principle,
and authority confi rms, that the following conditions meet the certainty
test:
(1)(a) If a benefi ciary contests or disagrees with my will.19
15
This is noted in AN v Barclays Private Bank and Trust (Cayman) Ltd 9 ITELR 630, [2007] WTLR
565 (Cayman Islands Grand Court) at [33].
16
Nathan v Leonard [2003] 1 WLR 827.
17
AN v Barclays Private Bank and Trust (Cayman) Ltd 9 ITELR 630, [2007] WTLR 565 (Cayman
Islands Grand Court).
18
AN at [72]; Nathan at [17].
19
Nathan at [17] to [19]. The will in fact referred to a beneficiary who “wishes to contest or disagree”.
But the Judge (rightly) held that the words “wishes to” (in context) added nothing.

These words “encompass any proceedings which might result in an altera-

tion of the dispositions made by the will.”20
(1)(b) If a benefi ciary contests the validity of this deed and the trust created under it.21
(1)(c) If a benefi ciary contests the validity of any conveyance of property to the trustees.22
Form 1(c) is more far reaching than forms 1(a) or (b). If the beneficiary is
successful in a 1(a)(b) case the entire trust or will is set aside, the forfeiture
clause becomes irrelevant. Whereas if a beneficiary successfully contests
the validity of one conveyance to the trust, the forfeiture clause might
still take effect in relation to other conveyances which may not have been
contested.
(1)(d) If a benefi ciary takes any steps whatever (whether directly or indirectly) to contest
[any of the above].23
(1)(e) If a benefi ciary unreasonably does any of the above [i.e. contests etc.].24
Form 1(e) is in fact considerably less certain than forms 1(a) to 1(d).
However the certainty test is not applied that strictly.25 Further, the
concept of reasonableness is deeply embedded in the law and should be
regarded as sufficiently certain. It hardly seems a wise policy to authorise
no-contest clauses for unreasonable contests, and to strike down clauses
restricted to reasonable contests.
(2) If a benefi ciary [unreasonably] challenges the decision of the trustees or the
protector.
We refer to forms 1(a) to (e) as “validity- contest clauses”, and form (2)
as an “administration-contest clause.”
AN held that form (2) was uncertain without the word “reasonably”
but became sufficiently certain if that word was included.26 It is difficult to
see how the word “reasonably” renders an uncertain clause more certain.
The Judge was quite right to say that the clause is invalid without the
word “reasonable” but the ground for invalidity is repugnancy and not
uncertainty. But what matters here is that form (2) (restricted to reason-
able challenges) meets the certainty requirement.
20
Nathan at [19]. “Disagrees with” obviously includes a claim under the Inheritance (Provision for
Family and Dependants) Act 1975. See Nathan at [16]; but it is clear both on principle and on
authority that such a claim also “contests” the will; see (if authority is needed) Re Gaynor [1960]
VR 640 (Supreme Court of Victoria).
21
AN at [50].
22
AN at [50].
23
Evanturel v Evanturel (1874) LR 6 PC 1, cited AN at [51].
24
AN at [98].
25
Sifton v Sifton [1938] AC 656 at 671: “It must be ascertainable whether the provision has taken
effect or not; not that it must be ascertained in fact by the person affected, or even ascertainable
by him without difficulty. . .”.
26
AN at [52] to [58] especially at [58].

Repugnancy, ouster and public policy
No-contest clauses have been challenged on the grounds of repugnancy,

ouster and public policy. The repugnancy argument is that a no-contest
clause is inconsistent with the terms of any gift to a beneficiary. The ouster
argument is that the clause ousts the jurisdiction of the Court. The public
policy argument is that the clause should be held void as contrary to public
policy. There is a large element of overlap between these three arguments.
There are of course examples of clauses which are:
(1) void for repugnancy (e.g. restrictions on alienation);

(2) void for ousting the jurisdiction of the Court;27 or
(3) void for public policy (e.g. a forfeiture on marriage or on settlor
bankruptcy).
None of these examples are close to a no-contest clause.

The public policy issue on no-contest clauses is a battle between two
confl icting public interests, freedom of disposition28 (the settlor’s property
rights) v freedom of beneficiaries to litigate over their rights. The Courts
decided in the 19th century to uphold no-contest clauses of type (1)
above, the laissez-faire spirit of those times weighing in favour of freedom
of disposition. But the 19th century cases have (quite rightly) been fol-
lowed and it is well settled that validity contest clauses (forms 1(a) to (e)
above) are valid and not made void by rules relating to repugnancy, ouster
or public policy.
A different public policy argument was raised in Nathan, which did not
arise in the 19th century, that no-contest clauses in wills should be void
as deterring an application under the Inheritance (Provision for Family
and Dependants) Act 1975. This was (we think convincingly) reject-
ed.29 Of course, this point applies to wills but not (normally) to lifetime
settlements.
The position is different for administration-contest clauses (form (2)
above). There is an irreducible core of obligations owed by trustees to
beneficiaries. If the beneficiaries cannot make any challenge to the trus-
tees’ actions or decisions, there is no trust. An unrestricted administration-
contest clause is clearly repugnant (i.e. inconsistent) with a trust.30
27
e.g. Re Wynn [1952] Ch 271.
28
We use this term to include freedom of testation.
29
Sidney Ross is less convinced: see “Forfeiture Clauses in Wills” Trust Quarterly Review Vol. 1 Issue
1 (2003) accessible to STEP members on www.step.org [56] to [60], but his analogy with s.34(1)
Matrimonial Causes Act 1973 is not a close one. The position is different in Canada and Australia:
Re Chester (1978) 19 SASR 247.
30
This proposition is self- evident, but if authority is needed see AN at [92].

Construction of no-contest clauses
It is said that no-contest clauses (like all forfeiture clauses) should be strictly
construed.31 This is no doubt so, but in well drafted clauses this should
make no difference, because the meaning should be clear and the result
should be the same whether the construction is strict or benevolent.
In AN the no-contest clause provided:
Whosoever contests the validity:

(1) of this deed and the Trust created under it,
(2) of the provisions of any conveyance of property by any person or persons to the
Trustee to form and be held as part of the Trust Fund, and
(3) of the decisions of the Trustee and/or of the Protector
shall cease to be a Benefi ciary of any of these Trusts and shall be excluded from any
benefits direct or indirect deriving from the Trust Fund.32
Read literally, sub-clause (3) is void and one must either sever the void
part or the whole clause must fail. The Judge construed (or stretched) the
clause to mean “whoever unjustifiably33 contests. . ..etc.” Thus the validity
of the clause (in this emasculated form) could be upheld.
The learned Judge was, with respect, on more doubtful ground when
he held 34 that validity-contest clauses (forms 1(a) to (e) above) are to be
construed as only applying to challenges which are both unsuccessful
and unjustifiable (even if this is not expressly stated). The better view is
that taken in Nathan, which the Judge in AN did not cite. The correct
approach is to construe a no-contest clause. It may be right to construe it
as applying only to unsuccessful challenges, but if not the clause (if valid)
takes effect whether the challenge succeeds or fails.35
Gift-over requirement
The no-contest clause must operate by way of forfeiture of the interest

of the defaulting beneficiary and a gift over of that interest to somebody
else.36 This has been called the in terrorem rule but that label is not apt and
even if it were, English would be preferable. We suggest it should be called
“the gift-over requirement”. In the common form discretionary trust, the
gift-over requirement is met in relation to the class of discretionary ben-
eficiaries. If any of the beneficiaries are in default, they are excluded and
31
AN at [35] and [39].
32
Needless to say, the paragraphing is added for greater clarity.
33
The Judge explained “ justifi ably” to mean: bona fide, not frivolous or vexatious, and with proba-
bilis causa litigandi, a good cause for litigation. See AN [98] to [102]. But that only expresses the
common sense meaning of “ justifi able”.
34
See AN at [90]–[91] and [94].
35
See Nathan at [24] to [26] especially at [26].
36
AN at [30].

the “gift-over” is to the others in the class. If (in practice unlikely) all the
class were in default, then the default clause of the trust would take effect.
But (in the absence of an express gift-over) a no-contest clause would not
affect the fi xed interest of the default beneficiary.
The rule against perpetuities
A no-contest clause must satisfy the rule against perpetuities. But even if
that rule is not satisfied, the clause will normally be saved by the wait and
see rule.
Relief from forfeiture
In AN the Judge held that the Court had jurisdiction to grant relief from
forfeiture.37 In Nathan the point was left open.38 But this is not a drafting
issue as the drafter cannot exclude jurisdiction (if it exists) or confer it (if
it does not).
The termination of the beneficiary’s interest is (and should be) auto-
matic; if it is left to the trustees’ discretion, that may constitute a contempt
of court.39 However, one can include a provision allowing the beneficiary
to be reinstated, which can be useful as an incentive to the beneficiary to
discontinue the action.
During the Trust Period, the Trustees may, if the Trustees are satisfied that the
Benefi ciary has withdrawn the legal proceedings, reinstate the Benefi ciary by deed so that
this settlement shall be construed from the date of such deed as if the proceedings had not
occurred but not so as to affect anything which has happened before that date.
This does give the trustees a discretion, which could be challenged if

improperly exercised.
Drafting a no-contest clause
If a no-contest clause is to be used, the following is suggested, loosely

based on AN:
Whereas the Settlor wishes so far as consistent with a valid trust to avoid and
prevent litigation and disharmony between Beneficiaries and the Trustees, the
Settlor therefore directs as follows:
37
AN at [104] to [123]. Since the no- contest clause (as construed) applied only to beneficiaries who
litigated unjustifi ably, a case for relief from forfeiture must be rare, but that does not affect the
general principle. An example might be a minor beneficiary acting through an incompetent or
confl icted representative.
38
See Nathan at [28] to [31] but on the facts of that case relief would not have been granted even if
there were jurisdiction to grant it.
39
See Halsbury’s (4th edn, reissue), Vol. 9(1), para.436; Lewin on Trusts (18th edn, 2008) at
para.5–06.

(1) If a Benefi ciary takes any legal proceedings to set aside or contest the validity of
this deed/will or the trust created under it, the Benefi ciary shall cease to be a
Benefi ciary and shall be excluded from any benefit from the Trust Fund. This
sub-clause applies to all proceedings whether or not justifiable or successful.
(2) If a Benefi ciary takes any legal proceedings to set aside or contest the validity of:
(a) any part of this deed/will or
(b) any conveyance or transfer or declaration of trust by which property becomes
part of the Trust Fund
the Benefi ciary shall cease to be a Benefi ciary and shall be excluded from any
benefit from the Trust Fund. This sub- clause shall not apply if the Benefi ciary is
wholly successful in the legal proceedings, but otherwise shall apply to all proceed-
ings whether or not justifiable.
(3) (a) If a Benefi ciary unjustifiably takes any legal proceedings to contest any act or
decision of the Trustees [or of the Protector] 40 the Benefi ciary shall cease to be
a Benefi ciary and shall be excluded from any benefit from the Trust Fund.
(b) For the purposes of this clause, proceedings are unjustifiable unless at all times
conducted in good faith and with good cause.
(4) This clause shall not apply to proceedings instigated with the prior consent in
writing [of the Settlor],41 [of the Protector] 42 or of any trustee or any director of
a corporate trustee.
(5) This clause shall not apply unless proceedings commence before the end of the
Trust Period.
(6) If any sub-clause of this clause is void, it shall be regarded as severable and such
sub-clauses that are not void shall take effect.
The object of this rather complex clause is to find a balance between the
confl icting needs of beneficiaries and trustees, and not to skirt too close
to the limits of what trust law allows.
The recital may be relevant to the Court’s jurisdiction to grant relief
from forfeiture, if that exists, though the point should be self-evident.
Clause (1) concerns challenges to the entire trust. The unsuccessful
beneficiary is excluded here (if they are successful there is of course no
trust from which to exclude them).
Clause (2) concerns challenges to part of the trust. So far as success-
ful, there is no trust and if successful the beneficiary does not become
excluded from the rest of the trust. It does seem wrong that if a trust
is in fact void in part, no-one could effectively say so. The sanction is,
therefore, exclusion unless the beneficiary is successful. That should make
a beneficiary pause before instigating proceedings. It is considered that
this clause is valid, though (as noted above) the contrary would be argu-
able. But to restrict the clause to “justifiable” actions would substantially
reduce its effect.
40
Omit if no Protector.
41
Omit in will.
42
Omit if no Protector.

NON-ASSIGNMENT CLAUSES 467
Clause (3) applies to acts and decisions of the trustees. It is restricted

to unjustifiable litigation, in accordance with AN. One might (just) get
away with restricting the clause to unsuccessful litigation, but the result
is bound to be litigation on the validity of the clause. The aim of a no-
contest clause is to reduce litigation. If the settlor wants more than permit-
ted by this clause, they should create a trust using a governing law with a
statutory regime such as Cayman Islands STAR Trusts, under which ben-
eficiaries do not have any automatic enforcement or information rights.43
The termination of the beneficiary’s interest is (and should be) auto-
matic; if it is left to the trustees’ discretion, that may constitute a contempt
of court.44 However, one can include a provision allowing the beneficiary
to be reinstated, which can be useful as an incentive to the beneficiary to
discontinue the action.
During the Trust Period, the Trustees may, if the Trustees are satisfied that the
Benefi ciary has withdrawn the legal proceedings, reinstate the Benefi ciary by deed so that
this settlement shall be construed from the date of such deed as if the proceedings had not
occurred but not so as to affect anything which has happened before that date.
This does give the trustees a discretion, which could be challenged if

improperly exercised.
Non-assignment clauses
No person interested under this trust may sell pledge assign or encumber the interest of that person 29.7
under this trust.
This provision is void in English law, though some foreign trust laws
permit it. A similar result can be achieved: see 5.4 (A better solution).
43
See Kessler and Pursall, Drafting Cayman Islands Trusts, (1st edn, 2006, Kluwer Law International),
Ch.17 (STAR Trusts).
44
See Halsbury’s (4th edn), Vol. 9(1) (1998 Reissue), para.436; Lewin on Trusts (18th edn, 2008) at
para.5–06.

CHAPTER 30
EXECUTION OF WILLS AND TRUST

DOCUMENTS
This Chapter sets out the procedures to be carried out once a draft has
reached its final form.
Review of draft
30.1 The counsel of perfection is as follows. Every document should be

reviewed twice after it has reached its final form. The penultimate review
should be made by the drafter, at least 24 hours after last examining the
document. This enables the drafter to apply a fresh mind to the work. The
final review should be made by a person other than the drafter. Where
counsel has prepared the draft, this duty rests on the instructing solicitor.
A draft produced in-house should be reviewed by another member of the
firm. The text of the document should be printed out in its fi nal form
ready for execution. It is no cynical asperity to observe that the existence
of this peer review concentrates the mind of the drafter.
Bear in mind the text:
Whoever thinks a faultless piece to see

Thinks what ne’er was, nor is, nor ne’er shall be.
In the case of a female settlor or beneficiary, care needs to be taken to

replace “his” with “her”, and “widower” for “widow”. (Complete avoid-
ance of personal pronouns may render this unnecessary, at the cost of
clumsy phraseology.)
Special care needs to be taken where drafts have been amended or
errors corrected. In such a case the drafter should review a mental check-
list that:
(1) the revised clause fits properly into its context;

CAUTION ! WORD PROCESSOR AT WORK 469
(2) the revision does not infringe the rule against perpetuities;
(3) the clauses are renumbered as necessary, and references to clause
numbers in the deed are systematically revised.
An omission of text is a remarkably difficult error to spot. This is an

error as old as writing itself 1 but it still remains prevalent in the age of
the word processor. A prime example from the experience of one of the
authors is a trust for a beneficiary “if they shall attain the vesting age”; the
vesting age not being defined.
Review and approval by parties
All parties should understand the document they are signing. They should 30.2
have an explanation of it and an opportunity to comment on it in draft.
They should have the opportunity to take independent advice, and in
some circumstances independent advice may be essential. The execution
of a document which any party has not understood is the recipe for dis-
aster. One might have thought this was so obvious it did not need saying,
but the law reports show otherwise.2
Use and misuse of precedents
Standard drafts should be subjected to the same review procedure: they are 30.3
not immune from error. Published precedents (this book included) should
be reviewed with some suspicion: quite apart from the possibility of error,
they may not be entirely suitable for the particular case. This advice is as
old as precedent books themselves.3
Caution! Word processor at work
The Solicitors Indemnity Fund have issued this warning:4 30.4

1
There is a well-known biblical example at 1 Samuel 14.41.
2
For a spectacular example of such a disaster, see Anker-Peterson v Christensen [2002] WTLR 313.
3
“Here is good counsell and advice given, to set down in conveyances every thing in certaintie and
particiularitie, for certaintie is the mother of quietnesse and repose, and incertaintie the cause of
variance and contentions; and for obtaining of the one, and avoyding of the other, the best meane
is, in all assurances, to take counsell of learned and well- experienced men, and not to trust only
without advice to a precedent.” Coke upon Littleton 212a (1628).
4
(1997) LS Gaz, 94, p.34. Jokes about computerised drafting were circulated at least two centuries
ago; see Campbell’s anecdote of Lord Eldon accessible www.kessler.co.uk.

470 EXECUTION OF WILLS AND TRUST DOCUMENTS
It is dangerous to place too much reliance upon equipment in the office. The
fact that a document has been produced by a word processor does not obviate
the need to check the document carefully, as shown in the two examples
below.
The indemnified law fi rm received instructions to prepare a lease of
premises on behalf of a client. The client required the lease to contain an
upwards only rent review. A draft lease was produced with commendable
speed with the assistance of a word processor. The draft was not checked. It
was taken for granted that the draft was correct. In fact a section of the rent
review clause was omitted. No one knew why. The effect of the omission was
to create an upwards and downwards rent review clause.
The second example shows just how extreme the problem can be. A draft
lease generated by the word processor was in fact patent nonsense. It contained
every provision available in the precedent. The landlord was to maintain the
structure, the tenant was to maintain the structure; the landlord was to insure,
the tenant was to insure; the term was for five, ten, fi fteen and twenty years.
A cursory inspection would have revealed the problem.
To avoid this type of claim . . .

• Do not assume that a document generated by a word processor is correct.
• Always check the document both in draft form and when engrossed.
• Remember that it is the responsibility of the fee earner, not the secre-
tary, to ensure the draft is correct.
We set out the Solicitors Indemnity Fund view at length because adver-
tisers would have us think otherwise.5 The reader must choose who to
believe.
The clearer drafting style advocated in this book renders errors slightly
less likely to occur, and slightly easier to spot; but (thankfully) it seems
unlikely that the computer will render unnecessary a sharp eye and a clear
mind on the part of the drafter.
Printing
30.5 The size of paper used was originally a vast and inconvenient desk
size sheet. This gradually reduced to A3 and then to an elongated A4.
Nowadays the standard A4 size is always used. The reason is probably that
the office printers are set up for A4. Whatever the reason, it is a welcome
change as standard A4 size is more convenient for the fi le.
Single or double spacing is a matter of style only.
A firm of solicitors traditionally puts its name and address on the back-
5
“Encyclopaedia of Forms & Precedents on CD-ROM has transformed the way we work.
Previously time consuming tasks are now effortless . . . drafts and re- drafts of documents are a
thing of the past” (from advertising material).

PROCEDURE ON EXECUTION OF A DOCUMENT 471
sheet or title page of a document, a sign of professional pride in authorship

and a useful reference if, many years later, it becomes necessary to inves-
tigate the background.
As far as the written letters of the document are concerned, there are
two concerns: natural decay and fraudulent alterations.
Natural decay
Any trust may need to be examined for as long as a century so the docu- 30.6
ment must be durable. The important factor is not the ink or toner, but
the quality of paper. If the paper is not acid free, there is a danger of the
letters falling off in course of time. Acid free paper must be used for the
document itself and for the envelope or package in which it is stored. A
paper supplier can advise.
Fraudulent alterations
The possibility of fraudulent alteration of an existing will or trust seems 30.7

remote. Quite apart from the practical difficulties inherent in such forgery,
a comparison with other copies or drafts would be likely to reveal the
fraud.
An old-fashioned protection against fraudulent alteration was the
practice of lining in the space from the end of a sentence to the right-
hand margin; this is thought to be unnecessary and is no longer standard
practice.
Procedure on execution of a document
(1) Documents which must be a deed 30.8
Some documents must be made by deed, e.g. an appointment must (gener-

ally) be made by deed as the terms of the power of appointment (generally)
so direct: see 11.2 (Power of appointment).
A document is only valid as a deed if it is signed, witnessed and deliv-
ered. Section 1(3) Law Property (Miscellaneous Provisions) Act 1989
provides that “an instrument is validly executed as a deed by an individual
if, and only if, . . . it is signed . . . by him in the presence of a witness who
attests the signature”.6 The signature and attestation must form part of
the same physical document (the word “it” refers to the deed, not other
pages which are subsequently added to the signature page).
6
Alternatively the instrument may be signed at the direction of an individual and in their presence
and the presence of two attesting witnesses.

Accordingly, pre-signed signature pages are ineffective.7 The final

version of the document should therefore be signed and witnessed.
Signing the signature page in advance of finalising the document breaches
the statutory requirements for a deed.
The Law Society has issued guidance on the execution of documents
by virtual means.8 In relation to the execution of a deed, where several
parties are involved and not physically present at the same meeting, it
is prudent to email the fi nal version of the trust deed as a PDF or Word
attachment to all absent parties or their lawyers as agreed. A separate
PDF or Word document containing the relevant signature page can be
used for convenience. Each absent party prints and signs the signature
page only and then returns a single email attaching the fi nal version of
the PDF or Word document and a PDF copy of the signed signature
page. It should be made clear when delivery is to take place. The fi nal
version together with copies of the executed signature pages may then
be circulated.
(2) Documents which are not made by deed
For documents not made by deed (e.g. trustee resolutions), if the signa-
ture page is signed in advance, the document is still valid (assuming it is
completed in accordance with the settlor’s instructions); but it would not
be good practice to do that.
(3) Lifetime trusts
A lifetime trust does not have to be made by deed. It is usual to establish

the trust by deed and that is the form used in this book. However, this is a
custom and not a requirement. The procedure for executing a deed set out
in (1) above should be adopted for a trust; though if it is not, the document
could still take effect as a non-deed.
Procedure after execution of a lifetime trust
30.9 There are a number of further procedures to set in motion after the execu-
tion of a trust deed.
7
See R (on the application of Mercury Tax Group) v HMRC [2008] EWHC 2721 (Admin), [2009] STC
743. The same view could apply to the execution of a deed by a company: see s.46 Companies
Act 2006.
8
See the Law Society Practice Note “Execution of documents by virtual means” (2010) accessible
www.lawsociety.org.uk/productsandservices/practicenotes/executionofdocs/4447.article.

PROCEDURE AFTER EXECUTION OF A LIFETIME TRUST 473
(1) Transfers of trust property to trustees
Trust property must be transferred to the trustees (or their nominees) 30.10
or the trust will generally be ineffective. Each type of property must be
transferred by the appropriate method. 91011
ASSET METHOD OF TRANSFER

Cash Transfer to bank account in name
of trustees
Shares registered in name Stock transfer form and entry on
of settlor company register; consider need for
consents from shareholders, directors or
liquidator
Assets held by nominee Written direction to nominee signed by
beneficial owner
Registered land Land Transfer form, and entry at Land
(unmortgaged) 9 Registry; restriction on the register;10
consider need for landlord’s consent (for a
lease)
Unregistered land Conveyance and application to register
(unmortgaged)11 land; consider need for landlord’s consent
(for a lease)
Chattels Deed of assignment
Life assurance policy Deed of assignment and notice to
Insurer
Equitable interest under an Deed of assignment and notice to trustees
existing trust of the existing trust
Transfers must be carried out without delay. Time for the purposes of
the seven-year IHT period only begins to run when the trust property is
transferred; and if the settlor died before the transfer the trust would not
take effect.
In the case of a declaration of trust over property held by the settlor, no
transfer is necessary but in the case of registered land, there should be a
restriction on the register.12
9
For land subject to a mortgage, see 8.4 (Land subject to mortgage).
10
Schedule 4, Form A Land Registration Rules 2003.
11
For land subject to a mortgage, see 8.4 (Land subject to mortgage).
12
Schedule 4, Form A Land Registration Rules 2003.

(2) Statement of wishes
30.11 A statement of wishes is desirable where the trustees have a wide discretion.
That applies to every precedent in this book. See 7.15 (Letter of wishes).
(3) Arrangements for payment of IHT on gift in case of death within seven years 13
30.12 A lifetime gift to a disabled trust may be a PET and so an IHT charge may
arise if the donor does not survive seven years. This tax charge is primarily
the liability of the trustees.14 The possibilities are as follows.
(1) The donor may take out insurance against the risk of the IHT
charge. They should give the policy to the donee (trustees).
(2) The donor may wish to provide in his will that tax should be paid
out of their estate (rather than by the donee, as would otherwise
have been the case).
(3) The donee may accept the risk of the IHT charge accruing if the
13
See 13.5 (Trustees to pay tax on gift to trust).
14
There is a lacuna in the statute here. Sections 199 and 205 IHTA 1984 state that the settlor’s
personal representatives and the trustees (and for good measure some beneficiaries) are all liable
against HMRC to pay the IHT on a failed PET. The legislation does not spell out who—as
between them—is primarily liable to pay the tax. Someone must bear the primary liability. It is
inconceivable that the burden of tax will rest on whichever person HMRC choose to assess, so
the question who bears the primary liability must be inferred as best one can from the provisions.
The inference from ss.204(8) and 212 IHTA 1984 is that the trustees are primarily liable. Where
the tax is paid by some other person, it is considered that they have the right in equity to recover
from the person who is primarily liable. See Emily Campbell “The Burden of Inheritance Tax
on Lifetime Transfers” [1998] PCB 58 accessible www.kessler.co.uk. However, this question is fairly
academic. The IHT Manual, paras 30042, 30044 provide:
“You should treat the following persons as primarily liable [to IHT on a failed PET]:
- the transferee, or
- where the property is settled by the transfer, the trustees.
Where there are indications that there may be difficulties in collecting from the transferee or
trustees (e.g. where the transferee has dealt with the property given, or is out of the jurisdic-
tion, or the settlement has been wound up and the trust property distributed), you should
consider whether, exceptionally, any other persons may be liable under s.199(1)(c) and (d)
IHTA 1984 and, if so, take early action to collect from them . . .
You must remember that the facility to have recourse to the transferor’s personal representa-
tives is not to be regarded as a soft option. We are to make all the attempts at recovering from
the persons liable under s.199(1) IHTA 1984 that we would presently contemplate in a similar
situation against any liable person.”
In circumstances where HMRC choose not to collect tax from the trustees, the unfortunate
person who does pay the tax is likely to fi nd their right of indemnity against the trustees hard to
enforce.
Some commentators suggest that the donor should seek an express indemnity from the donee
in respect of tax due on a failed PET. An express indemnity is not needed in ordinary circum-
stances. In particular, an express indemnity is never needed on a gift to a settlement with reputable
trustees.

PROCEDURE AFTER EXECUTION OF A LIFETIME TRUST 475
settlor dies within seven years. Alternatively the donee may take
out insurance.
(4) Arrangements for loss of NRB in case of death within seven years
If the donor dies within seven years of the gift, the donor’s estate will, 30.13
in principle, lose the benefit of the nil rate band. This problem is quite
distinct from (3) above (IHT payable on the gift itself ). The tax burden
falls on the donor’s estate (or if the donor makes subsequent gifts, the
tax burden falls on the subsequent donees). The amount of IHT in issue
cannot be ascertained at the time of the gift, although one could make an
educated guess.
Very occasionally the donee is required to give an indemnity in respect
of this tax. This would require careful bespoke drafting to suit the cir-
cumstances. This problem would normally arise only when a parent needs
to provide for children from different marriages.
(5) Returns and other matters
Once the trust has been completely constituted, a number of returns and 30.14
other matters need attention:
(i) Form 41G (Trust). This should be sent to the appropriate15 HMRC
Trust Tax Office to set up a trust record and UTR (unique tax-
payer reference) number. This form is not necessary if the trust will
receive no income or gains for the long or medium term (e.g. a
trust of a life insurance policy). It is also possible to complete Form
41G but request that a dormant trust should not receive annual SA
returns.
(ii) IHT account. An account (Form IHT100) may be needed when a
gift is made to an IHT standard trust but most gifts under the nil
rate band are exempt from this requirement,16 and gifts above that
amount will not be made in practice. The duty (if applicable) rests
on the transferor and the trustees (so that each may be liable to
penalties in the case of default).
15
HMRC Trusts Settlements and Estates Manual, para.1420 (The Correct Trust Office) explains
how the work is shared around the trust offices.
16
Section 216 IHTA 1984. The Inheritance Tax (Delivery of Accounts) (Excepted Transfers and
Excepted Terminations) Regulations 2008 provide that no account is required:
(1) In the case of gifts of cash or quoted shares and securities only, where the value transferred
(together with any chargeable transfers made within the previous seven years) does not
exceed the IHT NRB; or
(2) In all other cases, where (a) the value transferred (together with any chargeable transfers
made within the previous seven years) does not exceed 80% of the NRB and (b) the value
transferred does not exceed the NRB available at the time of the gift (disregarding for this
purpose any BPR/APR).

No account is required for a gift to an estate-IP trust (now very

rare in practice) but (if it does happen) appropriate records should
be kept in case of death within seven years. If the donor dies within
seven years of their gift the PET is disclosed in the executor’s
account.
(iii) Returns for non-resident trust. Further returns are required for non-
resident trusts.17
(iv) CGT claim for hold-over relief or losses. A claim may be needed for
CGT hold-over relief. The election is made by the settlor alone:
the trustees will not sign. A further claim may be made under SP
8/92 to avoid a valuation.18 The claim must be on the official form,
which is found in HMRC Helpsheet 295 (Relief for Gifts and
Similar Transactions).
A claim is also needed if an allowable loss arises on the disposal
to the trust.
(vi) Review will. Donors should review their will as a matter of course
following any substantial gift, to confirm that the terms of the will
are still appropriate.
(vii) Inform beneficiaries. An adult beneficiary who has an IP should be
informed of the interest. This is particularly relevant if the fund
does not produce income. Concealment may be taken as evidence
of a sham.
(viii) Diarise important deadlines. For a standard IHT trust, diarise the next
10 year anniversary. If appropriate, diarise dates that beneficiaries
become absolutely entitled. Also diarise the date six months before
each deadline, to allow time for action.
Stamp duty and SDLT
30.15 A will is not subject to stamp duty or SDLT. The following applies to
lifetime settlements only. It is assumed that there is no consideration for
the transfer to the settlement.
(1) SDLT is not normally19 charged on a transfer of land in the UK for

17
Section 218 IHTA 1984; Sch.5A TCGA 1992.
18
See Tax Bulletin 28 “Capital Gains Tax: Hold- Over Relief and SP 8/92” (April 1997).
19
One exception is where the transferee is a company connected with the transferor: s.53 FA 2003.
However s. 54 FA 2003 confers relief for a transfer to a corporate trustee if (in short):
(1) the corporate trustee holds the property as trustee in the course of a business carried on by
it that consists of or includes the management of trusts; or

PROCEDURE ON EXECUTION OF A WILL 477
no consideration. Note the trap that the assumption of liability for

an outstanding debt, e.g. a mortgage, is consideration for SDLT
purposes. Trustees do not now need to self- certify that no land
transaction return is required.20
(2) Stamp duty only applies to “instruments relating to stock and
marketable securities”.21 The FA 2008 abolished the £5 fi xed duty
which previously applied to:
(a) “a transfer of property otherwise than on sale” (although no
duty was payable if the instrument was certified exempt); 22
and
(b) “a declaration of any use or trust of or concerning property
unless the instrument constitutes a transfer on sale”.23
The abolition of the £5 fi xed duty was advocated by this book for many
years.24 Thus, a transfer of property to a settlement will normally be
exempt and the trustees will not usually need to self-certify.
A deed of appointment exercising an overriding power is not subject to
stamp duty.25
Procedure on execution of a will
To ensure that the formalities of execution are correctly followed, the 30.16
proper course is that at least one of the witnesses of the will should be a
solicitor. The client may not wish to visit the solicitor’s office, or to pay the
cost of a solicitor’s visit. In such a case a letter should be sent to the client
setting out the reasons why it is better to execute the will in the presence
of a solicitor, with a recommendation to follow this course. If the client
refuses to do so their refusal should be recorded in writing. Subsequently
(2) the transferor and the corporate trustee are connected persons only because of s.1122(6)
Corporation Tax Act 2010; for instance, if the transferor is a settlor of the trust but not
otherwise connected with the corporate trustee.
It is possible to envisage circumstances where a transfer to a corporate trustee would not qualify
for this relief and so give rise to a SDLT charge on market value, but in practice that would be
very exceptional.
20
See s.77 FA 2003 as amended by s.94 FA 2008.
21
Section 125(1) FA 2003.
22
Section 99 and Sch.32 FA 2008 removes the former charging provision in para.16, Sch.13 FA
1999. Category L of the Stamp Duty (Exempt Instruments) Regulations 1987 provided the
exemption.
23
FA 2008, s.99, Sch.32 removes the former charging provision in para.17, Sch.13 FA 1999.
24
In addition, s.100 FA 2008 removed the need to have a document adjudicated and stamped which
would formerly have been subject to the charge (abolished in 1985) on “any conveyance or trans-
fer operating as a voluntary disposition inter vivos”.
25
The fi xed charge on “Deed of any kind whatsoever” was abolished by s.85 FA 1985.

the client may be advised in writing of the formalities for execution of a

will, and left to carry them out. The solicitor should then check that the
will appears on its face to have been properly executed if it is returned to
them.26
The client should be advised to execute a Lasting Power of Attorney
along with the will. Two forms have been prescribed. One (LPA PA)
must be used where the power relates to the donor’s property and affairs
and the other (LPA PW) where it relates to personal care and welfare. It
is not possible for a single LPA to cover both these areas. The forms are
available from the Office of the Public Guardian. An LPA confers no
authority until it has been registered with the Public Guardian. However,
it can be registered at any time after it has been created. It is possible to
grant LPA’s relating to property and affairs, but not personal welfare,
that are effective whilst the client still has capacity. However, the client
will usually intend that the LPA should only operate from the onset of
mental incapacity. If so, a restriction should be inserted into form LPA
PA at section 6. The following wording is based on s.20(1) of the Mental
Capacity Act 2005:
my attorney(s) does not have power to make a decision on my behalf in relation

to a matter concerning my property and affairs if he knows or has reasonable
grounds for believing that I have capacity in relation to the matter.
Earlier (revoked) wills should be marked as revoked by the new will.

The authors are grateful to John Hawes for the following sage advice:
I have for many years now kept (or my secretary has) a perpetual diary in
which the execution of every client’s will is noted for review three years
ahead. Every month during a quiet moment my secretary gets out the diary
and prepares a standard letter saying, in effect, are you still alive and here’s
a copy of your will in case you want to change it. Please tick the appropri-
ate box in the attached form and send it back in the SAE. At the same time,
my secretary notes the diary for another three years ahead. This is good
for the clients, it keeps my records straight if clients have moved and it is
also good and cheap marketing as it reminds the clients that you are their
solicitor.27
26
Esterhuizen v Allied Dunbar Assurance [1998] 2 FLR 668 accessible www.kessler.co.uk.
27
It is important to frame the letter so that the client is not led to believe that a “watching brief ”
is being kept over their tax affairs if there has been no express retainer for that. The Guidance
published by the Law Society’s Standards and Guidance Committee (printed in the Society’s
Probate Practitioner’s Handbook) includes the following statement: “Without specific instructions
from the client, a retainer for will preparation would not entail the solicitor in maintaining any
such ‘watching brief ’, but it is possible for a solicitor by their conduct to change a retainer so that
a client comes to have a reasonable expectation that such a watching brief will be maintained.
Solicitors would be well- advised to ensure that these matters are clear between themselves and
their clients.” See e.g. Hines v Willans (1997) reported belatedly [2002] WTLR 299.

R ETENTION OF WILL AND TRUST FILES 479
Retention of will and trust fi les
The Law Society has issued guidance on retention of will and trust fi les.28 30.17
The original will belongs to the client and after their death the PRs;
the original trust documents are held to the order of the trustees. The
drafter’s firm will generally hold them and is obliged to make effective
arrangement for their safe-keeping.29 The will or trust fi le belongs to the
client, except for a limited number of documents which belong to the
firm.30
The Law Society recommends that original wills are stored until after
the client’s death or until the fi rm returns it to the client.31 The client
care agreement should specify what will happen to the original will
and other supporting documentation that is not the fi rm’s property. An
original will should not be destroyed until any risk of a claim has passed.
Before the destruction of any original will, the client should be consulted
and informed that the validity of a subsequent will or wills might be
challenged and then a prior will might be proved as the last will of the
deceased. Even if the will is revoked, the firm should retain a copy for its
records. If disputes arise after the client’s death, a revoked will may need
to be produced as evidence.
If assets have been transferred which could have a bearing on the dis-
positions in a will, the fi rm should ensure that a link is noted and that a
record is kept on the will fi les (which may need to be retained for longer
than the property fi le). For the documents which need to be retained to
support a claim to transfer the NRB, see 18.6 (NRB claims).
Original trust documents should be retained for the duration of the
trust. That includes originals of the trust deed, supplemental documents
(e.g. appointments of new trustees), letters of wishes and all paperwork
completed by the settlor on creating the trust (e.g. questionnaires and due
28
Law Society, Practice Notes “Retention of Files: Trusts” and “Retention of Files: Wills” both
issued 6 October 2011, accessible www.lawsociety.org.uk/productsandservices/practicenotes/fileretention.
page.
29
See SRA Principle 10.in the SRA Handbook and Outcome 7.4 and Indicative Behaviour 7.1 of
Ch.7 of the SRA Code of Conduct 2011.
30
Documents which come into existence during the retainer fall into four broad categories:-
(1) Documents prepared by the drafter for the client and which have been paid for by the client
belong to the client
(2) Documents prepared for the solicitor’s own benefit or protection for which the client has
not been charged belong to the fi rm
(3) Documents and letters written by the client to the drafter where property passes to the
drafter on despatch belong to the fi rm
(4) Documents prepared by a third party during the course of the retainer and paid for by the
client belong to the client (see Butterworths Cordery on Legal Services for more detail).
31
If the client cannot be contacted, efforts should be made to trace the client and carry out a review
before deciding whether to retain or destroy material. If the date of death is unknown, the
National Archives recommends that personal data needing to be stored for the life of an individual
should be held until that individual would have reached 100 years.

diligence records). Original deeds and other papers which are not the
property of the firm should not be destroyed without written permission
from the client.
The Money Laundering Regulations 2007 require that for “relevant
business”, evidence of identity must be kept for five years after the business
relationship ends and details of a transaction to be kept for five years from
when the transaction is completed.32 Drafting wills is not relevant busi-
ness but trust and probate work is relevant business.33 Records and papers
relevant to VAT have to be kept for six years.34 To be safe, trustees should
retain documents relevant for IT and CGT for 20 years after the end of the
tax year to which they relate35 and should keep documents relating to the
creation and administration of the trust for 12 years after the termination
of the trust.36
The firm should consider three options for storing the fi les:
(1) Store the whole fi le.

(2) Review the fi le so that only the most important material is kept.
(3) Keep an abstract of important papers with the original trust deeds
setting out significant matters.
Options (2) and (3) save the storage costs of (1). However, the disadvantage
is that it can be difficult to determine what documents or events might
prove important in the event of a dispute and only someone with expertise
can carry this out (so this too has cost implications). We therefore recom-
mend (1), especially given the ease with which documents and informa-
tion can be stored electronically.37
Documents and information stored electronically may be easier to
corrupt than paper. Systems need to be in place to safeguard the authen-
ticity, reliability, accessibility and security of electronic material.
In our experience, the lack of documents is frequently an issue in will
or trust disputes and solicitors often find themselves unable to defend
their position (and may therefore find themselves liable) because they have
destroyed fi les too soon.
32
See reg.19(3) of the Money Laundering Regulations 2007.
33
For further information see the Law Society’s Anti-money Laundering Practice Note, accessible
www.lawsociety.org.uk/productsandservices/practicenotes/aml.page.
34
See para.6(3) of sch.11 to the Value Added Tax Act 1994.
35
Section 36(1A) Taxes Management Act 1970.
36
See the Law Society, Practice Notes “Retention of Files: Trusts” issued 6 October 2011.
37
Although the fi rm must then comply with the Data Protection Act 1998 to ensure this personal
data is adequately protected: for further information see the Law Society’s Data Protection
Practice Note, accessible www.lawsociety.org.uk/productsandservices/practicenotes/dataprotection.page.

TAX REVIEWS AFTER EXECUTION OF TRUST 481
Tax reviews after execution of trust
It is of course the general duty of the trustees to mitigate so far as possible 30.18
the taxation of the trust. They should review the tax position at regular
intervals.
In particular, the IHT position should be reviewed:
(1) if it seems likely that the settlor will not survive seven years from
the time they create the trust. It may be possible to mitigate the tax
charge on their gift to the trust;
(2) on the death of a life tenant of an estate-IP trust;
(3) shortly before a 10-year anniversary of an IHT standard trust.
The CGT position should be reviewed:
(1) in good time before the trustees realise substantial gains;

(2) before a beneficiary becomes absolutely entitled to trust property.
Trustees who are not specialists in these matters may seek specialist
advice.38
38
Details from www.revenue-bar.org.

CHAPTER 31
APPOINTMENT AND RETIREMENT OF

TRUSTEES
Powers of appointment/retirement
31.1 The position is more complicated than necessary because there are three
statutory powers, which are differently worded. The powers are:
(1) Replacement of trustee,1 i.e. appointment of new trustee(s) in place

of a trustee who:
(a) dies;
(b) remains out of the UK for more than 12 months;
(c) wishes to retire or refuses to act; or
(d) is unfit to act or incapable of acting.
(2) Appointment of additional trustee (without replacing a trustee).2
(3) Retirement of trustee (without a new appointment).3
We refer to the replacement/additional trustee powers together as

“appointment of new trustees”; we refer to all three powers together as
“appointment/retirement of trustees”.
The person with power to appoint new trustees is:
(1) the person nominated for the purpose in the trust document; or
(2) if there is no such person, or no such person able and willing to act,
then the surviving trustees, or the personal representatives of the
last surviving trustee.4
1
2
3
Section 39 TA 1925.
4

R EVIEW BY NEW TRUSTEES BEFORE ACCEPTING TRUSTEESHIP 483
In the discussion in this chapter:
(1) We refer to a person within (1) as “the appointor”. (In the drafts
it is unnecessary to use that term.)
(2) We assume either there is an appointor within (1) or the power is
vested in the trustees (in which case we say there is no “nominated
appointor”). We do not consider appointments where there is no
nominated appointor and the sole trustee lacks capacity.5
Review by new trustees before accepting trusteeship
A person asked to become a trustee should consider before accepting 31.2

office whether they will be able to perform the duties properly, and
disclose any facts which may affect the trusteeship. This applies for
instance where the new trustee intends to use trust powers for their own
benefit (even assuming it is proper to do so) 6 or where the proposed
trustee may be subject to some restriction which stops that person selling
trust assets.7
Can the trustee be remunerated under a trustee remuneration clause or
by statute? 8 (A problem here is exceptional, but it needs to be checked.)
Will the trust have liquid assets to pay the remuneration? If not, indemni-
ties may be a solution.
A power of dismissal is acceptable unless combined with a power
to divest trust property; if there is a problem on this aspect, perhaps
seek indemnities. A problem here is exceptional, but it needs to be
checked.
Is there any reason to think that beneficiaries are litigious, or the trust
has been badly administered? If so the prospective trustee should consider
what they are taking on. Duties will include investigating past maladmin-
istration. Also, a new trustee is (quite unfairly) personally liable for unpaid
IT, CGT and SDLT liabilities of the trust regardless of the value of the
trust assets.9 Indemnities could be a solution.
5
See the Court of Protection’s Practice Direction 9G (Applications to appoint or discharge
a trustee) accessible www.judiciary.gov.uk/publications-and-reports/practice-directions/cop- practice-
directions.
6
Galmerrow Securities v National Westminster Bank TLI Vol.14, (2000) p.158 at 172; [2002] WTLR
125.
7
See 6.9 (Accountants as trustees), 6.10 (Director of listed company as trustee), 6.11 (Insider
dealing and trusteeship).
8
See 6.48 (Trustee remuneration).
9
Section 30AA TMA 1970; s.65 TCGA 1992; para.5 Sch.16 FA 2003.

484 A PPOINTMENT AND R ETIREMENT OF TRUSTEES
Review by appointor and retiring trustees before appointing

new trustees or retiring
31.3 The person with the power of appointing new trustees, and any retiring
trustees, should all be satisfied that the new trustees are suitable persons
to be appointed.10
Drafting an appointment/retirement of new trustees
31.4 First of all one must review the will or trust deed11 to identify:
(1) The appointor (usually the settlor or the protector if there is one).
(2) Any express provisions on appointments (e.g. old settlements
sometimes say that the settlor or beneficiaries may not be trustees).
(3) Minimum number of trustees. Remember the possible two-trustee
requirement if there are less than two trustees after the appoint-
ment.12 Old settlements sometimes require three trustees as a
minimum.
Take care if beneficiaries are appointed trustees: some settlements

(particularly offshore settlements) say that trustees are excluded from
benefit.
Check the chain of earlier appointments to confirm that current trus-
tees are validly appointed.
If there have been earlier indemnities by beneficiaries (e.g. against an
act which was a possible breach of trust) this needs review. New indemni-
ties may be needed. Review earlier indemnities given by present trustees
to former trustees; and review Money Laundering requirements.
The consent of the Court of Protection is sometimes13 needed to exer-
10
For completeness: retiring trustees are personally liable for tax on income and gains of the year
in which they retire, even gains accruing after their retirement, s.30AA TMA 1970, s.65 TCGA
1992, but in practice this should not cause difficulties.
11
Documentation supplemental to the will or trust deed may also be relevant, but that would be
exceptional.
12
See 6.42 (Two-trustee requirement).
13
The relevant provisions (though sensible) are slightly intricate and it is better to set them out than
to paraphrase. Section 36 TA 1925 provides:
(1) Where a trustee . . . is incapable of acting . . . then,
(a) the person or persons nominated for the purpose of appointing new trustees by the
instrument, if any, creating the trust; or
(b) if there is no such person, or no such person able and willing to act, then the surviving
or continuing trustees or trustee for the time being, or the personal representatives of
the last surviving or continuing trustee;

DRAFTING AN APPOINTMENT/RETIREMENT OF NEW TRUSTEES 485
cise the power to replace a trustee who lacks mental capacity and has an
interest in possession in trust property.14
If new trustees are separately represented, then the draft will normally
be done by solicitors for the new trustees; the retiring trustees should
check it themselves or make it plain that they are relying on them to act
on their behalf.
Title of deed
The term “deed of appointment” is ambiguous as it could be a deed exer-

cising an overriding power of appointment. So call the document “deed
of appointment of new trustees”15 or “deed of retirement”.
Parties
The parties are in principle:16
(1) The appointor; if (as is common) the settlor is the appointor, we

prefer to call him or her “the Settlor” in the drafting.
(2) The new trustees.17
(3) The retiring trustees.
(4) The continuing trustees.
If a trustee is being replaced on the grounds that the trustee:
(a) remained out of the UK for more than 12 months;
may, by writing, appoint one or more other persons . . . to be a trustee or trustees in the
place of the trustee . . . being incapable. . .
(9) Where a trustee lacks capacity to exercise his functions as trustee, and is also entitled in
possession to some beneficial interest in the trust property, no appointment of a new trustee
in his place shall be made by virtue of paragraph (b) of subsection (1) of this section, unless leave
to make the appointment has been given by the Court of Protection.
(Text as amended by Mental Capacity Act 2005.) So if (as is usual) the power appointing new
trustees is vested in the settlor, then during the settlor’s life Court of Protection consent is not
needed because the power of appointment is exercisable under s.36(1)(a). After the settlor’s death
the power is (usually) exercisable by the trustees under s.36(1)(b), so consent is needed.
14
For the procedure see the Court of Protection’s Practice Direction 9G (Applications to appoint
or discharge a trustee) accessible www.judiciary.gov.uk/publications-and-reports/practice-directions/
cop- practice-directions. (This book does not give precedents for this situation.)
15
This title may be used if there is an appointment and retirement.
16
There may be an overlap between these categories; it is not necessary to include a person more
than once.
17
It is not strictly necessary that the new trustees should be parties to the deed of appointment.
The only significance of making trustees a party is that (since they sign the deed) (1) they cannot
disclaim trusteeship; and (2) they cannot deny that they have notice of the trust. It is however
standard practice to include them.

(b) refuses to act; or

(c) is unfit to act or is incapable of acting
the affected trustee need not strictly be a party18 but the better practice is
to include the trustee if practical, to avoid possible dispute later.
Useful recitals
(1) Set out entire chain of trusteeship, i.e. x died; y retired and z
appointed by deed of appointment dated . . . etc. This is a good
discipline. Once done it can be reused in later appointments.
If there has been a problem here, the sooner it is identified the
better.19
(2) The deed of appointment is supplemental to the settlement and
relevant supplemental deeds.20
(3) The [appointor] has the power of appointing new trustees (refer to
clause but preferably cite the clause): another good discipline.
(4) A retiring trustee desires to retire.21
(5) In the case of appointment by PRs of the last surviving trustee,
appropriate details.
Useless recitals
Don’t say, “the appointor is desirous of exercising the power of appointing

new trustees”. Would the appointor execute the deed if the appointor did
not want to?
It is quite common to set out the trust fund in a schedule to the deed,
but this is probably more trouble than it is worth (unless doubts have
arisen as to the identity of the trust fund).
Don’t say, “it is the intention to transfer the trust fund to the new trus-
tees”. That is obvious and otiose, as s.37(1)(d) Trustee Act 1925 deals with
this.22
The CGT charge on the emigration of a UK trust can (in short) be
collected from a former trustee if at the time of their retirement there is a
18
Re Stoneham [1953] Ch 59.
19
For horror stories, see Yudt v Leonard Ross & Craig (1998-99) 1 ITELR 531, [1998] All ER (D)
375, and Jasmine Trustees v Wells & Hind [2007] STC 660.
20
See 12.4 (Useful recitals).
21
In a deed of retirement this is necessary to comply with the conditions of s.39 TA 1925 (though
it should be implied by a signature to a deed of retirement). In a deed of appointment this is not
strictly necessary under s.36(1) TA 1925, but it is good practice.
22
The form is unnecessary in the body of the deed: see 12.4 (Useless recitals).

PROVISIONS OF DEED 487
proposal to appoint non- resident trustees.23 Some drafters put in a

recital that “there is no proposal that the trustees might become neither
resident nor ordinarily resident in the UK.” But either such proposal
exists or it does not, a recital in the deed of appointment of new trustees
has no significant effect, and is not considered worthwhile in a normal
case.
Provisions of deed
The operative clause, which effects the appointment and retirement, 31.5
should copy the wording of ss.36(1), 36(6) or 39 TA 1925. Thus:
Replacement (settlor is appointor)
In exercise of the power conferred by s.36(1) Trustee Act 1925, the Settlor appoints
the New Trustee to be a Trustee in place of the deceased/retiring Trustee.
Replacement (no nominated appointor)
In exercise of the power conferred by s.36(1) Trustee Act 1925, the Trustees appoint
the New Trustee to be a Trustee in place of the deceased/retiring Trustee.
Retirement (settlor is appointor)
In exercise of the power conferred by s.39 Trustee Act 1925, the Retiring Trustee
retires from the Settlement. The Continuing Trustees and the Settlor consent to the
discharge of the Retiring Trustee, and to the vesting in the Continuing Trustees alone
of the trust property.
Retirement (no nominated appointor)

In exercise of the power conferred by s.39 Trustee Act 1925, the Retiring Trustee
retires from the Settlement. The Continuing Trustees consent to the discharge of the
Retiring Trustee, and to the vesting in the Continuing Trustees alone of the trust
property.
Appointment of additional trustee (settlor is appointor)
In exercise of the power conferred by s.36(6) Trustee Act 1925, the Settlor appoints
the New Trustee to be an additional Trustee.
23
Section 82 TCGA 1992, discussed Kessler, Taxation of Non-Residents and Foreign Domiciliaries (11th
edn, 2012), para.7.4 (Charge on emigration of trust) accessible www.foreigndomiciliaries.co.uk.

Appointment of additional trustee (no nominated appointor)
In exercise of the power conferred by s.36(6) Trustee Act 1925, the Continuing
Trustees appoint the New Trustee to be an additional Trustee.
The precedents in this book include two sample deeds of appointment

of new trustees, and the companion CD contains nine precedents (not
printed as there is so much duplication).
Unnecessary clauses in deed of appointment
31.6 An appointment of trustees of an English law trust will by implication be

governed by English law and the same law will govern subsidiary matters
in the deed such as indemnities. It is not necessary to include a governing
law clause but some may think it is advisable for the avoidance of doubt if
there is a foreign element (e.g. a non-UK party).
The Retiring Trustees will promptly do all matters things deeds and documents necessary for
completing the transfer of the trust property into the names of the New Trustees
This is in principle otiose as the retiring trustees are under a duty to do

this anyway: s.37(1)(d) Trustee Act 1925. However it implies a waiver of
the trustees’ lien, and that could make a difference. The best practice is to
include the clause when there is a trustee indemnity, and not to include it
where there is no trustee indemnity; but (except in the rare case where the
trustee needs to rely on their lien) the clause makes no practical difference.24
Vesting trust property in new trustees
31.7 A deed of appointment/retirement of trustees operates to convey to the

new trustees any unregistered land in England and Wales subject to the
trust, and the right to any debt or other chose in action. This does not
apply to mortgages, most leases, or shares.25 Following the appointment
of new trustees, trust property must be transferred to the new trustees
by the appropriate method and nominees and creditors etc., must be
notified:
24
The form is also sometimes found as an unnecessary recital: see 31.4 (Useless recitals).
25
Section 40 TA 1925.

STAMP DUTY AND SDLT 489
ASSET FORM OF NOTICE TO

TRANSFER
Bank account None needed Bank
Shares Stock transfer form; None
entry on company
register; consider need
for consent from co-
shareholders, directors
or liquidator
Assets held by None needed Nominee
nominee
Registered freehold Land Transfer Tenant (if any)
land (unmortgaged) form; entry at Land
Registry26
Registered leasehold As above; consider Landlord
land need for landlord’s Sub-tenant (if any)
consent
Unregistered Application to register Tenant (if any)
freehold land land
(unmortgaged)
Unregistered As above; consider Landlord
leasehold land need for landlord’s Sub-tenant (if any)
consent
Chattels None needed Person in possession
of chattels
Life assurance policy None needed Insurer
Equitable interest None needed Trustees of other
under another trust trust
If the trustees are registered for VAT, give notice to HMRC. 26
Stamp Duty and SDLT
A deed of appointment of new trustees is exempt from stamp duty (even 31.8
if the trust property includes stock or marketable securities).
The FA 2008 abolished the £5 fi xed duty which previously applied to
26
Including a restriction in accordance with Sch.4, Form A, Land Registration Act 2003.

a stock transfer form transferring stock or marketable securities to the new

trustees. There is no need to self-certify.
A transfer of land to new trustees does not give rise to SDLT,27 and does
not need a self-certificate.
Appointment of trustee of charity
31.9 The same forms of appointment can be used for the appointment or retire-
ment of a trustee of a charitable trust. On an appointment, best practice is
that the new trustee should also complete:
(1) The charity commission model declaration of eligibility for newly

appointed trustees.28
(2) The HMRC model declaration that the trustee is a fit and proper
person.29
Neither form is compulsory. The forms should not be sent off to the
Charity Commission or HMRC but simply kept on fi le for the (somewhat
unlikely) eventuality that the Charity Commission or HMRC might ask
to see them. We do not expect either form will be used much in practice
and failure to complete the forms should not normally matter.
The change of trustees should be registered with the charity commission.
27
SDLT Manual 31745 provides:
“Changes in the composition of trustees of a continuing settlement
For stamp duty land tax purposes we treat trustees of a settlement as a single and continuing
body of persons, as we do for capital gains tax.
It follows that for a continuing settlement a change in the composition of trustees is not a
land transaction.
This means in particular that there is no charge on such an occasion where trust property is
secured by a mortgage or other borrowing.
Since there is no land transaction for stamp duty land tax purposes on a change in the com-
position of trustees of a continuing trust, a land transaction return should not be completed.
Where such a change results in an application to the Land Registry, or to the Keeper of the
Registers of Scotland, a covering letter should accompany the application unless it is obvious
from the documents that they relate to such a change.”
28
www.charitycommission.gov.uk/Library/guidance/sampledeccc30.pdf.
29
www.hmrc.gov.uk/charities/guidance- notes/chapter2/model-dec-ff-persons.pdf. For a discussion of this
form see Kessler and Brown, Taxation of Charities and Non-Profit Organisations, (8th edn 2011);
accessible www.taxationofcharities.co.uk. Perhaps eventually HMRC will liaise with the Charity
Commission so that only one form is needed.

CHAPTER 32
INDEMNITIES FOR EXECUTORS AND

TRUSTEES
Introduction
This chapter considers indemnities1 which trustees may seek in various 32.1
circumstances:
(1) Trustees may seek indemnities on transferring trust property to

beneficiaries (individuals or new trusts) absolutely entitled under
the terms of the trust or will.
(2) Retiring trustees may seek indemnities from new trustees.
In the discussion below “current trustees” means the trustees receiv-

ing an indemnity and “new trustees/beneficiaries” are those giving the
indemnities.
It is necessary to distinguish between:
(1) indemnities conferred by law (“trust law indemnities”);

(2) indemnities conferred by specific agreement of new trustees or
beneficiaries (“express indemnities”).
Trust law indemnities
Section 31 TA 2000 provides a trust law indemnity: 32.2
1
We use the word “indemnities” widely, to include any right of recovery conferred on trustees.
Where the context permits “trustees” includes executors and former trustees. Indemnities on the
appointment of separate trustees over a separate part of the trust fund are particularly complicated
and not dealt with here.

492 INDEMNITIES FOR EXECUTORS AND TRUSTEES
A trustee—
(a) is entitled to be reimbursed from the trust funds, or
(b) may pay out of the trust funds,
expenses properly incurred by him when acting on behalf of the trust.2
Right of trustees to retain trust property as security
32.3 Trustees have a lien over trust property to support their indemnity. The
lien is the personal right of the trustees. They may properly retain all or
part of the trust property unless reasonable provision is made to ensure that
their liabilities will be met.3
Right of trustee to refuse to retire
32.4 In general, trustees need only retire if they “desire to be discharged”.4 A

trustee may properly refuse to retire on the grounds that to do so would
expose them to liabilities which they would not have if they continued to
be a trustee.5
The trustees’ right to refuse to retire and the trustees’ lien provide more
or less the same level of protection for the retiring trustees. (In practice it
may be more convenient for trustees not to retire rather than to retire but
retain the property.)
Right of executors
32.5 Section 36(10) AEA 1925 provides:
A personal representative may, as a condition of giving an assent or making

a conveyance, require security for the discharge of any such duties, debt, or
liability . . . and an assent may be given subject to any legal estate or charge by
way of legal mortgage.
2
“Trustee” here includes “executor”: see s.68(17) TA 1925.
3
X v A [2000] 1 All ER 490; [2000] WTLR 11; [2000] EWHC Ch 121.
4
Section 36 TA 1925.
5
This proposition is supported by:
(1) Re Pauling (No. 2) [1964] Ch 303;
(2) common sense; and
(3) the statutory provision: It is inherent in the word “desire” that a trustee can have regard
to their own wishes and private interests in deciding whether or not they “desire” to be
discharged.

LIMITS ON TRUST LAW INDEMNITIES 493
Right of former trustees
A former trustee has a trust law indemnity against the trust fund in the 32.6
hands of new trustees or beneficiaries.6
In particular, since former trustees with unsatisfied trust liabilities have
an interest in the trust fund, the new trustees owe a duty to them. It would
be a breach of trust for the new trustees to distribute to beneficiaries in a
manner which will prejudice known claims of the retiring trustees against
the trust fund. Though of course this duty must be balanced against the
confl icting duties to other beneficiaries; thus trustees might take a reason-
able view and make a distribution.
Limits on trust law indemnities
Notwithstanding all these rights, it is a truism that a trustee is a fiduci- 32.7

ary; that the trustee must act in the interests of the beneficiaries; that the
trustee must not make a profit out of the trusteeship.7 These principles
suggest that a trustee is not entitled to seek a fi nancial profit or advantage
from exercising the rights set out above. The law is therefore as follows:
(1) Trustees may offer to retire or transfer trust assets only on terms
which ensure that they are left in no worse position than they
would be if they continued to be trustees or hold trust assets.
(2) Trustees may not properly threaten
(a) to refuse to retire; or
(b) to refuse to transfer trust property, holding on to their lien; or
(c) to refuse to advance or appoint trust property to beneficiaries
demanding terms which leave them in a better position than if they
continued to be trustees.8
6
See Re Spurling [1966] 1 WLR 920; Re Pauling (No.2) [1964] Ch 303; and the Trust Law
Committee paper (“the Proper Protection by Liens Indemnities or Otherwise of Those who
Cease to be Trustees”) accessible www.kcl.ac.uk/law/research/centres/trustlawcommittee/index.aspx.
7
Except where the trust instrument so provides; which is not relevant here. Trustee remuneration
for work involved in the course of retiring is of course different. In principle the Court would
exercise its power to remove a trustee who demanded a sum in return for retiring.
8
Authority is not needed as this proposition is self- evident. But for examples see ATC (Cayman)
Ltd v Rothschild Trust Cayman Ltd 9 ITELR 36 at [25]: “It can seldom if ever be appropriate for a
trustee to exert undue pressure to secure its own entitlements, to the detriment of its beneficiaries,
by withholding the entire or very large portions of the trust fund.” Likewise Re the Carafe Trust
[2005] JLR 159 [2006] WTLR 1329, 8 ITELR 29 accessible www.jerseylaw.je at [37]:
“A retiring trustee is entitled to be paid its fees before retiring. However, fee disputes often
arise. In those circumstances, a trustee is entitled to security for its disputed fees. But it is not

Are express indemnities needed?
32.8 Trustees do not need express indemnities if trust law indemnities give
sufficient protection.
The trust law indemnity is usually more valuable than an unsecured
express indemnity which is only as good as the solvency of the trustee
or beneficiary who gives it. An express indemnity should be sought only
where there is some reason to think it is necessary. There should be some
liabilities to justify an indemnity, and a reason to think that the trust law
indemnities may be inadequate. The fact that the beneficiary is not in the
same country as the current trustees may be a valid reason.
Negotiating indemnities
32.9 The first step is to identify any potential claims and liabilities of trustees.
It is in everyone’s interest that these should be known by all parties. It is
not possible to compile a full list, but the following are the most common
issues:
• IHT on PET by life tenant on termination of estate interest in pos-

session within seven years of retirement.9
• IHT on PET by settlor on gift to estate IP trust within seven years
of retirement (less common after 2006).
• CGT on current year gains even (unfairly) gains accruing after a
retirement.
• CGT on migration within subsequent 12 months if there is a pro-
posal to migrate the trust (in practice exceptional).10
• CGT following a hold-over to a beneficiary who becomes non-
resident and fails to pay within 12 months.11
entitled to exert improper pressure to agree the fees by withholding the entire trust fund; nor is
it entitled to security over the whole trust fund. An escrow arrangement of the nature proposed
gives the retiring trustee all the security to which it is entitled.”
Likewise Virani v. Guernsey International Trustees Ltd [2004] WTLR 1007 at [59] (Trustees tactical
intransigence to obtain a better indemnity penalised by costs order).
9
If this is covered by insurance, the current trustees may consider retaining the policies in their
own names. In calculating the IHT exposure, one cannot assume that agricultural or business
property relief will apply, as a subsequent sale may disapply the relief: s.113A, 124A IHTA 1984.
10
See 31.4 (Drafting an appointment/retirement of new trustees).
11
Section 168(7) TCGA 1992 discussed in Kessler, Taxation of Non-Residents and Foreign Domiciliaries
(11th edn, 2012) para.7.2 (Clawback of hold- over relief on emigration of individual) accessible
www.foreigndomiciliaries.co.uk.

• Claims by the settlor for reimbursement of tax under statutory

indemnities.12
• Contractual liabilities of current trustees: possibilities include
liabilities under leases; warranties and indemnities on share sale
agreements; and derivative contracts (options, futures, etc) which
trustees may enter into in the course of managing trust investments.
• Liabilities arising from ownership of trust assets, such as tort or
environmental legislation liabilities.
• Trustees fees.
Conflicts of interest
There is a potential confl ict between the current trustees (who may want as 32.10
generous an indemnity as possible) and new trustees or beneficiaries (who
want to give a limited indemnity). If the parties are separately represented,
the matter is straightforward; but that is rare.
There are many permutations. In cases where solicitors act for current
trustees and beneficiaries/new trustees (despite a potential of confl ict
between two sets of clients) it is considered that in a straightforward case
the solicitors may act for both parties with written consent.13 However,
solicitors should not act for both sides in cases where:
(1) solicitors are the current trustees (potential confl ict of interest
between themselves and beneficiaries/new trustees); or
(2) there is some other more difficult problem (e.g. the problem of
indemnities from more than one beneficiary).
Solicitors should make it clear for whom they are acting and the terms
of their retainer. If the solicitors are (or are only acting for) the current
12
Sch.5 para.6 TCGA 1992; ss.538 and 646 ITTOIA 2005.
13
See Principle 4 of the SRA Handbook and Outcome 3.6 of Ch.3 of the SRA Code of Conduct
2011 accessible http://www.sra.org.uk/solicitors/handbook/code/content.page which provides:
“Where there is a client confl ict and the clients have a substantially common interest in relation
to a matter or a particular aspect of it, you only act if:
(a) you have explained the relevant issues and risks to the clients and you have a reasonable
belief that they understand those issues and risks;
(b) all the clients have given informed consent in writing to you acting;
(c) you are satisfied that it is reasonable for you to act for all the clients and that it is in their
best interests; and
(d) you are satisfied that the benefits to the clients of you doing so outweigh the risks”.
The parties have a substantially common interest here, namely, their interest in good administra-
tion of the trust.

trustees, they should write to the new trustees/beneficiaries along these

lines: “We consider these are normal and proper indemnities for you to give.
However we cannot advise you on this aspect as we are acting for the current trus-
tees. If you have any doubts we recommend you seek independent advice.”
Indemnity from beneficiaries
32.11 Indemnities from beneficiaries are more straightforward than indemnities

from new professional trustees. If a single beneficiary receives the entire
trust fund, the beneficiary will normally be content to give an indemnity
binding the estate of the beneficiary, without limit of amount, without
limit of time, for all liabilities properly incurred by the trustees. The risks
in doing so are normally theoretical14 and the cost and inconvenience of
drafting to cater for the risk exceeds any advantage that might result.
Suppose a single beneficiary receives part of the trust fund absolutely,
the trustees retaining the other part. In this case no indemnity should
normally be necessary, as the trustees have recourse to the retained funds.
But (exceptionally) if an indemnity is needed, it should be limited to
liabilities attributable to the distributed funds.
A problem arises in the case of multiple beneficiaries. Suppose three
beneficiaries, A, B and C receive the entire trust fund absolutely. An
uncapped indemnity to the current trustees by A is quite a different matter
from an indemnity which is limited to liabilities relating to A’s share of the
fund. It is suggested that the indemnity ought to be so limited. If that is
problematic (e.g. B is financially insecure) then the trustees ought to deal
with the matter by obtaining security for liabilities relating to B’s share:
they should not expect A to shoulder the risk of B’s default. In practice, in
straightforward cases, this may be ignored for the sake of simplicity, but
this course requires the beneficiaries to take a risk which should be noted,
understood and accepted.
For younger beneficiaries, especially, watch undue influence.
Indemnity from new trustees
32.12 Of course new trustees can give an express indemnity to the current trus-
tees if they wish. The important question is whether they can later seek
reimbursement from the trust fund for sums they have to pay out under
14
The risk being that (1) a claim may be made against the trustee which exceeds the value of the
entire trust fund and (2) the loss might have fallen on the trustee instead of the beneficiary, but
for the unlimited extent of the indemnity.

INDEMNITY FROM NEW TRUSTEES 497
that indemnity.15 This requires that they have power to give the indemnity
and exercise it properly.16
Power is usually conferred expressly by the trust. The power is properly
exercised if it is given in the context of an agreement under which:
(1) the new trustees indemnify the current trustees against trust liabil-
ities; and in return
(2) the retiring trustees abandon their lien and transfer the trust prop-
erty to the new trustees.17
The new trustees may be fair but cannot be generous to the current trus-
tees. New trustees cannot in principle recover from the trust fund for pay-
ments they have to make under express indemnities if a reasonably careful
trustee would not have given the indemnity.18 This raises the question:
what is a reasonable indemnity? The starting point is to say:
The New Trustee covenants with the Retiring Trustee to indemnify19 it for any liabili-
ties for which the Retiring Trustee may be or become liable
(1) in its capacity as trustee or by reason of having acted as Trustee of the Settlement;
or
(2) by reason of or in connection with entering into or exercising rights under this
deed.
One often sees “liabilities” expanded along the following lines:

liabilities, actions, proceedings, claims, demands, taxes and duties, and all associated interest,
penalties and costs, and all other costs and expenses
It is considered that “liabilities” is preferable: if the actions, proceedings,

claims and demands do not result in a liability, there is no need for the
indemnity; if they do, they are covered. Taxes and duties are liabilities
(as are any associated interest, penalties and costs and any other costs and
expenses).
15
The liability of the new trustees under an express indemnity is personal unless the deed provides
otherwise; see 21.47 (Power to give indemnities).
16
Section 15(f ) TA 1925 would provide such a power in some cases: see Matthews “Indemnities for
retiring trustees”, OTPR (1990) Vol. 1, Issue 2, p.27 accessible www.kessler.co.uk.
17
See ATC (Cayman) v Rothschild [2007] WTLR 951 (Cayman Islands Grand Court) in which it
was held that the new trustees indemnified the retired trustees by undertaking to the effect that
it would withhold a certain sum of money and not allow the trust funds to be depleted below that
amount for a specified period and this was held to be a proper exercise of the express power and
not a fetter on the trustees’ discretions.
18
The amendment to s.15 TA 1925 by the TA 2000 is significant here. New trustees cannot give
express indemnities that damage the trust fund in a situation where they have acted negligently
but in good faith. A decision to give over-generous indemnities may conceivably be a defensible
commercial decision, e.g. if it is to facilitate a retirement and reduce costs.
19
One should not add “and hold (or save) harmless” as that is synonymous: see Garner, Dictionary
of Legal Usage, (3rd edn, 2011) entry under Indemnify.

Indemnity for breach of trust
32.13 An indemnity for breach of trust by the current trustees will not normally
be reasonable. The following limitation is recommended:
This indemnity applies only to liabilities in respect of which
(1) the retiring trustees are entitled to reimbursement out of the Trust Fund or
(2) would have been so entitled had they continued to be trustees.
Time limit to indemnity
32.14 In the absence of special circumstances, it is suggested that indemnities

given by new trustees should expire after a fi xed time. This makes admin-
istration easier on subsequent appointments of new trustees or distributions
of trust capital. Six years (as the usual limitation period) seems appropriate.
The following clause is recommended:
This indemnity applies only to liabilities notified to the New Trustees in writing
within six years from the date of this deed.
Cap on amount payable under indemnity
32.15 If the amount of the indemnity is unlimited, the new trustees are person-
ally at risk if their trust fund is worth less than the claim. This will not be
acceptable to professional new trustees.
The indemnity could be capped so that it is limited to the amount of
the trust fund at the time that the trustees have to make a payment under
the indemnity (so the trust fund is never worth less than the claim.)
The difficulty is that capital distributions to beneficiaries will reduce
the value of the indemnity. It is difficult to see the point of an express
indemnity on such terms since it gives the current trustees nothing more
than they are entitled to under the trust law indemnity. The following
precedent deals with that:
1.1 The trustee is personally liable for any sum payable under this deed only to the
extent of the value of the trust fund when the payment falls due.
1.2 When computing the value of the trust fund for these purposes, the fund shall be
treated as still including any property which, since the contract was entered into, has
been distributed.
1.3 For this purpose property shall be taken to have been distributed if it has ceased to
be subject to the trust otherwise than on a disposal in good faith for valuable consid-
eration in the management or administration of trust property. 20
20
This draft is based on s.98 BVI Trustee Act.

R ETIREMENT OF NEW TRUSTEE 499
The indemnity could provide that in the event of capital distributions,

the new trustees are released from liability under the indemnity to the
extent that the beneficiary receives assets and enters into a similar indem-
nity for the retiring trustees. This solution is fair but complicated and
expensive. The complications are bearable if the indemnity is time limited
(see above) since after six years the indemnity can be ignored.
This is the suggested clause:
(1) The liability of the New Trustee is limited to the sum of:
(a) the value of the Trust Fund; and
(b) unless the recipient indemnifies the Retiring Trustee on terms similar to
this deed (or another reasonable indemnity is provided) the value of Trust
Property distributed to beneficiaries or other trusts, valued at the date of such
distribution.
An alternative is to say:
The liabilities of any person under this Deed shall not exceed the sums
(1) available from the Trust Fund to the person liable; or
(2) which would have been available from the Trust Fund to the person liable if they
had acted with reasonable care to that indemnified person.
This forces a trustee to have regard to the interests of the retiring trus-
tees and may discourage them from recklessly distributing the trust fund
(which of course they should not do in any event).
Death of new trustee
The current trustees may want an indemnity which binds the estate of 32.16
the person giving the indemnity. However this would complicate the
administration of their estate, and would not be acceptable to a professional
trustee. Moreover in practice, the enforcement of the indemnity may be
difficult. So the better course is that the indemnity does not bind the estate
of a deceased person. This does not affect corporate trustees of course. The
following clause is recommended:
On the death of a New Trustee (not being sole trustee) the personal representatives of
the deceased New Trustee shall be discharged from all liability under this indemnity.
Retirement of new trustee
The current trustee may want an indemnity which continues after the 32.17
retirement of a new trustee. However that would not be acceptable to the

new trustee, since they will no longer have control over the trust fund.
The fairer course is that the new trustee should be released on retirement
provided that the continuing trustees are liable. The following clause is
recommended:
If a New Trustees ceases to be a trustee (otherwise than on death) that New Trustee
shall be discharged from all liability under this indemnity, if the persons who are trus-
tees immediately after the New Trustee ceases to be a trustee enter or have entered
into a covenant with the Retiring Trustees in terms similar to this Deed.
Multiple trusts
32.18 If a share of a trust fund is given to trust A (with other shares given to ben-
eficiaries or other trusts), then in principle the trustees of trust A should not
give an indemnity for liabilities which are attributable to other shares. At
the very least, if they give such an indemnity, it should be subordinated to
the liability of the other shares, and that liability may need to be secured
to protect trust A.
Security for indemnity
32.19 It will always be in the interest of the current trustees that their indemnity
is secured. However, security brings inconvenience and additional costs.
New trustees should hesitate to agree to security unless there is some good
reason. In practice indemnities are usually given without security. A power
to demand security if that becomes necessary, e.g. if anticipated liabilities
exceed 50% of trust assets, may be a fair compromise.
Proper law and jurisdiction clause
32.20 If all the parties are in England and Wales a proper law and jurisdiction
clause should not be necessary.

CHAPTER 33
FAMILY LIMITED PARTNERSHIPS
Introduction
This chapter considers the use of family partnerships as a method of 33.1

holding family wealth.
The general idea is that a person (“the donor”) enters into a partnership
with family members or trustees and provides the partnership funds. The
partnership is managed by the donor or persons selected by the donor.
There are restrictions on partners withdrawing funds.
These family partnerships have some similarity with family trusts but
also significant differences. Their biggest attraction is that they are not
subject to the IHT charges which for now generally rule out use of life-
time trusts.
The proposal is not needed for family investment companies
(where non-voting or deferred share arrangements are preferable) or
for assets which qualify for 100% BPR or APR (where trusts are still
possible).
The partnership could be set up as an ordinary partnership. That would
involve unlimited liability for the partners. Since the partnership will
carry on investment activity rather than trading, limited liability will not
usually be significant. After all, trustees of common form family trusts do
not enjoy limited liability. If however the partnership is a limited partner-
ship then one general partner (typically the donor) has unlimited liabil-
ity and the other partners are limited partners who qualify for limited
liability.1
Another possibility is a LLP under the Limited Liability Partnerships
Act 2000. One drawback is an LLP’s obligation to publish accounts.
Foreign law partnerships are sometimes used, but that is outside the
scope of this chapter. Family limited partnerships are used in the USA,
1
Some limited partnership law reform is in prospect but nothing very significant for present
purposes. See Department for Business Enterprise and Regulatory consultation document
“Reform on Limited Partnership Law” August 2008 www.berr.gov.uk/files/file47577.pdf and the
Government Response to the Consultation www.bis.gov.uk/files/file50705.pdf.

502 FAMILY LIMITED PARTNERSHIPS
and there may be some interesting comparative work to be done, though

cross-jurisdiction comparisons are far from straightforward.
Partnership law issues
33.2 For a partnership to exist, the partners need to carry on a business.2 Here,
this will be the business of managing investments. Investment activ-
ity (even if only reviewing existing investments and drawing up annual
accounts) is sufficient to constitute a business.3
Just and equitable grounds to wind up partnership
33.3 Section 35 Partnership Act 1890 provides that the court may order a dis-
solution of the partnership in various cases including: “Whenever in any
case circumstances have arisen which, in the opinion of the Court, render
it just and equitable that the partnership be dissolved”: s35(f ). This does
provide limited partners with a possible means to dissolve the partnership
and withdraw their share of the partnership assets, particularly in cases of
insolvency, divorce, or if a partner is unfairly treated.
Identity of partners
Adults
33.4 Adults may simply enter into the partnership agreement and so become
partners. Consideration should be given as to who (if anyone) is advising
them; if the same advisors act for the donor confl icts of interest may need
to be considered, and if no-one is advising, they may need to be told to
seek independent advice.
2
Section 1 Partnership Act 1890. Business is partially defi ned in s.45 Partnership Act 1890. (The
same applies to an LLP: ss.2, 18 LLPA 2000.)
3
The Law Commission agree: “It is difficult to conceive of a term wider than “business” to cover
all commercial undertakings. The term seems clearly apt to include investment activities as a
commercial venture.” Consultation Paper (Scot Law Com Discussion Paper No 111, Law Com
Consultation Paper No 159) para.5.10. The fi nal report (Scot Law Com No 192, Law Com No
283) notes at para.4.34: “We think that the existing defi nition is sufficiently broad to cover invest-
ment carried on as a commercial venture.” See also para.16.26 of the report.
In any case, it would not usually matter if there was no business and so no partnership, since the
arrangements would still take effect as non- partnership contractual co- ownership arrangements
with the same tax consequences. (In the case of an LLP the absence of a business would be more
problematic, but the point is theoretical.)

IDENTITY OF PARTNERS 503
Minors
A minor should not enter into the partnership agreement. Instead the 33.5
donor may establish a bare trust for the benefit of the child to which a gift
can be made. The bare trustees would then enter into the partnership: the
partnership agreement would be between the bare trustees and the donor.
The bare trust deed would authorise (and indeed require) the trustee to
enter into the partnership. The child would not be a partner but would be
the beneficial owner of a partnership share.
Once the child attained 18 then he or she could if desired be taken
into the partnership; alternatively the bare trustees may continue as
partners. Trustees of a bare trust have a duty to transfer the property to
or at the direction of the beneficiary, once the beneficiary is of full age.
However this only applies if the property is capable of transfer. The part-
nership share will not be transferrable, under the terms of the partnership
agreement.
The trustees might include the donor but would include at least one
other trustee, perhaps one of the child’s parents.
A bare trust is transparent for tax purposes and not a settlement.
The Donor
The donor could be a partner and so retain a partnership share for himself. 33.6
There is in principle no tax problem in the donor being a partner. The
donor could in due course use the share to make gifts to future born chil-
dren or grandchildren, although this could of course equally be done by
gift of funds outside the partnership.
There could be a corporate partner owned by the donor, but that is
generally an unnecessary complication.
Death of partner
Consideration has to be given to succession on the death of a partner or 33.7

beneficiary of a bare trust. With the agreement of the general partner,
legatees of a limited partner may themselves become limited partners.
Alternatively the capital share might be paid out (in cash or in specie) to
the executors of the deceased limited partner.
Resignation and addition of partners
The partnership agreement will provide that a limited partner may not 33.8
resign without the consent of the general partner.
The partnership agreement may provide that the general partner may
admit any person to the partnership without the consent of other part-
ners. A possible use might be in the event of the birth of another child or

grandchild or the coming of age of a minor beneficiary under a bare trust

(who may then be made a partner.)
Insolvency or divorce of partner
33.9 A limited partnership is not dissolved by the death or bankruptcy of a

limited partner.4 In the event of insolvency, the estate of the debtor vests
in the trustee in bankruptcy. Any restrictions or limitations which applied
to the debtor apply to the trustee in bankruptcy. The trustee would in
principle be able to retain the interest until the duration of the partner-
ship expired. The trustee would not be entitled to assign the partnership
interest or to withdraw capital. The trustee would have to consider what
the interest was worth and deal with the matter in the light of that. The
trustee in bankruptcy could apply to wind up the partnership on the basis
that it was just and equitable to do so. The claim seems stronger if one of
the partners is insolvent. There may not be much of a discount from the
full underlying market value of the partnership assets to be accepted by a
trustee in bankruptcy. But it is a matter of negotiation. A limited partner-
ship is accordingly not a full protection from insolvency but it may afford
some modest advantage.
On divorce, the limited partnership share cannot be taken away from
the limited partner but it would count as among his or her resources. In
these circumstances the effect of divorce in relation to the limited part-
nership may depend on the other assets of the limited partner. All that can
be said is that the existence of assets held in a family limited partnership
might provide some reduction in financial claims in the event of divorce,
depending on the circumstances of the parties. The event of the divorce of
a limited partner might be a circumstance to justify an application to the
court to wind up the partnership on the basis that it was just and equitable
to do so, particularly if the partnership interest was the principal asset of
the divorcing limited partner.
Management of the partnership
33.10 The initial partnership property could be cash or any other investments
or land.
The partnership deed would specify the duration of the partnership. It
might be fi xed for a period of years such as 25 years, or such shorter period
as the general partner specifies.
4
Section 6(2) Limited Partnerships Act 1907.

M ANAGEMENT OF THE PARTNERSHIP 505
Distributions
The partnership deed would direct that distributions would be decided on 33.11
by the general partner. The destination of distributions would be fi xed by
the partnership deed, i.e., if distributions (if any) are made to the partners
in proportion to their interests.5
It is suggested that if there will be an income tax or CGT liability on a
partner, there should be a distribution sufficient to cover the tax liability
(unless special circumstances make this unnecessary, e.g. if the amounts
are small compared to the assets of the taxpayers, if the taxpayers agree
otherwise, or if illiquid partnership assets makes this impractical). Failure
to do this would cause difficulties to the partners and may support a claim
to wind up the partnership on just and equitable grounds. Tax liabilities
may differ as between partners so there may need to be some over-
distribution to those partners with smaller tax liabilities.
Partnership distributions in exercise of the general partner’s discretion
are unlike trust distributions in exercise of a trustee discretion. A trustee
generally has power to apply funds for one beneficiary to the exclusion of
others. In a partnership, the general partner should act for the benefit of
the partnership rather than for the benefit of specific partners. If a general
partner chose to made distributions to one limited partner, while refusing
distributions to another limited partner, that would give scope for the dis-
satisfied partner to petition the court for dissolution of the partnership on
just and equitable grounds. If a general partner chose to make no distribu-
tions at all, this avoids the complaint of unfairness as between different
partners, but in the absence of some commercial reason to retain profits
(e.g. to repay bank borrowing) this would still give scope for a dissatisfied
limited partner to petition the court for a dissolution of the partnership on
just and equitable grounds.6
5
However there is nothing in the documentation to stop unequal distributions being made from
each partner’s current account, that is:
(1) Income profits of some partners are distributed to them.
(2) Income profits of other partners are added to their partnership shares.
This would cause accounting complications but these can be coped with. It is not, of course,
possible to distribute profits in respect of one partner’s share to a different partner.
6
Contrast company law cases such as Sam Weller & Sons Ltd [1990] 1 Ch 682 and ex parte Glossop
[1988] 1 WLR 1068 concerning companies not paying dividends where funds were available. See
in particular p.1075 of the latter case:
“. . . a company is simply a vehicle for carrying on a business for the benefit of all members.
One of the major benefits to shareholders, i.e. members, in a company is, or ought to be, the
payment of dividends. Undoubtedly, directors have an express power to put a ceiling upon the
amount of dividends paid in almost all (and certainly in this company’s) articles. Undoubtedly,
directors are responsible for the commercial affairs of a company and should not be forced to
pay out moneys which may leave them at risk of trading while insolvent or incurring debts
which the company cannot easily meet; that would put directors at peril of committing, at
worst, criminal offences and, at lower levels, actions which would be wrong and could be the
subject of censure. Undoubtedly, it must be extremely difficult in any case to prove that more

The general partner has control over the quantum of income as a result
of his control over the investments but exercise of the investment power
to deprive partners of income could itself lead to a petition to wind up the
partnership on just and equitable grounds.
The partnership may also make loans to partners. Interest free loans to
some (and not other) partners would justify an application to wind up the
partnership by a dissatisfied partner. Loans on commercial terms may in
principle be justifiable as fair, even if there were a good commercial reason
for offering loans to some partners and not to others.
Financial Services issues
33.12 Limited partnerships are collective investment schemes within s.235

Financial Services and Markets Act 2000. The promotion, operation and
management of a limited partnership carrying on investment business
must be delegated to an FSA authorised operator. In the case of stock
market investments, this person would be the investment manager. Where
there is a discretionary portfolio manager many of the requirements should
already be covered.
If an unlimited partnership is used and under the partnership agree-
ment the partners do have day to day control, then the partnership is
not a collective investment scheme so that no FSA authorised operator is
required. However this is not usually desired.
Paragraph 21 of the Schedule to The Financial Services and Markets Act
2000 (Collective Investment Schemes) Order 2001 Statutory Instrument
2001 No. 1062 provides:
[1] No body incorporated under the law of, or any part of, the
UK relating to building societies or industrial and provident socie-
ties or registered under any such law relating to friendly societies,
and
[2] no other body corporate other than an open-ended investment
company, amounts to a collective investment scheme.
dividend should be paid out than has been paid out. But as a matter of concept, it seems to
me, it must be capable of being an improper conduct of the affairs of a company to retain in
the company for the greater growth and glory of the company profits which could with entire
propriety and commercial ease be paid out to members in dividends for the benefit of members.
. . . one of the prime purposes of a company is as a vehicle to earn profits which should be
distributed by way of dividend to the members of it.
. . . directors have a duty to consider how much they can properly distribute to members.
They have a duty, as I see it, to remember that the members are the owners of the company,
that the profits belong to the members, and that, subject to the proper needs of the company
to ensure that it is not trading in a risky manner and that there are adequate reserves for com-
mercial purposes, by and large the trading profits ought to be distributed by way of dividends.”

CGT 507
A LLP is a body corporate so one could in principle avoid the burden of

regulation of a collective investment scheme by using a LLP. The public
disclosure of a LLP’s accounts is however a drawback.
IHT
The gift of property to the partnership will in principle be a PET. The 33.13
partnership is not a settlement for IHT purposes. Gifts will therefore not
be subject to IHT provided the donor survives seven years.
There will be no reservation of benefit provided under the terms of the
partnership deed (1) the donor enjoys no benefit from the gifted partner-
ship share and (2) possession and enjoyment is assumed by the donee. This
should not cause any problem. The donees will have all the possession and
enjoyment that is possible under the partnership arrangement. It would
be good practice to distribute some income in the first year after setting
up the partnership in order to avoid argument, but that is not strictly
necessary. There is no reservation of benefit merely because under the
partnership deed the donor retains control over investment policy and
distribution of profits. The donor receives no benefit from such control.
The control is less than that which a donor could exercise as trustee of
a trust, which no-one regards as a GWR. Strictly, the donor should not
take remuneration for managing the partnership (but in practice HMRC
do not appear to take that point).
CGT
A partnership is transparent for CGT purposes and not a settlement. 33.14

A transfer to the partnership is a disposal7 on which gains if they accrue
would be subject to CGT. Holdover relief would in principle be available
in the case of business or agricultural property.
Partnership gains accrue to the partners. Where minor children of a
donor are partners then gains will be charged on the children not the
donor. Where there are many partners (e.g. grandchildren) then the part-
nership allows efficient use of their annual exemptions. There will be no
disposal on the transfer of partnership assets to the partners in specie on
the winding up of a partnership.
In this respect the family partnership offers CGT advantages similar to
those offered by bare trusts.
7
Or if the donor was one of the partners, a part disposal.

Income tax
33.15 A partnership is transparent for income tax purposes.8

The partnership will constitute a settlement for the purposes of Ch.5
Pt 5 ITTOIA (the settlement provisions).9 Where income is paid to or for
the benefit of an unmarried minor child of the donor then the income
will be taxed as that of the settlor.10 So while the children of the donor
are under 18 then there would be no income tax advantage, though there
would be IHT and CGT advantages.
If the donor is a member of the partnership then it is not thought that
for these purposes the whole partnership could be regarded as a settlement
in which he or she has an interest. So the partnership income would in
principle be treated as the income of the other partners.
In this respect a partnership offers income tax advantages similar to that
offered by IP trusts. A partnership is better for income tax purposes than a
discretionary trust as it avoids the complex and expensive provisions relat-
ing to the trust rate of tax.
8
Section 848 ITTOIA 2005.
9
10

PART 2
PRECEDENTS
KESSLER (11th) text2 endmatter.indd 509 07/11/2012 16:45


PRECEDENTS FOR LIFETIME TRUSTS
INTEREST IN POSSESSION TRUST FOR

ADULT BENEFICIARY

2 2.1 [Name of first trustee] of [address] and
Whereas this Trust shall be known as the [Name-of-settlor Trust 2012].

1 Definitions
In this Trust:
1.1 “[Adam]” means [Adam Smith] the [son] of the Settlor.

1.2.1 The descendants of the Settlor.
1.2.2 The Spouses of the descendants of the Settlor.
1.2.3 The Surviving Spouses of the descendants of the Settlor.
1.2.4 The Surviving Spouse of the Settlor.

512 INTEREST IN POSSESSION TRUST FOR ADULT BENEFICIARY
1.2.5 Any Person or class of Persons added to the class of Beneficiaries

by the Trustees by deed with the consent in writing of:
1.2.5.2 two Beneficiaries (if the Settlor has died or has no
capacity to consent).
1.3 “Spouse” includes a civil partner within the meaning of section 1

partnership.
1.4 “Person” includes a person anywhere in the world and includes a
Trustee.
1.5 “The Trustees” means the Original Trustees or the trustees of
this Trust for the time being.
1.6.1 property transferred to the Trustees to hold on the terms of
this Trust; and
1.7 “The Trust Period” means the period of 125 years beginning
with the date of this Trust.
1.8 “Trust Property” means any part of the Trust Fund.
2 Trust Income
2.1 The Trustees shall pay the income of the Trust Fund to [Adam]
during [his] life.
2.2 Subject to that, if [Adam] dies during the Trust Period, the Trustees
shall pay the income of the Trust Fund to [Adam]’s Surviving
Spouse during their life.
2.3 Subject to that, the Trustees may accumulate the whole or part of
the income of the Trust Fund during the Trust Period. That income
shall be added to the Trust Fund.
2.4 Subject to that, during the Trust Period, the Trustees shall pay or
apply the remainder of the income of the Trust Fund to or for the
benefit of any Beneficiaries as the Trustees think fit.

INTEREST IN POSSESSION TRUST FOR ADULT BENEFICIARY 513
3 Overriding Powers
3.1 Power of appointment

3.1.1 The Trustees may appoint that they shall hold any Trust
Property for the benefit of any Beneficiaries, on such terms as
the Trustees think fit.
3.1.2 An appointment may create any provisions and in particular:
3.1.2.1 discretionary trusts;
3.1.2.2 dispositive or administrative powers;
3.1.3 An appointment shall be made by deed and may be revocable
or irrevocable.
3.2 Transfer of Trust Property to another trust
3.2.1 The Trustees may by deed declare that they hold any Trust
Property on trust to transfer it to trustees of another trust,
wherever established, to hold on the terms of that trust, freed
and released from the terms of this Trust.
3.2.2 The Trustees shall only exercise this power if:
3.2.2.1 every Person who may benefit is (or would if living be)
a Beneficiary; or
3.2.2.2 with the consent in writing of
(a) the Settlor, or
(b) two Beneficiaries (after the death of the Settlor).
3.3 Power of advancement
The Trustees may pay or apply any Trust Property for the advance-
ment or benefit of any Beneficiary.
3.4 The Overriding Powers shall be exercisable only:
3.4.1 during the Trust Period; and
3.4.2 at a time when there are at least two Trustees, or the Trustee is
a company carrying on a business which consists of or includes
the management of trusts.

514 INTEREST IN POSSESSION TRUST FOR ADULT BENEFICIARY
4 Default Clause
Subject to that, the Trust Fund shall be held on trust for [Adam or specify
default trusts as appropriate] absolutely.
The power of appointing trustees is exercisable:

5.1 by the Settlor during [his] life and by will, and after [his] death
5.2 by [Adam] after [he] has reached the age of 25 during his life and
by will.
[For a shorter form, say instead of the above:
“The standard provisions and all of the special provisions of the Society of
Trust and Estate Practitioners (2nd Edition) shall apply.”
And omit the schedule.]
7 Exclusion of Settlor and Spouse
Notwithstanding anything else in this Trust, no power conferred by this

Trust shall be exercisable, and no provision shall operate so as to allow
Trust Property or its income to become payable to or applicable for the
benefit of the Settlor or the Spouse of the Settlor in any circumstances
whatsoever.
8 Irrevocability

In witness, [etc.]

INTEREST IN POSSESSION TRUST FOR ADULT BENEFICIARY 515
[Here set out the administrative provisions suitable to an IP trust: see

“Administrative provisions for lifetime trust” below. This is set out in full on
the CD.]

DISCRETIONARY TRUST

Whereas:
1 The Settlor has [two] children:

1.1 [Adam Smith] (“[Adam]”) who was born on [date] and
1.2 [Mary Smith] (“[Mary]”) who was born on [date].
2 This Trust shall be known as the [Name-of-settlor Trust 2012].
1 Definitions
In this Trust:


DISCRETIONARY TRUST 517

partnership.
Trustee.
1.5.1 property transferred to the Trustees to hold on the terms of
this Trust; and
with the date of this Trust.
2 Trust Income
During the Trust Period and subject to the Overriding Powers below:
2.1 The Trustees may accumulate the whole or part of the income of
the Trust Fund. That income shall be added to the Trust Fund.
2.2 The Trustees shall pay or apply the remainder of the income to or
for the benefit of any Beneficiaries, as the Trustees think fit.
3 Overriding Powers


518 DISCRETIONARY TRUST

or irrevocable.
a Beneficiary; or
(a) the Settlor, or
4 Default Clause
Subject to that, the Trust Fund shall be held on trust for [Adam and Mary
in equal shares—or specify default trusts as appropriate] absolutely.
The power of appointing trustees is exercisable by the Settlor during [his]

life and by will.

DISCRETIONARY TRUST 519
The provisions set out in the schedule below shall have effect.1
7 Exclusion of Settlor and Spouse

benefit of the Settlor or the Spouse of the Settlor in any circumstances
whatsoever.
8 Irrevocability
In witness, [etc.]
[Here set out the administrative provisions suitable to a discretionary

trust: see “Administrative provisions for lifetime trust” below. This is set out in
full on the CD.]
1
For a shorter form, say instead:
“The standard provisions and all of the special provisions of the Society of Trust and Estate
Practitioners (2nd Edition) shall apply.”
And omit the schedule.

CHARITABLE TRUST
This Charitable Trust is made [date] between
1 [Name] of [address] (“the Settlor”) of the one part and

2 2.1 [Name] of [address] and
2.2 [Name] of [address]
Now this Charitable Trust witnesses as follows:
1 Definitions
In this Charitable Trust:
1.1 “The Accumulation Period” means the lifetime of the Settlor

or the period of 21 years beginning with the date of this Charitable
Trust, whichever shall be the longer.
1.2 “Charity” means any company, body or trust which:
1.2.1 is a charity for the purposes of English law; or
1.2.2 is established for charitable purposes only, and to which the
Commissioners for Her Majesty’s Revenue and Customs have
given intimation, which has not subsequently been with-
drawn, that tax relief is due in respect of its income which is
applicable and applied to charitable purposes only.
1.3 “Civil Partner” has the same meaning as in section 1 Civil
Partnership Act 2004.
Trustee

CHARITABLE TRUST 521

this Charitable Trust for the time being.
1.6.1 Property transferred to the Trustees to hold on the terms of
this Charitable Trust and
1.6.2 Property from time to time representing the above.
2 Name of Charitable Trust
This Charitable Trust shall be known as the [name of settlor] Charitable

Trust or by such name as the Trustees shall determine.
3 Trust Income
3.1 Subject to the Powers over Capital below, the Trustees shall pay or
apply the income of the Trust Fund to such Charities or for such
charitable purposes as the Trustees think fit.
3.2 The Trustees may accumulate any part of the income of the Trust
Fund during the Accumulation Period or such other period as may
be permitted by law.
4 Powers over Capital
4.1 Power of appointment:

Property on such charitable trusts as the Trustees think fit.
4.1.2.1 discretionary trusts
4.1.2.2 dispositive or administrative powers
exercisable by any Person, but at all times this Charitable
Trust shall remain a Charity.
or irrevocable.

522 CHARITABLE TRUST
4.1.4 The Trustees shall send to the Charity Commission a copy of

any appointment (but failure to do this shall not invalidate the
appointment).
The Trustees may pay or transfer any Trust Property to any Charity and
may apply any Trust Property for any charitable purposes.
The provisions set out in the schedule below shall have effect in further-
ance of the charitable purposes of this Charitable Trust but not otherwise.
6 Exclusion of settlor and non- charitable purposes
Notwithstanding anything else in this deed, no power conferred by this

Charitable Trust shall be exercisable, and no provision shall operate so as
to allow Trust Property or its income:
6.1 to become payable to or applicable for the benefit of the Settlor or

the spouse or Civil Partner of the Settlor; or
6.2 to be applied for any purpose that is not charitable.
7 New Trustees

life or by will.
IN WITNESS ETC.
THE SCHEDULE
[Here set out administrative provisions appropriate to a charity; see 25.7

(Administrative provisions for charities). This is set out in full on the CD.]

PENSION DEATH BENEFIT TRUST

Whereas:
1 The Settlor is a member of the [give details of the pension scheme]

(“the Pension Scheme”).
2 This Trust shall be known as the [Name-of-settlor] Pension Death
Benefit Trust [2012].
1 Definitions
In this Trust:


524 PENSION DEATH BENEFIT TRUST

partnership.
Trustee.
1.5.1 any lump sum payable under the Pension Scheme on the death
of the Settlor which may be transferred to be held on the terms
of this Trust; and
1.6 “The Trust Period” means [the period of 125 years beginning
with the date on which the Settlor became a member of the Pension
Scheme]1 or [the period of 21 years beginning with the death of the
Settlor].2
2 Trust Income
3 Overriding Powers
1
Include these words if the Settlor joined the scheme on or after 6 April 2010. See s.6(3) PAA 2009.
2
Include these words if the Settlor joined the scheme before 6 April 2010.

PENSION DEATH BENEFIT TRUST 525

or irrevocable.
a Beneficiary; or
(a) the Settlor, or
4 Default Clause
Subject to that, the Trust Fund shall be held on trust for [Adam and Mary
in equal shares—or specify default trusts as appropriate] absolutely.

526 PENSION DEATH BENEFIT TRUST

life and by will.
[For a shorter form, say instead:
“The standard provisions and all of the special provisions of the Society of
Trust and Estate Practitioners (2nd Edition) shall apply.”
And omit the schedule.]
7 Exclusion of Settlor

benefit of the Settlor or the estate or the legal personal representatives of
the Settlor in any circumstances whatsoever.
8 Irrevocability

In witness, [etc.]

WILL 1
DISCRETIONARY WILL TRUST
I, [Name of testator] of [address] declare this to be my last Will.
1 I revoke all my earlier testamentary dispositions.
2 Appointment of Executors
I appoint:
2.1 [Name] of [address] and

to be my executors and Trustees.
3 Personal Chattels
I give my personal chattels (as defined in section 55 of the Administration

of Estates Act 1925) to my [Spouse] absolutely.
4 [Other legacies, appointment of guardians, etc., follow here.]
5 Residuary Estate
5.1 My executors shall:

5.1.1 pay my debts, funeral and testamentary expenses, lega-
cies and Inheritance Tax on all property which vests in them;
and
5.1.2 hold the remainder (“my Residuary Estate”) as set out
below.

528 WILL 1 DISCRETIONARY WILL TRUST
5.2 Debts, funeral and testamentary expenses, legacies and Inheritance

Tax shall be payable out of the capital of my estate (subject to the
Trustees’ administrative powers relating to capital and income).
6 Definitions
In this Will:

6.1.1 My Spouse.1
6.1.2 My descendants.
6.1.3 The Spouses of my descendants.
6.1.4 The Surviving Spouses of my descendants.
by the Trustees by deed with the consent in writing of two
Beneficiaries.
6.1.6 [specify any favoured charity by name].
6.1.7 At any time during which no descendant of mine is living:
6.1.7.1 [specify “fall back” beneficiaries if desired, e.g. nieces and
nephews and their families]
6.1.7.2 [any company, body or trust established for charitable purposes
only].
partnership.
Trustee.
6.4 “The Trustees” means my executors or the trustees for the time
being.
6.5.1 my Residuary Estate and
with the date of my death.
1
Omit reference to “my Spouse” if testator is not married.

WILL 1 DISCRETIONARY WILL TRUST 529
7 Trust Income
8 Overriding Powers

or irrevocable.
8.2 Transfer of Trust Property to another settlement
Property on trust to transfer it to trustees of another settle-
ment, wherever established, to hold on the terms of that set-
tlement, freed and released from the terms of this Will.
a Beneficiary; or
8.2.2.2 with the consent in writing of two Beneficiaries.

530 WILL 1 DISCRETIONARY WILL TRUST
the management of trusts, or when the power to appoint addi-
tional Trustees cannot be exercised.
9 Default Clause
Subject to that, the Trust Fund shall be held on trust for [my children
Adam and Mary in equal shares—or specify default beneficiaries as appro-
priate] absolutely.
10 Standard Provisions
The standard provisions and all of the special provisions of the Society of
Trust and Estate Practitioners (2nd Edition) shall apply.
[Alternatively say: “The provisions set out in the Schedule below shall
have effect” and set out the provisions in full in the schedule. The CD
with this book has the form.]
[11 Statement of intention not to make mutual wills
My Spouse and I are free to revoke our wills at any time.] 2
Signed by [name of testator] to give effect to this Will,

in the presence of two witnesses present at the same time,
who have each signed this Will in the presence of the Testator.
[Signature of Testator]
Date
1st Witness
Address
2nd Witness
Address
2
This clause should be included if the testator and their spouse are making wills at the same time
in similar form: see 18.14 (Statement of intention not to make mutual wills).

WILL 2
LIFE INTEREST FOR SPOUSE/CIVIL PARTNER
I appoint:

3 Personal Chattels

of Estates Act 1925) to my Spouse absolutely.
[Other legacies, appointment of guardians, etc., follow here.]
4 Residuary Estate

4.1.1 pay my debts, funeral and testamentary expenses, lega-
cies and Inheritance Tax on all property which vests in them;
and
4.1.2 hold the remainder (“my Residuary Estate”) as set out below.

532 WILL 2 LIFE INTEREST FOR SPOUSE/CIVIL PARTNER

5 Definitions
In this Will:

5.1.1 My Spouse.
Beneficiaries.
5.1.7.2 [any company, body or trust established for charitable
purposes only].
partnership.
Trustee.
being.
5.5.1 my Residuary Estate; and

WILL 2 LIFE INTEREST FOR SPOUSE/CIVIL PARTNER 533
6 Trust Income
6.1 The Trustees shall pay the income of the Trust Fund to my Spouse
during [her] life.
6.2 Subject to that, the Trustees may accumulate the whole or part of
the income of the Trust Fund during the Trust Period. That income
shall be added to the Trust Fund.
apply the income of the Trust Fund to or for the benefit of any
Beneficiaries as the Trustees think fit.
7 Overriding Powers

or irrevocable.
7.2.1 The Trustees may by deed declare that they hold any
Trust Property on trust to transfer it to trustees of
another settlement, wherever established, to hold on the terms
of that settlement, freed and released from the terms of this
Will.
a Beneficiary; or

534 WILL 2 LIFE INTEREST FOR SPOUSE/CIVIL PARTNER

8 Default Clause
priate] absolutely.
My Spouse and I are free to revoke our wills at any time.]1

Date
1

WILL 2 LIFE INTEREST FOR SPOUSE/CIVIL PARTNER 535
1st Witness
Address
2nd Witness
Address

WILL 3 RESIDUE TO SPOUSE/DISCRETIONARY TRUST
WILL 3
RESIDUE TO: (1) SPOUSE/CIVIL PARTNER
ABSOLUTELY (2) DISCRETIONARY TRUST
(IF NO SPOUSE/CP)
I appoint:

3 Residuary Estate

3.1.1 pay my debts, funeral and testamentary expenses, legacies and
Inheritance Tax on all property which vests in them; and
3.1.2 hold the remainder (“my Residuary Estate”) on trust for my
Spouse if [she] survives me absolutely.

WILL 3 RESIDUE TO SPOUSE/DISCRETIONARY TRUST 537

4 Definitions
In this Will:

Beneficiaries.
only].
partnership.
Trustee.
being.
4.5.1 if my Spouse does not survive me, my Residuary Estate; and

538 WILL 3 RESIDUE TO SPOUSE/DISCRETIONARY TRUST
5 Trust Fund
I give the Trust Fund to the Trustees.1
6 Default clause
priate] absolutely.
7 Overriding Powers

or irrevocable.
7.2.1 The Trustees may by deed declare that they hold any
Trust Property on trust to transfer it to trustees of another
1
This sentence was not included in some earlier editions of this book because it is not necessary.
However experience suggests that it may be easier to follow if it is there.

WILL 3 RESIDUE TO SPOUSE/DISCRETIONARY TRUST 539
settlement, wherever established, to hold on the terms of

that settlement, freed and released from the terms of this
Will.
a Beneficiary; or

Date
2

540 WILL 3 RESIDUE TO SPOUSE/DISCRETIONARY TRUST
1st Witness
Address
2nd Witness
Address

Will 4 Residue To Spouse/IPDI Trust if no Spouse
WILL 4
RESIDUE TO (1) SPOUSE/CIVIL PARTNER
ABSOLUTELY OR (2) IPDI TRUST (IF NO
SPOUSE/CP)
I appoint:

3 Residuary Estate

Spouse if [she] survives me absolutely.

542 WILL 4 RESIDUE TO SPOUSE/IPDI TRUST IF NO SPOUSE
4 Definitions
In this Will:
4.1 “The Children” means all my children whether born before or

after the date of this Will.
Beneficiaries.
only].
partnership.
Trustee.
being.

WILL 4 RESIDUE TO SPOUSE/IPDI TRUST IF NO SPOUSE 543
5 Trust Fund
I give the Trust Fund to the Trustees.1
5.1 The Trust Fund shall be divided into equal shares (“the Shares”) so
that there shall be one Share for each of the Children (whether or
not living at the time of my death).
5.2 The Trustees shall pay the income of the Share to the Child during
his or her life. Section 31 of the Trustee Act 1925 shall not apply to
the trust in this clause.2
5.3 Subject to that, during the Trust Period, the Trustees shall pay
or apply the income of the Share to or for the benefit of any
6 Default clause
Subject to that, the Trust Fund shall be held on trust for the Children who
are living at the date of my death in equal shares absolutely.
7 Overriding Powers

1
This sentence was not included in some earlier editions of this book because it is not necessary.
However experience suggests that it may be easier to follow if it is there.
2
This sentence is only needed if the child is a minor at the time of the death of the testator, but it
should be included in all cases in case children are born after the date of the will: see 14.17 (Life
tenant a minor).

544 WILL 4 RESIDUE TO SPOUSE/IPDI TRUST IF NO SPOUSE

or irrevocable.
a Beneficiary; or

3

WILL 4 RESIDUE TO SPOUSE/IPDI TRUST IF NO SPOUSE 545
Date
1st Witness
Address
2nd Witness
Address

Will 5 Life Interest for Spouse/Gift of NRB
WILL 5
WITH ABSOLUTE GIFT OF UNTRANSFERABLE
NIL RATE BAND
I appoint:

3 Personal Chattels

4 Gift of Untransferable Nil Rate Sum
4.1 I give the Untransferable Nil Rate Sum to [my children in equal
shares] absolutely.1
1
It is not necessary to include a provision for lapse (children predeceasing testator leaving issue)
because s.33 Wills Act 1837 does this. An express provision for lapse could be put in the clause, to

WILL 5 LIFE INTEREST FOR SPOUSE/GIFT OF NRB 547
4.2 “The Untransferable Nil Rate Sum” here means the maximum
amount of cash which I can give on the terms of this clause:
4.2.1 without incurring any liability to Inheritance Tax on my
death; and
4.2.2 without reducing the amount by which the Nil Rate Band
applicable on the death of my Spouse would (apart from this
clause) be increased under section 8A Inheritance Tax Act
1984,
4.2.3 For the purposes of computing the amount of the
Untransferrable Nil Rate Sum it shall be assumed that any
claim which may increase the Untransferable Nil Rate Sum
shall be made2 ; and
Untransferrable Nil Rate Sum it shall be assumed that my
Spouse will not remarry or enter into a civil partnership after
my death.3
4.2.5 My executors shall make a claim under section 8B Inheritance
Tax Act 1984.4
4.2.6 The Untransferable Nil Rate Sum shall be nil if:
4.2.6.1 Inheritance Tax has been abolished at the time of my
death; or
4.2.6.2 I am not [married] at the time of my death.
4.2.7 Any other legacy given by my will or any codicil shall be paid
in priority to the Untransferable Nil Rate Sum.
4.2.8 My executors may ascertain and fi x the amount of the
Untransferable Nil Rate Sum so as to bind all persons inter-
make the position clear to a lay reader, but the form is complex. We prefer to omit it. A provision
for lapse would be appropriate if gift is not to children or descendants of the testator (e.g., a gift
to a class including stepchildren).
2
That is, one must assume that the PRs of the surviving spouse will make any possible claim for
the transferable NRB.
3
This addresses the position if (1) H1 makes a nil rate band gift by his will. (2) W has not previ-
ously married, so (one would think) has only one NRB. So far this is straightforward. (3) W then
In the absence of this sub clause, could the executors of H1 say that the estate of W has a double
compute the nil rate band without worrying about whether or not W might remarry and the
circumstances of any future spouse.
4
This sub- clause is only needed if the testator (having survived a previous spouse) has more than
1 nil rate band: the will should impose a duty so a claim must be made.

548 WILL 5 LIFE INTEREST FOR SPOUSE/GIFT OF NRB
ested under this Will if the executors have discharged the duty
of care set out in section 1(1) Trustee Act 2000.
4.2.9 The Untransferable Nil Rate Sum shall not exceed
£1,000,000.5
5 Residuary Estate

6 Definitions
In this Will:

6.1.1 My Spouse.
Beneficiaries.
6.1.7.2 [any company, body or trust established for charitable pur-
poses only].
5
Since this is a simple absolute gift of the untransferable nil rate sum, this clause does not contain
a £5,000 de minimis provision (intended to prevent a trust of a very small trust fund).


partnership.
Trustee.
being.
6.5.1 my Residuary Estate; and
6.8 “The Nil Rate Band” means the upper limit specified in Schedule
1 Inheritance Tax Act 1984.
7 Trust Fund
during [her] life.
7.2 Subject to that, the Trustees may accumulate the whole or any part
of the income of the Trust Fund during the Trust Period. That
8 Overriding Powers


550 WILL 5 LIFE INTEREST FOR SPOUSE/GIFT OF NRB

or irrevocable.
a Beneficiary; or
9 Default Clause
Subject to that, the Trust Fund shall be held on trust for [my son Adam—
or define the default beneficiary as appropriate] absolutely.


Date
1st Witness
Address
2nd Witness
Address
6

Will 6 Life Interest for Spouse/NRB Trust
WILL 6
WITH DISCRETIONARY TRUST OF
UNTRANSFERABLE NIL RATE BAND
I appoint:

3 Personal Chattels

4 Residuary Estate


WILL 6 LIFE INTEREST FOR SPOUSE/NRB TRUST 553
4.1.2 hold the remainder as set out below.

5 Definitions
In this Will:

5.1.1 My Spouse.
Beneficiaries.
only].
partnership.
5.3 “The Nil Rate Fund” means:
5.3.1 the Untransferable Nil Rate Sum; and
5.4 “The Untransferable Nil Rate Sum” means the maximum
amount of cash which I can give on the terms of the Nil Rate Fund:
death; and
applicable on the death of my Spouse would (apart from the
gift of the Untransferable Nil Rate Sum made in my Will) be
increased under section 8A Inheritance Tax Act 1984,

554 WILL 6 LIFE INTEREST FOR SPOUSE/NRB TRUST

shall be made1; and
my death.2
Tax Act 1984.3
death; or
5.4.6.2 I am not [married] at the time of my death; or
5.4.6.3 The amount of the Untransferable Nil Rate Sum would
otherwise be less than £5,000.
Trustee.
being.
5.7.1 the remainder of my estate after deducting the Nil Rate Fund
and any other legacies; and
1
2
3
one nil rate band: the will should impose a duty so a claim must be made.


5.9 “Trust Property” includes any part of the Trust Fund and the Nil
Rate Fund.
6 Nil Rate Fund
I give the Untransferable Nil Rate Sum to the Trustees.4 During the life-
time of my Spouse and subject to the Overriding Powers below:
6.1 The Trustees may accumulate the whole or any part of the income
of the Nil Rate Fund during the Trust Period. That income shall
be added to the Nil Rate Fund.
apply the income of the Nil Rate Fund to or for the benefit of any
6.3 Subject to that, the Trustees shall add the Nil Rate Fund to the
Trust Fund.
7 The Trust Fund
during [her] life.
7.2 Subject to that, the Trustees may accumulate the whole or any part
of the income of the Trust Fund during the Trust Period. That
4
This sentence was not included in earlier editions of this book because it is not necessary. However
experience suggests that it may be easier to follow if it is there.

8 Overriding Powers

or irrevocable.
a Beneficiary; or
9 Default Clause
Subject to that, the Trust Fund shall be held on trust for [my son Adam—
or define the default beneficiary as appropriate] absolutely.

11 Additional Provisions relating to Nil Rate Fund
Where during the lifetime of my Spouse there are separate sets of Trustees
for the Nil Rate Fund and the Trust Fund:
11.1 The Trustees of the Nil Rate Fund may allow the payment of the
Untransferable Nil Rate Sum to be postponed for such period as
they think fit and in such case no Trustee shall be personally liable
for payment of the Untransferable Nil Rate Sum except to the
extent that he can recover such liability from the Trust Fund.
11.2 If payment is postponed beyond one year from my death, the
Untransferable Nil Rate Sum shall carry interest at the rate appli-
cable to legacies (or shall be on such other terms as the trustees of
the Trust Fund and the trustees of the Nil Rate Fund shall agree).
11.3 The Trustees of the Nil Rate Fund may waive payment of interest
which has accrued and is payable before such interest is paid.
11.4 The Trustees of the Nil Rate Fund may waive the payment of the
whole or any part of the Untransferable Nil Rate Sum.
11.5 The provisions of this clause shall not be exercisable so as to prevent
a Person from being entitled to an interest in possession in the Trust
Fund.
11.6 The provisions of this clause shall not be exercisable so as to give
any Person an interest in possession in the Nil Rate Fund.

5


Date
1st Witness
Address
2nd Witness
Address

Will 7 NRB Trust/Residue to Spouse
WILL 7
DISCRETIONARY TRUST OF
UNTRANSFERABLE NIL RATE BAND;
RESIDUE TO SPOUSE/CIVIL PARTNER
ABSOLUTELY
This precedent is intended for smaller estates. Where, after deduction of the nil
rate band, there remains a substantial residue, it would generally be better to
provide that the residue should be held on trust for the spouse/CP for life; not
absolutely.
I appoint:

3 Definitions
In this Will:

560 WILL 7 NRB TRUST/RESIDUE TO SPOUSE
3.1.1 My Spouse.
Beneficiaries.
only].
partnership.
3.3.1 the Untransferable Nil Rate Sum; and
amount of cash which I can give on the terms of the Nil Rate Fund:
death; and
3.4.2 without reducing the amount by which the Nil Rate
Band applicable on the death of my Spouse would (apart
from the gift of the Untransferable Nil Rate Sum made in
my Will) be increased under section 8A Inheritance Tax Act
1984,
shall be made;1 and
my death.2
1
2

WILL 7 NRB TRUST/RESIDUE TO SPOUSE 561

Tax Act 1984.3
death; or
Trustee.
being.
3.8 “Trust Property” means any part of the Nil Rate Fund.
4 Nil Rate Fund
I give the Untransferable Nil Rate Sum to the Trustees.4 Subject to the
Overriding Powers below:
3
4

4.3 Subject to that, the Nil Rate Fund shall be held on trust for [my son
Adam—or define the default beneficiary as appropriate] absolutely.
5 Overriding Powers

or irrevocable.
a Beneficiary; or
5.4 The Overriding Powers shall be exercisable only

6 Residuary Estate

Spouse absolutely. [It may be desired to provide for a simple
gift over if the Spouse does not survive. Also see will form 8.]
8.1 In this clause “The Nil Rate Trustees” means the trustees of the
Nil Rate Fund.
Spouse may undertake to pay Untransferable Nil Rate Sum personally
8.2
8.2.1 My executors may require the Nil Rate Trustees to accept a
written undertaking from my Spouse.
8.2.2 That undertaking shall be to pay the Untransferable Nil
Rate Sum (or, if less, the value of my Residuary Estate at

the time of the undertaking) to the Nil Rate Trustees on

demand. The undertaking may include any other terms and
in particular:
8.2.2.1 fi xed or floating security;
8.2.2.2 interest;
8.2.2.3 index linking the sum payable.
8.2.3 That undertaking will be in substitution for payment of the
Untransferable Nil Rate Sum by the executors to the Nil Rate
Trustees. My executors shall be under no further liability in
relation to the Untransferable Nil Rate Sum.
Executors may charge residuary estate instead of paying Untransferable Nil Rate
Sum directly
8.3
8.3.1 My executors may charge all or part of my Residuary Estate
with the payment of all or part of the Untransferable Nil Rate
Sum to the Nil Rate Trustees on demand.
8.3.2 That charge may be a fi xed or floating charge. It may include
any other terms and in particular:
8.3.2.1 interest;
8.3.3 To the extent of the amount charged on the property (and
regardless of the value of the property charged):
8.3.3.1 the charge will be in substitution for payment of the
Untransferable Nil Rate Sum by the executors to the
Nil Rate Trustees; and
8.3.3.2 my executors shall be under no further liability in rela-
tion to the Untransferable Nil Rate Sum.
8.3.4 When my executors give an assent of the property charged,
my Spouse shall not thereby become personally liable for the
sum charged.
Untransferable Nil Rate Sum may be left outstanding
8.4 The Nil Rate Trustees may refrain from calling in the Untransferable
Nil Rate Sum (or exercising any rights in relation to the
Untransferable Nil Rate Sum) for as long as they think fit. They
may waive the payment of any income or capital due in respect
of the Untransferable Nil Rate Sum. They shall not be liable if
my Spouse becomes unable to make any payment or if a security
becomes inadequate or for any other loss which may occur through
exercising any power given by this clause.

8.5 The powers given by this clause are exercisable even though my
executors and the Nil Rate Trustees are the same persons.
8.6 My Spouse shall not be the sole Nil Rate Trustee.
8.8 The Untransferable Nil Rate Sum shall carry interest at the rate
applicable to legacies from the third anniversary of my death (if still
outstanding at that time).
8.9 Any asset appropriated in or towards satisfaction of the Untransferable
Nil Rate Sum within three years of my death may be valued for the
purpose of the appropriation at its value at the time of my death.

Date
1st Witness
Address
2nd Witness
Address
5

Will 8 untransferable NRB trust/residue to spouse
WILL 8
DISCRETIONARY TRUST OF
UNTRANSFERABLE NIL RATE BAND
RESIDUE TO:
(1) SPOUSE/CIVIL PARTNER ABSOLUTELY
(2) DISCRETIONARY TRUST (IF NO SPOUSE/CP)
I appoint:

3 Residuary Estate


WILL 8 UNTRANSFERABLE NRB TRUST/RESIDUE TO SPOUSE 567
Tax shall be payable out of the capital of my estate (subject

to the Trustees’ administrative powers relating to capital and
income).
4 My executors shall hold my Residuary Estate on trust for my Spouse if

[she] survives me absolutely.
5 Definitions
In this Will:

5.1.1 My Spouse.
Beneficiaries.
only].
partnership.
amount of cash which I can give on the terms of the Trust Fund:
death; and
applicable on the death of my Spouse would (apart from the
gift of the Untransferable Nil Rate Sum made in my Will) be
increased under section 8A Inheritance Tax Act 1984,

568 WILL 8 UNTRANSFERABLE NRB TRUST/RESIDUE TO SPOUSE

shall be made;1 and
my death.2
Tax Act 1984.3
death; or
Trustee.
being.
5.6.1 if my Spouse survives me, the Untransferable Nil Rate Sum
only; and
1
2
3

6 Trust Fund
I give the Trust Fund to the Trustees.4 Subject to the Overriding Powers
below:
of the Trust Fund during the Trust Period. That income shall be
added to the Trust Fund.
6.3 Subject to that, the Trust Fund shall be held on trust for [my son
Adam—or specify default beneficiary as appropriate] absolutely.
7 Overriding Powers

or irrevocable.
4


a Beneficiary; or
9 Additional Provisions relating to Nil Rate Sum
Untransferable Nil Rate Sum.
Spouse may undertake to pay Untransferable Nil Rate Sum personally
9.2
written undertaking from my Spouse.
9.2.2 That undertaking shall be to pay the Untransferable Nil Rate

Sum (or, if less, the value of my Residuary Estate at the time

of the undertaking) to the Nil Rate Trustees on demand. The
undertaking may include any other terms and in particular:
9.2.2.2 interest;
Untransferable Nil Rate Sum by the executors to the Nil Rate
Trustees. My executors shall be under no further liability in
relation to the Untransferable Nil Rate Sum.
Executors may charge residuary estate instead of paying Untransferable Nil Rate
Sum directly
9.3
with the payment of all or part of the Untransferable Nil Rate
Sum to the Nil Rate Trustees on demand.
9.3.2.1 interest;
9.3.3.1 the charge will be in substitution for payment of the
Untransferable Nil Rate Sum by the executors to the
Nil Rate Trustees; and
tion to the Untransferable Nil Rate Sum.
9.3.4 When my executors give an assent of the property charged,
my Spouse shall not thereby become personally liable for the
sum charged.
Untransferable Nil Rate Sum may be left outstanding
9.4 The Nil Rate Trustees may refrain from calling in the Untransferable
Nil Rate Sum (or exercising any rights in relation to the
Untransferable Nil Rate Sum) for as long as they think fit. They
may waive the payment of any income or capital due in respect
of the Untransferable Nil Rate Sum. They shall not be liable if
my Spouse becomes unable to make any payment or if a security
becomes inadequate or for any other loss which may occur through
exercising any power given by this clause.

9.6 My Spouse shall not be the sole Nil Rate Trustee.
9.8 The Untransferable Nil Rate Sum shall carry interest at the rate
applicable to legacies from the third anniversary of my death (if still
outstanding at that time).
9.9 Any asset appropriated in or towards satisfaction of the Untransferable
Nil Rate Sum within three years of my death may be valued for the
purpose of the appropriation at its value at the time of my death.

Date
1st Witness
Address
2nd Witness
Address
5

Will 9 NRB Trust/Residue to cohabitee
WILL 9
NIL RATE BAND DISCRETIONARY TRUST;
RESIDUE TO COHABITEE (NOT SPOUSE/CIVIL
PARTNER) ABSOLUTELY
Note: This precedent is intended for a testator who is not married or a civil partner.
Where, after deduction of the nil rate band, there remains a substantial residue, it
would generally be better to provide that the entire residue should be held on discre-
tionary will trusts (will 1).
I appoint:

3 Definitions
In this Will:

574 WILL 9 NRB TRUST/RESIDUE TO COHABITEE
3.1.1 My Partner.
Beneficiaries.
only].
partnership.
3.3.1 the Nil Rate Sum; and
3.4
3.4.1 “The Nil Rate Sum” means A–B where:
3.4.1.1 A is the upper limit specified in Schedule 1 Inheritance
Tax Act 1984 applicable to the chargeable transfer made
on my death; and
3.4.1.2 B is the aggregate of the values transferred by any
chargeable transfers made by me in the period of seven
years ending with the day of my death, disregarding
transfers made on that day;
3.4.2 The Nil Rate Sum shall be nil if:

death; or
3.4.2.2 The amount of the Nil Rate Sum would otherwise be
less than £5,000.
in priority to the Nil Rate Sum.
3.4.4 My executors may ascertain and fi x the amount of the Nil
Rate Sum so as to bind all persons interested under this Will

WILL 9 NRB TRUST/RESIDUE TO COHABITEE 575
if the executors have discharged the duty of care set out in

section 1(1) Trustee Act 2000.
3.5 “My Partner” means [specify name of partner].
Trustee.
being.
3.9 “Trust Property” means any part of the Nil Rate Fund.
4 Nil Rate Fund
I give the Nil Rate Sum to the Trustees.1 Subject to the Overriding
Powers below:
4.3 Subject to that, the Nil Rate Fund shall be held on trust for [my son
Adam—or define the default beneficiary as appropriate] absolutely.
5 Overriding Powers

1


or irrevocable.
a Beneficiary; or
5.4 The Overriding Powers shall be exercisable only
6 Residuary Estate

Partner absolutely. [It may be desired to provide for a simple
gift over if the Partner does not survive.]

WILL 9 NRB TRUST/RESIDUE TO COHABITEE 577
Nil Rate Fund.
Surviving Partner may undertake to pay Nil Rate Sum personally
8.2
written undertaking from my Partner.
8.2.2 That undertaking shall be to pay the Nil Rate Sum (or, if less,
the value of my Residuary Estate at the time of the undertak-
ing) to the Nil Rate Trustees on demand. The undertaking
may include any other terms and in particular:
8.2.2.2 interest;
Nil Rate Sum by the executors to the Nil Rate Trustees. My
executors shall be under no further liability in relation to the
Nil Rate Sum.
Executors may charge residuary estate instead of paying Nil Rate Sum directly
8.3
with the payment of all or part of the Nil Rate Sum to the Nil
Rate Trustees on demand.
8.3.2.1 interest;

8.3.3.1 the charge will be in substitution for payment of the Nil

Rate Sum by the executors to the Nil Rate Trustees;
and
tion to the Nil Rate Sum.
8.3.4 My executors may transfer the property charged to my
Partner who shall not thereby become personally liable for the
sum charged.
Nil Rate Sum may be left outstanding
8.4 The Nil Rate Trustees may refrain from calling in the Nil Rate
Sum (or exercising any rights in relation to the Nil Rate Sum) for as
long as they think fit. They may waive the payment of any income
or capital due in respect of the Nil Rate Sum. They shall not be
liable if my Partner becomes unable to make any payment or if a
security becomes inadequate or for any other loss which may occur
through exercising any power given by this clause.
8.6 My Partner shall not be the sole Nil Rate Trustee.
8.8 The Nil Rate Sum shall carry interest at the rate applicable to lega-
cies from the third anniversary of my death (if still outstanding at
that time).
8.9 Any asset appropriated in or towards satisfaction of the Nil Rate
Sum within three years of my death may be valued for the purpose
of the appropriation at its value at the time of my death.

Date
1st Witness
Address
2nd Witness
Address

PRECEDENTS FOR ADMINISTRATIVE

PROVISIONS
LIFETIME TRUSTS
The following material is the basis for the schedule of administrative provisions in
a lifetime trust when the STEP Standard Provisions are not used. The equivalent
for a will is available on the CD ROM with this book (not printed in the book for
reasons of space).
1 Additional powers
The Trustees have the following additional powers:
1.1 Investment
1.1.1 The Trustees may make any kind of investment that they could
make if they were absolutely entitled to the Trust Fund. In par-
ticular the Trustees may invest in land in any part of the world and
unsecured loans.
1.1.2 The Trustees are under no obligation to diversify the Trust Fund.
1.1.3 The Trustees may invest in speculative or hazardous investments
but this power may only be exercised at the time when there are at
least two Trustees, or the Trustee is a company carrying on a busi-
ness which consists of or includes the management of trusts.
1.2 Joint property
The Trustees may acquire property jointly with any Person and may blend
Trust Property with other property.

580 PRECEDENTS FOR ADMINISTRATIVE PROVISIONS
1.3 General power of management and disposition
The Trustees may effect any transaction relating to the management or

disposition of Trust Property as if they were absolutely entitled to it.
1.4 Improvement
The Trustees may develop or improve Trust Property in any way. Capital
expenses need not be repaid out of income under section 84(2) of the
Settled Land Act 1925, if the Trustees think fit.
1.5 Income and capital
1.5.1 The Trustees may acquire:

1.5.1.1 wasting assets and
1.5.1.2 assets which yield little or no income
for investment or any other purpose.
1.5.2 The Trustees are under no duty to procure distributions from a
company in which they are interested.
1.5.3 The Trustees may pay taxes and other expenses out of capital or
income whether or not they would otherwise be so payable.
1.5.4 Generally, the Trustees are under no duty to hold a balance between
confl icting interests of Beneficiaries.
1.5.5 Income may be set aside and invested to answer any liabilities
which in the opinion of the Trustees ought to be borne out of
income or to meet depreciation of the capital value of any Trust
Property. In particular, income may be applied for a leasehold
1.6 Application of trust capital as income
The Trustees may apply Trust Property as if it were income arising in the
current year. In particular, the Trustees may pay such income to an Income
Beneficiary as his income, for the purpose of augmenting his income.
“Income Beneficiary” here means a Person to whom income of the
Property is payable (as of right or at the discretion of the Trustees).
1.7 Use of trust property
1.7.1 The Trustees may acquire any interest in property anywhere in the
world for occupation or use by an Income Beneficiary.

PRECEDENTS FOR ADMINISTRATIVE PROVISIONS 581
1.7.2 The Trustees may permit an Income Beneficiary to occupy or use

Trust Property on such terms as they think fit.
1.7.3 The Trustees may lend trust money to an Income Beneficiary.
The loan may be interest free and unsecured, or on such terms as
the Trustees think fit. The Trustees may charge Trust Property as
security for debts or obligations of an Income Beneficiary.
1.7.4 “Income Beneficiary” here means a Person to whom income of the
Property is payable (as of right or at the discretion of the Trustees).
1.7.5 This paragraph does not restrict any right of Beneficiaries to occupy
land under the Trusts of Land and Appointment of Trustees Act 1996.
1.8 Trade
The Trustees may carry on a trade, in any part of the world, alone or in
partnership.
1.9 Borrowing
The Trustees may borrow money for investment or any other purpose.
Money borrowed shall be treated as Trust Property.
1.10 Delegation
A Trustee or the Trustees jointly (or other Person in a fiduciary position)

may authorise any Person to exercise all or any functions on such terms as
to remuneration and other matters as they think fit. A Trustee (or other
Person in a fiduciary capacity) shall not be responsible for the default of that
Person (even if the delegation was not strictly necessary or expedient) pro-
vided he took reasonable care in his selection and supervision. None of the
restrictions on delegation in sections 12 to 15 Trustee Act 2000 shall apply.
1.11 Nominees and custodians
1.11.1 The Trustees may appoint a Person to act as their nominee in rela-
tion to such of the assets of the trust as they may determine. They
may take such steps as are necessary to secure that those assets are
vested in the nominee.
1.11.2 The Trustees may appoint a Person to act as custodian in relation to
such of the assets of the trust as they may determine. The Trustees
may give the custodian custody of the assets and any documents
or records concerning the assets. The Trustees are not obliged to
appoint a custodian of securities payable to bearer.

1.11.3 The Trustees may appoint a Person to act as nominee or custodian on

such terms as to remuneration and other matters as they may think fit.
1.12 Place of administration
The Trustees may carry on the administration of this Trust anywhere they
think fit.
1.13 Indemnities
The Trustees may indemnify any Person for any liability relating to the
Trust.
1.14 Security
The Trustees may mortgage or charge Trust Property as security for any
liability incurred by them as Trustees (and may grant a floating charge so
far as the law allows).
1.15 Supervision of company
The Trustees are under no duty to enquire into the conduct of a company
in which they are interested, unless they have knowledge of circum-
stances which call for enquiry.
1.16 Appropriation
The Trustees may appropriate Trust Property to any Person or class of

Persons in or towards the satisfaction of their interest in the Trust Fund.
1.17 Receipt by charities
Where Trust Property is to be paid or transferred to a charity or non-

charitable association or company, the receipt of the treasurer or appropri-
ate officer of the organisation shall be a complete discharge to the Trustees.
1.18 Release of powers
The Trustees (or other Person in a fiduciary position) may by deed release
wholly or in part any of their rights or functions and (if applicable) so as
to bind their successors.
1.19 Ancillary powers
The Trustees may do anything which is incidental or conducive to the

exercise of their functions.

2 Minors
2.1 Where the Trustees may apply income for the benefit of a minor,
they may do so by paying the income to the minor’s parent or
guardian on behalf of the minor, or to the minor if the minor has
attained the age of 16. The Trustees are under no duty to inquire
into the use of the income unless they have knowledge of circum-
stances which call for inquiry.
they may do so by resolving that they hold that income on trust for
the minor absolutely and:
2.2.1 The Trustees may apply that income for the benefit of the
minor during his minority.
2.2.2 The Trustees shall transfer the residue of that income to the
minor on attaining the age of 18.
2.2.3 For investment and other administrative purposes that income
shall be treated as Trust Property.
3 Mentally handicapped beneficiary
Where income or capital is payable to a Beneficiary who does not have

the mental capacity to appoint an attorney under a lasting power of
attorney which related to the property and affairs of the Beneficiary,
the Trustees may (subject to the directions of the Court or a deputy
appointed under the Mental Capacity Act whose powers include receiv-
ing such income or capital) apply that income or capital for the benefit
of the Beneficiary.
4 Disclaimer
A Person may disclaim his interest in this Trust wholly or in part.
5 Apportionment
Income and expenditure shall be treated as arising when payable, and not
from day to day, so that no apportionment shall take place.

6 Conflicts of interest
6.1 In this paragraph:

6.1.1 “Fiduciary” means a Person subject to fiduciary duties under
the Trust.
6.1.2 “An Independent Trustee”, in relation to a Person, means a
Trustee who is not:
6.1.2.1 a brother, sister, ancestor, descendant or dependant of
the Person;
6.1.2.2 a spouse or Civil Partner of paragraph .1.2.1 above, or
a spouse or Civil Partner of the Person;
6.1.2.3 a company controlled by one or more of any of the above.
6.2 Subject to subparagraph .3 below a Fiduciary may:
6.2.1 enter into a transaction with the Trustees, or
6.2.2 be interested in an arrangement in which the Trustees are or
might have been interested, or
6.2.3 act (or not act) in any other circumstances;
even though his fiduciary duty under the Trust confl icts with other
duties or with his personal interest.
6.3 Subparagraph .2 above only has effect if:
6.3.1 the Fiduciary first discloses to the Trustees the nature and
extent of any material interest confl icting with his fiduciary
duties, and
6.3.2 there is in relation to the Fiduciary an Independent Trustee in
respect of whom there is no confl ict of interest, and he consid-
ers that the transaction arrangement or action is not contrary
to the general interest of the Trust.
6.4 The powers of the Trustees may be used to benefit a Trustee (to the
same extent as if he were not a Trustee) provided that:
6.4.1 there is in relation to that Trustee an Independent Trustee in
respect of whom there is no confl ict of interest, or
6.4.2 the Trustees consist of or include all the trustees originally
appointed under this Trust.
7 Absolute discretion clause
7.1 The powers of the Trustees may be exercised:

7.1.1 at their absolute discretion; and

7.1.2 from time to time as occasion requires.
7.2 The Trustees are not under any duty to consult with any
Beneficiaries or to give effect to the wishes of any Beneficiaries.
8 Trustee remuneration
8.1 A Trustee acting in a professional capacity is entitled to receive

reasonable remuneration out of the Trust Fund for any services that
the trustee provides to or on behalf of this Trust.
8.2 For this purpose, a Trustee acts in a professional capacity if the
trustee acts in the course of a profession or business which consists
of or includes the provision of services in connection with:
8.2.1 the management or administration of trusts generally or a
particular kind of trust, or
8.2.2 any particular aspect of the management or administration of
trusts generally or a particular kind of trust.
8.3 The Trustees may make arrangements to remunerate themselves for
work done for a company connected with the Trust Fund.
9 Commissions and bank charges
9.1 A Person may retain any reasonable commission or profit in respect

of any transaction relating to this Trust even though that commis-
sion or profit was procured by an exercise of fiduciary powers (by
that Person or some other Person) provided that:
9.1.1 The Person would in the normal course of business receive
and retain the commission or profit on such transaction.
9.1.2 The receipt of the commission or profit shall be disclosed to
the Trustees.
9.2 A bank may make loans to the Trustees and generally provide
banking services upon its usual terms and shall not be liable to
account for any profit so made even though the receipt of such
profit was procured by an exercise of fiduciary powers (by the bank
or some other Person).

10 Liability of trustees
10.1 The duty of reasonable care (set out in section 1 Trustee Act 2000)
applies to all the functions of the Trustees.
10.2 A Trustee shall not be liable for a loss to the Trust Fund unless that
loss was caused by his own fraud or negligence.
10.3 A Trustee shall not be liable for acting in accordance with the
advice of Counsel, of at least ten years’ standing, with respect to the
Trust. The Trustees may in particular conduct legal proceedings in
accordance with such advice without obtaining a Court Order. A
Trustee may recover from the Trust Fund any expenses where he
has acted in accordance with such advice.
10.4 The above sub-paragraph does not apply:
10.4.1 if the Trustee knows or has reasonable cause to suspect that
the advice was given in ignorance of material facts;
10.4.2 if proceedings are pending to obtain the decision of the court
on the matter;
10.4.3 in relation to a Trustee who has a personal interest in the
subject matter of the advice; or
10.4.4 in relation to a Trustee who has committed a breach of trust
relating to the subject matter of the advice prior to obtaining
the advice.
10.5 The Trustees may distribute Trust Property or income in accord-
ance with this Trust but without having ascertained that there is no
Person who is or may be entitled to any interest therein by virtue
of a relationship unknown to the Trustees. The Trustees shall not
be liable to such a Person unless they have notice of his claim at the
time of the distribution.
10.6 This paragraph does not prejudice any right of any Person to follow
property or income into the hands of any Person, other than a pur-
chaser, who may have received it.
11 Appointment and retirement of trustees
11.1 A Person may be appointed Trustee of the Trust even though he has
no connection with the United Kingdom.
11.2 A Trustee may be discharged even though there is neither a trust
corporation nor two Persons to act as trustees provided that there
remains at least one trustee.

12 Change of governing law
The Trustees may during the Trust Period by deed with the consent of the
Settlor during his life or of two Beneficiaries after his death declare that
from the date of such declaration:
12.1 The law of any Qualifying Jurisdiction governs the validity of this
Trust, and its construction, effects and administration, or any sever-
able aspect of this Trust; and
12.2 The courts of any Qualifying Jurisdiction have exclusive jurisdic-
tion in any proceedings involving rights or obligations under this
Trust.
In this paragraph a “Qualifying Jurisdiction” is one which rec-

ognises trusts (as defined in the Hague Convention on the Law
Applicable to Trusts and on their Recognition).
13 Interest in possession protection clause
The provisions of this schedule shall not have effect so as to prevent a

Person from being entitled to an interest in possession in Trust Property
(within the meaning of the Inheritance Tax Act 1984).
For a discretionary trust, omit clause 13 (interest in possession protection clause) and
at end of clause 1.19 add:
1.20 Power to pay insurance premiums out of income
The Trustees may pay premiums of any insurance policy out of income.
1.21 Waiver of income
The Trustees may waive the payment of income before it becomes due.

FORM NRB APPOINTMENT 1

(WINDING UP NRB TRUST: SPOUSE/CP ABSOLUTELY)

WHEREAS:
(A) This Deed is supplemental to the will (“the Will”) made [date] by
[name] (“the Testator”).
(B) The Testator died on [date].
(C) Clause . . . confers on the Trustees the following power (“the Power
of Appointment”):
[set out the power].
(D) The Present Trustees are the present trustees of [the Nil Rate Fund]
[The Trust Fund]. [Will 5 refers to the Nil Rate Fund and Will 6 refers
to the Trust Fund]
1. In this deed, [the Nil Rate Fund] [The Trust Fund] has the same
meaning as in the Will.
2. In exercise of the Power of Appointment the Present Trustees
irrevocably appoint that they hold the [the Nil Rate Fund] [The
Trust Fund] upon trust for [name of spouse] absolutely.
In witness etc


(WINDING UP NRB TRUST: IP TRUST FOR SPOUSE/CP)
This form is intended for use with Will Form 6

This deed should be executed more than three months after but less than two years
after the death of the testator

WHEREAS:
of Appointment”):
(D) The Present Trustees are the present trustees of the Nil Rate Fund
and the Trust Fund.
1. In this deed, “the Nil Rate Fund” and “the Trust Fund” have the
same meaning as in the Will.
irrevocably appoint that they hold the Nil Rate Fund on the same
terms as the Trust Fund as one fund for all purposes.
In witness etc


(CONVERTING NRB TRUST TO IP TRUST FOR SPOUSE/CP)
This form is intended for use with Will Forms 7–9

This deed should be executed more than three months after but less than two years
after the death of the testator

WHEREAS:
of Appointment”):
(D) The Present Trustees are the present trustees of the [Nil Rate Fund]
[Untransferable Nil Rate Sum]1.
1
Will 8 refers to the Untransferable Nil Rate Sum and Wills 7 and 9 to the Nil Rate Fund

FORM NRB APPOINTMENT 3 591
1. In this deed, the [Nil Rate Fund] [Untransferable Nil Rate Sum]
has the same meaning as in the Will.
2. In exercise of the Power of Appointment the Present Trustees irrev-
ocably appoint that they hold the [Nil Rate Fund] [Untransferable
Nil Rate Sum] on the following terms.
3. Subject to the Overriding Powers conferred by the Will, the Trustees
shall pay the income of the [Nil Rate Fund] [Untransferable Nil
Rate Sum] to [name of spouse/civil partner] during [his/her] life
and subject to that the Will shall stand.
In witness etc


(REDUCING GIFT TO NRB TRUST TO
UNTRANSFERABLE NRB)

WHEREAS:
of Appointment”):
(D) The Present Trustees are the present trustees of [the Nil Rate Fund]
[The Trust Fund]. [Will 5 refers to the Nil Rate Fund and Will 6 refers
to the Trust Fund]
1. In this deed:
amount of cash which the Testator can give on the terms of
[the Nil Rate Fund] [The Trust Fund]:

FORM NRB APPOINTMENT 4 593
1.1.1 without incurring any liability to Inheritance Tax on

[his] death; and
1.1.2 without reducing the amount by which the Nil Rate
Band applicable on the death of [name of spouse] would
(apart from the gift of the Nil Rate Sum made in the
Will as affected by this deed) be increased under section
8A Inheritance Tax Act 1984,
1.1.3 It shall be assumed that:
1.1.3.1 any claim which may increase the Untransferable
Nil Rate Sum shall be made; and
1.1.3.2 [name of spouse] of the testator will not
remarry or enter into a civil partnership after
my death.
1.1.4 My executors have made or shall make a claim under
section 8B Inheritance Tax Act 1984.
1.1.5 “Nil Rate Band” means the upper limit specified in
Schedule 1 Inheritance Tax Act 1984.
irrevocably appoint that they hold the [the Nil Rate Fund] [The
Trust Fund] apart from the Untransferable Nil Rate Sum upon trust
for [name of spouse] absolutely.
3. Subject to that the Will shall stand.
In witness etc

FORM NRB APPROPRIATION AND

APPOINTMENT
This deed is intended to carry out a NRB appropriation scheme. The testator’s
interest in the family home (or part of it) is appropriated to the trustees in satisfaction
of the NRB legacy and a life interest is appointed to the surviving spouse.
It is assumed:
(1) The testator died leaving a classic NRB trust with balance to spouse abso-
lutely in the forms of Will 5 or 6 in the 9th or earlier editions of this book
(2) It is not desired to wind up the NRB trust.
(3) The widow of the testator survived the testator (and is living at the time of
the appointment and not disabled in the IHT sense.)
Time limits: this deed should be executed more than two years and less than three
years after the death of the testator.
This deed is made [date] between
(1) [Name] of [address] (“the Spouse”) and

(2) (a) [Name] of [address] and
(b) [Name] of [address]
WHEREAS:
(A) This deed is supplemental to the will (“the Will”) made [date] by

FORM NRB APPROPRIATION AND APPOINTMENT 595
(B) The Testator died on [date] and probate was granted on [date] by
the [name] registry to the Present Trustees.
(C) The Present Trustees are the present trustees of [the Nil Rate Fund]
[the Trust Fund]. [Will 5 refers to the Nil Rate Fund and Will 6 refers
to the Trust Fund]
(D) The Testator’s estate includes the property described in clause 1.2
below.
(E) The STEP standard provisions (incorporated by clause [ ]1 confer
on the Present Trustees a power of appropriation (“the Power of
Appropriation”).
(F) Clause [ ] 2 of the Will provides:
“Any asset appropriated in or towards satisfaction of the Nil Rate Sum within
three years of my death may be valued for the purpose of the appropriation at its
value at the time of my death”
(G) Clause [ ] 3 of the Will confers on the Present Trustees the following
power (“the Power of Appointment”):
[set out power]
NOW THIS DEED WITNESSES as follows:

1. In this deed:
1.1 “The Trustees” means the trustees for the time being of the
[Nil Rate Fund] [the Trust Fund].
1.2 “The Property” means [a [specify] share in]4 the property
described in the schedule below.
1.3 [“The Nil Rate Sum”][“The Untransferable Nil Rate
Sum”], [“the Nil Rate Fund”][“the Trust Fund”] and
“Overriding Powers” have the same meaning as in the
Will. [The 9th edition refers to the Untransferable Nil Rate Sum
and the 8th and earlier editions to the Nil Rate Sum; Will 5 refers
to the Nil Rate Fund and Will 6 refers to the Trust Fund in all
editions]
2. In exercise of the Power of Appropriation the Present Trustees
appropriate the Property [in] 5 [towards] 6 satisfaction of [the
Untransferable Nil Rate Sum] [the Nil Rate Sum].
1
The STEP provisions are incorporated by clause 7 of Will 5 and clause 8 of Will 6.
2
The provision is set out in clause 8.9 of Will 5 and clause 9.9 of Will 6.
3
The power of appointment is set out in clause 5.1 of Will 5 and clause 7.1 of Will 6.
4
Include words in squared brackets if the value of the testator’s interest exceeds the nil rate sum.
5
Include “in” and delete “towards” if the value of the testator’s interest exceed the nil rate sum.
6
Include “towards” and delete “in” if the value of the testator’s interest is within the nil rate sum.

596 FORM NRB APPROPRIATION AND APPOINTMENT
3. For the purposes of this appropriation the Property shall be valued

at its value at the time of the Testator’s death.
4. In exercise of the Power of Appointment the Present Trustees revo-
cably appoint that they hold [the Nil Rate Fund] [the Trust Fund]
on the following terms.
5. Subject to the Overriding Powers the Trustees shall pay the income
of [the Nil Rate Fund] [the Trust Fund] to the Spouse during [her]
life.
6. The Present Trustees and the Spouse declare that they hold their
interests in the property described in the Schedule below so as to
be available to the Spouse for [her] occupation under section 12 of
the Trusts of Land and Appointment of Trustees Act 1996.
7. The Spouse undertakes to keep the property described in the
schedule below insured and in good repair and meet all outgoings
relating to that property.
8. The Trustees may, during the Trust Period, by deed wholly or
partly revoke the appointment contained in this deed.
9. Subject to that, the Will shall stand.
In witness etc
The Schedule:
[specify details of property]

FORM NRB CHARGE
This precedent is for the purpose of the arrangements discussed at chapter 19 (NRB
charge arrangements) if it is desired not wind up the NRB trust, or to use the appro-
priation or debt arrangement. It assumes the Will is drafted in form 5 in the current
edition of this book. Of course one must review the actual Will in each case. For an
additional clause where the amount of the Nil Rate Sum is uncertain, see recital E
and clause 3 of the spouse NRB undertaking. Following execution there should be
a restriction on the Land Register in Form A Schedule 1 Land Registration Rules
2003.
This Equitable Charge is made [date] by:
1 [Name] of [address] and

2 [Name] of [address]
(“the Executors”).
Whereas:
the [name] registry to the Executors.
(C) The estate of the Testator includes the property described in the
schedule below.
(D) Clause [8.3] of the Will provides:
“8.3.1 My executors may charge all or part of my Residuary Estate
with the payment of all or part of the Nil Rate Sum to the Nil
Rate Trustees on demand.

598 FORM NRB CHARGE

8.3.2.1 interest;
8.3.3.1 the charge will be in substitution for payment of the Nil
Rate Sum by the executors to the Nil Rate Trustees;
and
tion to the Nil Rate Sum.”
Now this deed witnesses as follows.
1. In this deed:
1.1 “The Nil Rate Sum” and “the Nil Rate Trustees” have
the same meaning as in the Will.
1.2 “The Index Linked Nil Rate Sum” means A + (A × B)
where:
1.2.1 A is the Nil Rate Sum
1.2.2 B = (RD – RI)/RI (rounded to the nearest third
decimal place).
1.2.3 RI is the Retail Prices Index for the month that this
agreement is executed.
1.2.4 RD is the Retail Prices Index for the month before
the month in which the Index Linked Nil Rate Sum is
paid.1
1.3 “The Retail Prices Index” means:
1.3.1 the general index of retail prices (for all items) published
by the Office for National Statistics, or
1.3.2 if that index is not published for a relevant month, any
substituted index or index figures published by that
Office,
1.3.3 subject to that, the substituted index or index figures
which the Nil Rate Trustees (acting reasonably) think
appropriate.2
1
The index linking provision is drawn from s.54 TCGA 1992.
2
The defi nition of the RPI is drawn from s.989 ITA.

FORM NRB CHARGE 599
2. The Executors charge the property specified in the Schedule with

the payment of [all] 3 the Index Linked Nil Rate Sum.
Payment shall fall due forthwith on demand by the Nil Rate
Trustees or forthwith on notice given to the Nil Rate Trustees by
the beneficial owner of the property subject to this charge.
3. Interest is not due on the Index Linked Nil Rate Sum.
In witness etc
The Schedule:
The one half share of the Testator in [specify details of property]
3
If the Nil Rate Sum exceeds the value of the charged property, there is a choice:
(1) A part of the Nil Rate Sum is charged on the property, and the balance is paid to the NRB
trustees. This maximises the IHT advantages.
(2) The whole of the Nil Rate Sum is charged on the property and nothing is paid to the
NRB trustees. This wastes some of the testator’s available nil rate band. On the death of
the spouse, an IHT deduction for the charge cannot (in short) exceed the then value of the
charged property. However it is administratively convenient.

FORM NRB UNDERTAKING
This precedent is for the purpose of the arrangements discussed at 19.7

(Implementation of debt scheme) if it is not desired to wind up the nil rate trust, or
to use the appropriation arrangement. It assumes the Will is drafted in form 5 in
the current edition of this book. Of course one must review the actual Will in each
case. This precedent is for a spouse; amendments for a civil partner will be needed,
if appropriate.
This Deed is made [date] between:

1 [Name of Spouse] of [address] (“the Spouse”) of the one part and
2 (a) [Name] of [address] and
(“the Executors”) of the other part.1
Whereas:
the [name] registry to the Executors.
(C) Clause [8.2] of the Will provides:
“[8.2.1] My executors may require the Nil Rate Trustees to accept a
written undertaking from my spouse.
[8.2.2] That undertaking shall be to pay the Nil Rate Sum (or, if
less, the value of my Residuary Estate at the time of the
undertaking) to the Nil Rate Trustees on demand. The
undertaking may include any other terms and in particular:
1
The executors and the trustees are the same persons and they should not be regarded as separate
parties.

FORM NRB UNDERTAKING 601
[8.2.2.1] fi xed or floating security;

[8.2.2.2] interest;
[8.2.2.3] index linking the sum payable.
[8.2.3] That undertaking will be in substitution for payment of the
Nil Rate Sum by the executors to the Nil Rate Trustees. My
executors shall be under no further liability in relation to the
Nil Rate Sum.”
[Where a valuation of the residuary estate is needed2 add:
(D) Section 22(3) Trustee Act 1925 provides:
“Trustees may, for the purpose of giving effect to the trust . . . (by duly quali-
fied agents) ascertain and fi x the value of any trust property in such manner as
they think proper, and any valuation so made shall be binding upon all persons
interested under the trust if the trustees have discharged the duty of care set out
in section 1(1) of the Trustee Act 2000.”]
[Where there is uncertainty over the amount of the Nil Rate Sum3 add:
(E) Clause 3.5.7 of the Will provides:
“My Executors may ascertain and fi x the amount of the Nil Rate Sum so as to
bind all persons interested under this Will if the Executors have discharged the
duty of care set out in section 1(1) Trustee Act 2000.”]
1. In this deed:
1.1 “The Nil Rate Sum” and “the Nil Rate Trustees” have
the same meaning as in the Will.
1.2 “The Index Linked Nil Rate Sum” means A + (A x B)
where:
1.2.1 A is the lesser of the Nil Rate Sum and the value of the
residuary estate on the date of this deed.4
1.2.2 B = (RD – RI)/RI (rounded to the nearest third
decimal place).
1.2.3 RI is the Retail Prices Index for the month that this
agreement is executed.
1.2.4 RD is the Retail Prices Index for the month before
2
Because the residuary estate is or may be worth less than the nil rate sum (as defi ned). The under-
taking is to pay the lesser of the nil rate sum and the value of the residuary estate: see Recital C.
3
E.g. because the testator has made gifts within seven years of death, and it is not clear what
their value is, or whether they qualify for an IHT relief such as the normal expenditure
exemption.
4
This can be simplified depending on the facts of the case. If the value of the residuary estate
exceeds the amount of the nil rate sum, simply say: A is the Nil Rate Sum. If the value of the
residuary estate is less than the amount of the nil rate sum, say: A is the value of the residuary
estate at the date of the deed.

602 FORM NRB UNDERTAKING
the month in which the Index Linked Nil Rate Sum is

paid.5
1.3 “The Retail Prices Index” means:
1.3.1 the general index of retail prices (for all items) published
by the Office for National Statistics, or
1.3.2 if that index is not published for a relevant month, any
substituted index or index figures published by that
Office,
1.3.3 subject to that, the substituted index or index figures
which the Nil Rate Trustees (acting reasonably) think
appropriate.6
2. [if appropriate (see recital D): The Executors ascertain and fi x the value of
the residuary estate at the date of this deed as £xxx]
3. [if appropriate (see recital E): The Executors ascertain and fi x the amount
of the Nil Rate Sum as £xxx]
4. The Spouse undertakes to pay the Index Linked Nil Rate Sum on
demand to the Nil Rate Trustees.
5. The Spouse is entitled to pay the Index Linked Nil Rate Sum at any
time.
6. Interest is not due on the Index Linked Nil Rate Sum.7
7. The benefit of this spouse undertaking may be assigned on the
appointment of new trustees or on a distribution of trust property
to a beneficiary for no consideration but subject to that shall not be
assignable.
8. In consideration of the Spouse undertaking to pay the Index Linked
Nil Rate Sum, the Executors require the Nil Rate Trustees to
accept that undertaking in substitution for payment of the Nil Rate
Sum by the Executors to the Nil Rate Trustees.
In witness etc
5
The index linking provision is drawn from s.54 TCGA 1992.
6
The defi nition of the RPI is drawn from s.989 ITA.
7
We have considered providing in the documentation for interest to accrue on the spouse’s debt
(rolled up during the life of the spouse). This is attractive from an IHT viewpoint but it raises IT
problems and on balance we think it better not to do this.

APPOINTMENTS OF NEW TRUSTEES
Retirement and appointment of new trustee: Settlor is

appointor
This deed of appointment of new trustees is made [date] between
(1) [Name] of [address] (“the Settlor”) of the first part

(2) (a) The Settlor and
(“the Continuing Trustees”) of the second part
(3) [Name] of [address] (“the New Trustee”) of the third part and
(4) [Name] of [address] (“the Retiring Trustee” of the fourth part.
WHEREAS:

(1) A trust (“the Trust”) made [date] between (1) the Settlor and
(2)(a) the Settlor (b) [name of other original trustee] [(c) con-
tinue with names of other original trustees, if any].
(2) A deed of appointment made [date] by [parties].
[Set out all deeds of appointment and retirement of trustees]
(B) Clause . . . of the Trust confers on the Settlor the power of appoint-
ing new trustees.
(C) The Retiring Trustee wishes to retire from the Trust.

604 A PPOINTMENTS OF NEW TRUSTEES
In exercise of the power conferred by s.36(1) Trustee Act 1925, the Settlor
appoints the New Trustee to be a Trustee in place of the Retiring Trustee.
In witness etc
Appointment of new trustee after death of trustee: Trustees are

appointors
This deed of appointment of new trustees is made [date] between
(1) (a) [Name] of [address] and

(“the Continuing Trustees”) of the first part and
(2) [Name] of [address] (“the New Trustee”) of the second part.
WHEREAS:

(1) A trust (“the Trust”) made [date] between (1) [name] (“the
Settlor”) and (2)(a) the Settlor (b) [name of other original
trustee] [(c) continue with names of other original trustees, if any].
(2) A deed of appointment made [date] by [parties]
(B) Clause . . . of the Trust confers on the Settlor the power of appoint-
ing new trustees but the Settlor died on [date].
(C) [Name] (“the Deceased Trustee”) died on [date].
In exercise of the power conferred by s.36(1) Trustee Act 1925, the

Continuing Trustees appoint the New Trustee to be a Trustee in place of
the Deceased Trustee.
In witness etc

A PPOINTMENTS OF NEW TRUSTEES 605
Retirement without appointment of new trustee: Trustees are

appointors
This deed of retirement is made [date] between
(1) (a) [Name] of [address]

(“the Continuing Trustees”) of the first part and
(2) [Name] of [address] (“the Retiring Trustee”) of the second part.
WHEREAS:

(1) A trust (“the Trust”) made [date] between (1) [name] (“the
Settlor”) and (2)(a) the Settlor (b) [name of other original
trustee] [(c) continue with names of other original trustees, if any].
(2) A deed of appointment made [date] by [parties]
(B) Clause ... of the Trust confers on the Settlor the power of appointing
new trustees but the Settlor died on [date].
(C) The Retiring Trustee wishes to retire from the Trust.
In exercise of the power conferred by s.39 Trustee Act 1925, the Retiring
Trustee retires from the Trust. The Continuing Trustees consent to the
discharge of the Retiring Trustee, and to the vesting in the Continuing
Trustees alone of the trust property.
In witness etc

606 A PPOINTMENTS OF NEW TRUSTEES
Clause for appointment of new trustee by will
In exercise of the power conferred by clause [ ] of the settlement made

[date] between (1) myself and (2) [names of the original trustees], I
appoint [name of new trustee] of [address]
(1) to be a trustee of the settlement in my place (if I am trustee at the
time of my death) or
(2) to be an additional trustee of the settlement (if there are not more
than three trustees at the time of my death).

APPENDIX 1
STANDARD PROVISIONS OF THE

SOCIETY OF TRUST AND ESTATE PRACTITIONERS
Second Edition
The second edition of the Standard Provisions was formally adopted by

STEP on 16 April 2011. It is therefore possible for a will or trust made
now to incorporate the second edition.
The text of the second edition is as follows:
1 Incorporation of STEP Provisions1
1.1 These provisions (with the exception of the Special Provisions)

may be incorporated in a document by the words:-
The standard provisions of the Society of Trust and Estate Practitioners
(2nd Edition) shall apply
or in any manner indicating an intention to incorporate them.
1.2 These provisions (including all the Special Provisions) may be
incorporated in a document by the words:-
The standard provisions and all of the special provisions of the Society
of Trust and Estate Practitioners (2nd Edition) shall apply
1.3 These provisions (including specified Special Provisions) may be
incorporated in a document by the words:-
The standard provisions and the following special provisions of the
Society of Trust and Estate Practitioners (2nd Edition) shall apply:
1
For a detailed discussion, see 21.21 (Incorporating SSP2).

608 STEP STANDARD PROVISIONS
[specify which special provisions apply, as appropriate]

1.4 The Special Provisions shall not be incorporated in a document
only by the words:-
The standard provisions of the Society of Trust and Estate Practitioners
(2nd Edition) shall apply
in the absence of the words “Special Provisions” or some other
expression of an intention to incorporate them.
2 Interpretation
2.1 In these provisions, unless the context otherwise requires:-

2.1.1 “Civil Partner” has the same meaning as in section 1 Civil
Partnership Act 2004.
2.1.2 “Income Beneficiary”, in relation to Trust Property, means
a Person to whom income of the Trust Property is payable (as
of right or at the discretion of the Trustees).
2.1.3 “Person” includes a person anywhere in the world and
includes a Trustee.
2.1.4 “Principal Document” means the document in which
these provisions are incorporated.
2.1.5 “Special Provisions” means the provisions in clauses 14-23
of these provisions.
2.1.6 “Trust” means any trust created by the Principal Document
and an estate of a deceased Person to which the Principal
Document relates.
2.1.7 “Trustees” means the personal representatives or trustees of
the Trust for the time being.
2.1.8 “Trust Fund” means the property comprised in the Trust for
the time being.
2.1.9 “Trust Property” means any property comprised in the
Trust Fund.
2.2 These provisions have effect subject to the provisions of the
Principal Document.
3 Protection for interest in possession trusts
If the existence of any powers conferred by these provisions would

be enough (without their exercise) to prevent a Person from being

entitled to an interest in possession (within the meaning of the

Inheritance Tax Act 1984) then those powers shall be restricted
so far as necessary to avoid that result.
4 Additional powers
4.1 Investment2
The Trustees may invest Trust Property in any manner as if they
were absolutely entitled to it. In particular the Trustees may invest
in land in any part of the world and unsecured loans.
4.2 Management3
The Trustees may effect any transaction relating to the manage-
ment or disposition of Trust Property as if they were absolutely
entitled to it. In particular:
4.2.1 The Trustees may repair and maintain Trust Property.
4.2.2 The Trustees may develop or improve Trust Property.
4.3 Joint property4
The Trustees may acquire property jointly with any Person.
4.4 Income and capital5
Income may be set aside and invested to answer any liabilities
which in the opinion of the Trustees ought to be borne out of
income or to meet depreciation of the capital value of any Trust
Property. In particular, income may be applied for a leasehold
4.5 Accumulated income6
The Trustees may apply accumulated income as if it were income
arising in the current year.
4.6 Use of Trust Property 7
4.6.1 The Trustees may acquire any interest in property any-
where in the world for occupation or use by an Income
Beneficiary.
2
21.24 (Power of investment).
3
21.26 (General power of management and disposition).
4
21.28 (Power of joint purchase)
5
21.35 (Sinking fund).
6
21.31 (Accumulated income).
7
21.41 (Occupation and use of trust property).

4.6.2 The Trustees may permit an Income Beneficiary to occupy

or use Trust Property on such terms as they think fit.
4.6.3 This clause does not restrict any right of beneficiaries to
occupy land under the Trusts of Land and Appointment of
Trustees Act 1996.
4.7 Application of trust capital 8
4.7.1 The Trustees may:
(i) lend money which is Trust Property to an Income
Beneficiary without security, on such terms as they
think fit,
(ii) guarantee the debts or obligations of an Income
Beneficiary,
(iii) charge Trust Property as security for debts or obliga-
tions of an Income Beneficiary, or
(iv) pay money which is Trust Property to an Income
Beneficiary as his income, for the purpose of augment-
ing his income.
4.7.2 Clause 4.7.1 applies only if:
(i) the Trustees have power to transfer that Trust Property
to that Income Beneficiary absolutely, or
(ii) the Trustees have power to do so with the consent of
another Person and the Trustees act with the written
consent of that Person.
4.8 Trade 9
The Trustees may carry on a trade, in any part of the world, alone
or in partnership.
4.9 Deposit of documents10
The Trustees may deposit documents relating to the Trust
(including bearer securities) with any Person.
4.10 Nominees11
The Trustees may vest Trust Property in any Person as nominee,
may authorise the use of sub-nominees, and may place Trust
Property in the possession or control of any Person.
4.11 Place of administration12
The Trustees may carry on the administration of the Trust any-
where they think fit.
8
21.37 (Application of Trust Capital).
9
21.43 (Power to trade).
10
21.44 (Deposit of documents and nominees).
11
21.44 (Deposit of documents and nominees).
12
28.5 (Place of administration of trust).

4.12 Payment of tax13

The Trustees may pay tax liabilities of the Trust (and interest on
such tax) even though such liabilities are not enforceable against
the Trustees.
4.13 Indemnities14
The Trustees may indemnify any Person for any liability properly
chargeable against Trust Property.
4.14 Security
The Trustees may charge Trust Property as security for any liabil-
ity properly incurred by them as Trustees.
4.15 Appropriation15
The Trustees may appropriate Trust Property to any Person or
class of Persons in or towards the satisfaction of their interest in
the Trust Fund.
4.16 Receipt by charities etc16
4.16.1 Where Trust Property is to be paid or transferred to a
charity or non- charitable association or company, the
receipt of the treasurer or appropriate officer of the
organisation shall be a complete discharge to the Trustees.
A Trustee shall not be liable for making a payment or
transfer to any Person who appears to be the treasurer or
appropriate officer unless at the time of the distribution
the Trustee has knowledge of circumstances which call for
enquiry.
4.16.2 If any charity ceases to exist, changes its name, or enters
into insolvent liquidation, before the time that a gift to the
charity takes effect in possession, the gift shall instead be
paid to such charity as the Trustees decide having regard
to the objects that were intended to benefit.
4.17 Release of powers17
The Trustees may by deed release any of their powers wholly or
in part so as to bind future trustees.
4.18 Ancillary powers18
The Trustees may do anything which is incidental or conducive
to the exercise of their functions.
13
21.45 (Power to pay tax).
14
21.47 (Power to give indemnities).
15
16
21.51 (Receipt by charities, etc) and 21.53 (Change of name).
17
21.59 (Release of powers).
18
21.61 (Ancillary powers)

5 Powers of Maintenance and Advancement
Sections 31 and 32 Trustee Act 1925 shall apply with the follow-
ing modifications.
5.1 The proviso to section 31(1) shall be deleted.
5.2 The words “one-half of ” in section 32(1)(a) shall be deleted.
6 Minors and beneficiaries without capacity: powers over

income19
they may do so by paying the income to the minor’s parent or
guardian on behalf of the minor, or to the minor if he has attained
the age of 16. A Trustee is under no duty to enquire into the use
of the income unless the Trustee has knowledge of circumstances
they may do so by resolving that they hold that income on trust
for the minor absolutely and:
6.2.1 The Trustees may apply that income for the benefit of the
minor during his minority.
6.2.2 The Trustees shall transfer the residue of that income to the
minor on attaining the age of 18.
6.2.3 For investment and other administrative purposes that
income shall be treated as Trust Property.
6.3 Where income is payable to a beneficiary who does not have the
mental capacity to appoint an attorney under a lasting power of
attorney which relates to the property and affairs of the benefici-
ary, the Trustees may (subject to the directions of the Court or
a deputy appointed under the Mental Capacity Act 2005 whose
powers include receiving such income) apply that income for the
benefit of the beneficiary.
6.4 Where the Trustees may pay or apply income to or for the benefit
of a beneficiary who does not have the mental capacity to give a
receipt, the Trustees may pay the income to the Person having or
19
21.55 (Minors: powers over income and capital), 21.58 (Beneficiaries without capacity: powers
over income and capital) and 6.35 (Excluding duty to supervise parents and guardians).

appearing to the Trustees to have the care and fi nancial respon-

sibility for such Person. A Trustee is under no duty to enquire
into the use of the income unless the Trustee has knowledge of
7 Disclaimer20
A Person may disclaim his interest under the Trust wholly or in

part.
8 Apportionment21
Income and expenditure shall be treated as arising when payable,

and not from day to day, so that no apportionment shall take
place.
9 Conflicts of interest22
9.1 In this clause:

9.1.1 “Fiduciary” means a Person subject to fiduciary duties
under the Trust.
9.1.2 “Independent Trustee”, in relation to a Person, means a
Trustee who is not:
(i) that Person;
(ii) a brother, sister, ancestor, descendant or dependant of
the Person;
(iii) a spouse or Civil Partner of (i) or (ii) above; or
(iv) a company controlled by one or more Persons within
(i) (ii) or (iii) above.
9.2 A Fiduciary may:
9.2.1 enter into a transaction with the Trustees, or
9.2.2 be interested in an arrangement in which the Trustees are
or might have been interested, or
20
21.60 (Power to disclaim).
21
21.62 (Statutory apportionment).
22
6.16 (Confl icts of interest).

9.2.3 act (or not act) in any other circumstances

even though his fiduciary duty under the Trust confl icts with
other duties or with his personal interest.
9.3 Clause 9.2 has effect only in relation to administrative and not
dispositive matters, and only applies if:
9.3.1 The Fiduciary first discloses to the Trustees the nature and
extent of any material interest confl icting with his fiduciary
duties, and
9.3.2 there is in relation to the Fiduciary an Independent Trustee
in respect of whom there is no confl ict of interest, and he
considers that the transaction arrangement or action is not
contrary to the general interest of the Trust.
9.4 The powers of the Trustees may be used to benefit a Trustee (to
the same extent as if he were not a Trustee) provided that:
9.4.1 There is in relation to that Trustee an Independent Trustee
in respect of whom there is no confl ict of interest or
9.4.2 The Trustees consist of or include all the trustees originally
appointed under the Principal Document.
10 Trustee remuneration 23
10.1 A Trustee acting in a professional capacity is entitled to receive

reasonable remuneration out of the Trust Fund for any services
that he provides to or on behalf of the Trust.
10.2 For this purpose, a Trustee acts in a professional capacity if he
acts in the course of a profession or business which consists of or
includes the provision of services in connection with:
10.2.1 the management or administration of trusts generally or a
particular kind of trust, or
10.2.2 any particular aspect of the management or administration
of trusts generally or a particular kind of trust.
10.3 The Trustees may make arrangements to remunerate themselves
for work done for a company connected with the Trust Fund.
23
6.46 (Trustee remuneration).

11 Trust Corporations24
11.1 A Trust Corporation appointed by the Principal Document may

act as Trustee on the basis of its standard terms as published at the
date of the Principal Document.
11.2 On the appointment of a Trust Corporation as Trustee the parties
to the appointment may provide that the Trust Corporation may
act as Trustee on the basis of its standard terms as published at the
date of the appointment (in which case clause 11.1 shall not apply).
11.3 The Trust Corporation is entitled to receive remuneration and
other charges in accordance with those terms.
11.4 In the event of a confl ict between those terms and these provi-
sions, those terms shall prevail.
11.5 In this clause “Trust Corporation” has the same meaning as in the
Trustee Act 1925.
12 Liability of Trustees25
loss was caused by his own actual fraud or negligence.
loss or damage was caused by his own actual fraud, provided that:
12.2.1 the Trustee acts as a lay trustee (within the meaning of
section 28 Trustee Act 2000); and
12.2.2 there is another trustee who does not act as a lay trustee.
12.3 A Trustee shall not be liable for acting in accordance with the
advice of counsel, of at least five years’ standing, with respect to
the Trust. The Trustees may in particular conduct legal proceed-
ings in accordance with such advice without obtaining a court
order. A Trustee may recover from the Trust Fund any expenses
where he has acted in accordance with such advice.
12.4 Clause 12.3 does not apply:
12.4.1 in relation to a Trustee who knows or has reasonable
24
6.47 (Trust corporations).
25
6.31 (Excluding strict liability) and 6.33 (Relying on counsel’s advice).

cause to suspect that the advice was given in ignorance of

material facts;
12.4.2 if proceedings are pending to obtain the decision of the
court on the matter;
12.4.3 in relation to a Trustee who has a personal interest in the
subject matter of the advice; or
12.4.4 in relation to a Trustee who has committed a breach of
trust relating to the subject matter of the advice.
12.5 Clause 12.3 does not prejudice any right of any Person to follow
property or income into the hands of any Person, other than a
purchaser, who may have received it.
13 Subsequent editions of STEP standard provisions26
13.1 Subject to clause 13.2 and 13.3 below, the Trustees may by deed
declare that any subsequent edition of the Provisions of the Society
of Trust and Estate Practitioners shall apply in place of these provi-
sions wholly or in part.
13.2 If the Special Provisions are not all incorporated into the Principal
Document, the Trustees do not have power under this clause to
incorporate:
13.2.1 Special Provisions which are not incorporated into the
Principal Document, or substantially similar powers or
13.2.2 any other provisions described in the subsequent edition of
the standard provisions as Special Provisions.
13.3 The new edition of the Provisions shall have effect subject to the
provisions of the Principal Document.
SPECIAL PROVISIONS
14 Borrowing 27
The Trustees may borrow money for investment or any other

purpose. Money borrowed shall be treated as Trust Property.
26
21.23 (Standard administrative provisions).
27
21.46 (Power to borrow).

15 Delegation 28
A Trustee may delegate in writing any of his functions to any

Person. None of the restrictions on delegation in sections 12 to
15 Trustee Act 2000 shall apply. A Trustee shall not be responsi-
ble for the default of that Person (even if the delegation was not
strictly necessary or expedient) provided that he took reasonable
care in his selection and supervision.
16 Supervision of company29
A Trustee is under no duty to enquire into the conduct of a

company in which the Trustees are interested, unless the Trustee
has knowledge of circumstances which call for enquiry.
17 Powers of Maintenance: Deferring income entitlement

to 2130
17.1 For the purposes of section 31 Trustee Act 1925 a Person shall be
treated as attaining the age of majority at the Specified Age, and
the references to the age of eighteen years in section 31 shall be
treated as references to the Specified Age.
17.2 In this clause “the Specified Age” means the age of 21 or such
earlier age (not being less than 18) as the Trustees may by deed
specify.
18 Minors and beneficiaries without capacity: powers over

trust capital 31
18.1 Where the Trustees may apply capital for the benefit of a minor,
they may do so by paying the capital to the minor’s parent or
guardian on behalf of the minor, or to the minor if he has attained
28
21.64 (Delegation).
29
6.34 (Excluding duty to supervise family companies).
30
21.57 (Powers of maintenance: deferring income entitlement to 21).
31
21.55 (Minors: powers over income and capital) and 21.58 (Beneficiaries without capacity:
powers over income and capital).

the age of 16. A Trustee is under no duty to enquire into the use
of the capital unless the Trustee has knowledge of circumstances
18.2 Where capital is payable to a beneficiary who does not have the
mental capacity to appoint an attorney under a lasting power of
attorney which relates to the property and affairs of the benefici-
ary, the Trustees may (subject to the directions of the Court or a
deputy appointed under the Mental Capacity Act whose powers
include receiving such capital) apply that capital for the benefit of
the beneficiary.
18.3 Where the Trustees may pay or apply capital to or for the benefit
of a beneficiary who does not have the mental capacity to give a
receipt, the Trustees may pay the same to the Person having or
appearing to the Trustees to have the care and fi nancial respon-
sibility for such Person. A Trustee is under no duty to enquire
into the use of the capital unless the Trustee has knowledge of
19 Absolute discretion clause32
The Trustees are not under any duty to consult with any
Beneficiaries or to give effect to the wishes of any Beneficiaries.
The powers of the Trustees may be exercised:
19.1 at their absolute discretion; and
19.2 from time to time as occasion requires.
20 Appointment and retirement of Trustees33
20.1 A Person may be appointed Trustee of the Trust even though he

has no connection with the United Kingdom.
20.2 A Trustee may be discharged even though there is neither a trust
corporation nor two Persons to act as trustees provided that there
remains at least one trustee.
32
7.10 (“Absolute discretion” and “as the trustees think fit”).
33
6.33 (Appointment of new trustees).

21 Powers relating to income and capital 34
21.1 The Trustees are under no duty to hold a balance between

confl icting interests of Persons interested in Trust Property. In
particular:
21.1.1 The Trustees may acquire
(i) wasting assets and
(ii) assets which yield little or no income
for investment or any other purpose.
21.1.2 The Trustees are under no duty to procure distributions
from a company in which they are interested.
21.2 The Trustees may pay taxes and other expenses out of income
although they would otherwise be paid out of capital.
22 Power to appropriate at value at time of death 35
22.1 Where:
22.1.1 these provisions are incorporated into a will,
22.1.2 the Trustees have ascertained the value of Trust Property
on the death of the Testator, and
22.1.3 the Property is appropriated under clause 4.15 within three
years of that death,
the Trustees may adopt that valuation so that the value for
the purposes of the appropriation shall be the value at the
date of the death (instead of the value at the date of the
appropriation).
22.2 Where clause 22.1 applies to an appropriation, any other valuation
which may be required for the purposes of the same exercise of
the power of appropriation shall also be the value at the date of the
death.
22.3 Valuations made under this clause shall be binding upon all
Persons interested under the trust if the Trustees have ascertained
those values in accordance with the duty of care set out in section
1(1) Trustee Act 2000.
34
21.36 (The balance between income and capital) and 21.30 (Power to pay capital expenses out of
income).
35

23 Relationships unknown to Trustees36
23.1 The Trustees may distribute Trust Property or income in accord-

ance with the Trust but without having ascertained that there is no
Person who is or may be entitled to any interest therein by virtue
of a relationship unknown to the Trustees. A Trustee shall not be
liable to such a Person unless at the time of the distribution the
Trustee has knowledge of circumstances which call for enquiry.
23.2 This clause does not prejudice any right of any Person to follow
property or income into the hands of any Person, other than a
purchaser, who may have received it.
36
6.32 (Excluding claims by unknown beneficiaries).

APPENDIX 2
ANNOTATED BIBLIOGRAPHY
General Precedent Works
Butterworths Encyclopaedia of Forms and Precedents covers a broad range of

precedents, but includes detailed coverage of trusts and will trusts.
There are three heavy reference works which are now out- of- date.
Hallett’s Conveyancing Precedents (1965) was used in its day for many
discretionary trusts, a few of which still exist. Key and Elphinstone’s
Precedents in Conveyancing (15th edn, 1953) and Prideaux Precedents in
Conveyancing (25th edn, 1959) might still be useful if one wishes to search
for old authorities.
Trust Precedents
Practical Trust Precedents (Sweet & Maxwell, also on CD).

Looseleaf is an unsuitable format for trust precedents,1 but the follow-
ing may be noted:
Potter & Monroe, Tax Planning (Sweet & Maxwell). Principally a work
of tax planning, but also includes precedents.
Precedents for the Conveyancer (Sweet & Maxwell).
1
An abbreviated dyslogy. A user who wants to fi nd what was said about a precedent he has used
will in due course fi nd the relevant looseleaf pages have been discarded. Trust precedent books
need to remain available for later reference. Looseleaf books impose an immoderate burden on
the author and an undue administrative burden in the office. They are expensive. One cannot
comfortably open looseleaf works in the armchair. The CD Rom will ultimately replace them.

622 A NNOTATED BIBLIOGRAPHY
Will Precedents
Among many are:

Wills, Probate and Administration Service (Butterworths, looseleaf ).
Style
Legal drafting is by no means insulated from the broader issues of prose

composition. Anyone interested in understanding our subject in this
context should read first of all George Orwell’s magnificent ground
breaking essay, Politics and the English Language (1946; included in
Penguin’s Essays of George Orwell). Its influence on current thinking (e.g.
the Clinton Memorandum on plain English2 ) is readily apparent.
The movement for plain legal English is an international one, and legal
drafting in England is also subject to international trends. The UK tax law
rewrite was preceded by Australian and New Zealand rewrites.
There is good guidance to be found in Garner’s Dictionary of Legal Usage
(3rd edn, 2011). This is on the model of Fowler’s Modern English Usage
addressed to legal drafting and legal writing generally and well worth
having on the bookshelf.
Mellinkoff, The Language of the Law, 1963, is an excellent scholarly and
historical study, also useful on the usage of particular words.
Drafting techniques
There are many books devoted to legal drafting in general. They are of
limited practical use because most of a drafter’s time is spent not with gen-
eralities, but with the specific rules of law affecting the subject matter of
the draft. The interested reader is recommended to begin with Piesse, The
Elements of Drafting (The Law Book Co., 10th edn, 2004). This is short
and has a good bibliography.
General Principles of Construction
Trust law textbooks scarcely deal with construction, leaving the field to
textbooks on wills which traditionally devote a short chapter to it. The
2
Accessible http://govinfo.library.unt.edu/npr/library/direct/memos/memoeng.html.

A NNOTATED BIBLIOGRAPHY 623
condensed treatment tends to suggest a specious consistency of judicial

attitude. Lord Denning, The Discipline of Law (1979) (Part One, The
Construction of Documents), good holiday reading, shows the opposite
is the truth.
Hawkins on the Construction of Wills (5th edn, 2000) contains a fascinat-
ing chapter on general principles and does not fall into that trap. He is
unusual in drawing into a legal textbook the philosophical distinction
(used by Frege and later adopted by Russell and Wittgenstein) of sense
and reference, which we often find helpful.3 Unfortunately this is spoilt by
an over-emphasis on s.21 Administration of Justice Act 1982, which does
not in my view represent “a triumph of the intentional approach” (if it
did, there would be a marked difference between wills and lifetime trusts,
which has never been suggested).
Those who try first Lewison’s Interpretation of Contracts (5th edn,
2011) are rarely disappointed. This work now has a rival: McMeel, The
Construction of Contracts (2nd edn, 2011).
Meaning of particular words and phrases
Hawkins and all the textbooks on wills offer chapters on gifts to classes of
persons; words describing relationships; and the like. It is usually worth
looking at more than one; each deals with aspects that the other does not.
Stroud’s Judicial Dictionary (7th edn, 2010) and Saunders, Words & Phrases
Legally Defined (4th edn, 2010) might sometimes be useful.
Plain Legal English Guides
The movement for plain legal English has produced a considerable polem-
ical literature.4 This includes:
Mark Adler, Clarity for Lawyers, (2nd edn, 2006).
Richard Wydick, Plain English for Lawyers, (5th edn, 2005).
Michele Asprey, Plain Language for Lawyers, (4th edn, 2010).
Peter Butt & Richard Castle, Modern Legal Drafting (2nd edn, 2006).
3
Wilberforce J. found the distinction (independently?) in Fitch Lovell v IRC [1962] 1 WLR 1325.
4
Those interested should join the worthwhile association “Clarity”; see www.clarity-international.
net.

History of the Plain English movement
The Plain English movement dates back to the 1960s and has an inter-
esting history. Butt & Castle has a chapter on this, as does Christopher
Williams, Tradition and Change in Legal English (2005) p.168.
Foreign Law Trusts
Kessler & Flynn, Drafting Trusts and Will Trusts in Australia (2008).
Kessler & Hunter, Drafting Trusts and Will Trusts in Canada (3rd edn,
2011).
Kessler & Pursall, Drafting Cayman Island Trusts (2006).
Kessler & Matthams, Drafting Trusts and Will Trusts in the Channel Islands
(2006).
Kessler & Ayers, Drafting Trusts and Will Trusts in New Zealand (2010).
Kessler & Grattan, Drafting Trusts and Will Trusts in Northern Ireland (3rd
edn, 2011).
Kessler & Lee, Drafting Trusts and Will Trusts in Singapore (2007).
USEFUL WEBSITES
UK Government Sites
www.bailii.org UK cases.
www.legislation.gov.uk/ UK statutes.
http://lawcommission.justice.gov.uk/ Law Commission. Includes recent Law

Com. reports including LC260 (Trustees’ Powers and Duties) and LC251
(Rules Against Perpetuities and Excessive Accumulations).
www.charitycommission.gov.uk Charity Commission. Their Register of

Charities is useful for checking names and details of English charities.
www.oscr.org.uk OSCR Scottish Charity Regulator. Their Register of

Charities is useful for checking names and details of Scottish charities.
www.charitycommissionni.org.uk Charity Commission for Northern Ireland.

A NNOTATED BIBLIOGRAPHY 625
www.landreg.gov.uk English Land Registry. Includes Land Registry Practice

Guides, Guide 8 (Execution of deeds) has many useful forms for trust
drafting.
www.cabinetoffi ce.gov.uk/sites/default/files/resources/opc-drafting- guidance.pdf

Office of the Parliamentary Counsel Drafting Guidance.
UK Non- Government Sites for Trusts
www.kessler.co.uk James Kessler’s website. Includes free updates on this

book and an archive of material referred to in this book.
www.trustsdiscussionforum.co.uk Trusts Discussion Forum. Opportunity to

subscribe, and archive.
www.venables.co.uk Delia Venables’ legal resources. Start here for UK legal

links.
www.kcl.ac.uk/law/research/centres/trustlawcommittee/index.aspx Trust Law

Committee. Includes report on creditors of trustees and valuable con-
sultation papers on capital/income, trustee exemption clauses and trustee
indemnities.
International Sites for Trusts
www.hcch.net Hague Conventions including Convention on Trusts, with

lists of contracting states.
www.jerseylegalinfo.je Jersey cases and statutes.
International Sites for drafting
Many states and international organisations have put their in-house draft-
ing manuals online. See Legislative Drafting Guide: A Practitioner’s View by
Kenneth Rosenbaum accessible www.fao.org/Legal/prs-ol/lpo64.pdf which
has a long list of these.
www.plainlanguage.gov Website of the Plain Language Action Network.

This is a US government group working to improve communications

from the federal government to the public. They believe better commu-
nications “will increase trust in government, reduce government costs,
and reduce the burden on the public”. Ambitious, but who is to say they
are wrong? Plain English issues extend beyond legal drafting to writing
of all kinds. Take a look at their guidance document: Writing User-Friendly
Documents.
www.hkreform.gov.hk/en/lawlinks/content.htm Good starting point for

non-UK legal links.

APPENDIX 3
NRB DEBT AND CHARGE ARRANGEMENTS: TAX ANALYSIS
Introduction
This appendix considers the tax aspects of entering into NRB debt and App 3.1
charge schemes. It will be rare for these schemes to be entered into after
the FAs 2006 and 2008.1 However, the issues discussed in this appendix
remain important for the many existing schemes. Administration and
winding up the scheme are discussed at Ch.19 (Administration of NRB
trusts).
The issues discussed in this appendix only arise for the debt and charge
arrangements. If (which is usually preferred) the executors appropriate a
share in the family home to the NRB trust, the SDLT issue does not arise,
and the other issues only arise so far as there is a debt in addition to the
appropriation.
Tax is often very fact sensitive. The analysis in this appendix is based on
the following assumptions:
1. A testator has died leaving a Will in forms 7 or 8 of this book and

is survived by his spouse.2 (For Will 6, see below.)
2. The testator owned the whole of the family home, or a share of the
family home as a tenant in common. We refer to this as “the land”.
1
NRB trusts are redundant in most cases after FA 2008 (see Ch.18). In the limited cases where they
remain useful, the best course will usually be to appropriate the testator’s interest in the family
home (or a share of that interest) to the NRB trust (see Ch.19 (Administration of NRB Trusts).
2
Wills 5–6 deal with a testator who is married/a civil partner. Will 9 concerns cohabitees. In this
appendix references to spouses include civil partners, and what we say of spouses also applies to
a cohabitee in a Will 9 case.

628 NRB DEBT AND CHARGE ARRANGEMENTS: TAX ANALYSIS
The land is not subject to a mortgage3 and is situated in England

or Wales.
3. The nil rate band (“NRB”) sum given by the Will to the NRB
trust is not satisfied by a payment or transfer of assets from the estate.
Instead the spouse gives an undertaking (“the spouse undertaking”)
or the executors execute the charge (“the executors charge”) along
the lines of the forms in this book. The undertaking or charge is
made within one year of the death of the testator.4
Further consideration is needed if the estate of the testator at his death

includes property qualifying for IHT business or agricultural property
relief (unless that property is the subject of a specific gift).5
HMRC accept that the pre-owned assets rules do not apply to these
arrangements.6
Inheritance tax on death of spouse
Debt Scheme
App 3.2 The liability under the spouse undertaking will in principle be deduct-
ible for IHT purposes from the estate of the spouse on her death. See
s.5(3) IHTA 1984. Section 5(5) IHTA 1984 restricts the deduction
unless the debt is incurred for full consideration. In the form in this
book the consideration for the debt is (as the drafting makes clear) that
the executors require the trustees of the discretionary trust to accept
the undertaking in substitution for the NRB legacy: that will be full
consideration.
Section 103 FA 1986 disallows certain liabilities for IHT purposes. This
is an intricate section which is not considered in detail here.7 There is only
3
Alternatively any mortgage or charge will be paid off by the executors before the execution of
the spouse undertaking or charge.
4
The complication of delay is that interest accrues on the NRB legacy after one year from the death
of the testator. If the undertaking is made shortly after the year, any interest can be ignored as
de minimis. It would cost more to deal with the interest in the documentation than the amount
of interest would justify. Once the amount of interest becomes more substantial, say, more than
£5,000, it would need to be considered. Either the nil rate trustees would waive their right to
interest (the simplest solution) or else the amount of the spouse’s debt could be increased to allow
for the interest. This problem is avoided by providing that interest does not accrue on a NRB
legacy for three years.
5
See 18.17 (Married testator with business or agricultural property).
6
“Pre- owned Assets, Technical Guidance” 17 March 2005 Appendix 1; for a discussion of pre-
owned assets see Kessler, Taxation of Non-residents and Foreign Domiciliaries, (11th edn, 2012), Ch.72
(Pre- Owned Assets).
7
For a detailed analysis see Kessler, Taxation of Non-Residents and Foreign Domiciliaries, (11th edn,
2012) para.61.3 (s.103 FA 1986).

NRB DEBT AND CHARGE ARRANGEMENTS: TAX ANALYSIS 629
one point relevant for present purposes. HMRC take a point under s.103
where the discretionary trust includes property derived from the spouse
who has incurred the liability. A typical case is where:
(1) the family home formerly belonged to H absolutely.

(2) H during his lifetime gave a half share to W.
(3) W died first, and gave the NRB sum to a NRB trust.
(4) H executes the spouse undertaking and incurs the debt to the trust.
In such a case H’s debt is disallowed for IHT purposes under s.103.8 In
these circumstances the charge arrangement should be used instead.
Charge Scheme
The liability under the executors charge will be deductible from the value
of the charged property for IHT purposes, on the death of the surviving
spouse. The deduction is the lesser of the value of the asset charged and
the amount outstanding under the charge at the time of the death. Section
103 does not apply in the case of a charge for two reasons:
(1) Section 103 only applies to liabilities made by the debtor: it does
not apply to the executors charge, which is made by the executors,
not by the survivor herself.
(2) Point (1) does not help where a spouse is sole executor, as then she
does make the disposition which creates the encumbrance.9 But
even in this case, s.103 does not apply because (under the documen-
tation in this book) the disposition is not made for consideration.
Some commentators have expressed the view that the spouse should not
be one of the executors (or if appointed should not take out a grant),
where a nil rate band debt or charge scheme is to be used, but this is unac-
ceptable for most clients and is in any event unnecessary.
Section 5(5) IHTA 1984 also does not apply.
Interest in possession in nil rate sum
The spouse must not acquire an interest in possession in the trust fund (the
nil rate sum) within two years of the death of the testator.10 Otherwise
8
Phizackerley v IRC [2007] STC (SCD) 328.
9
The counter- argument is that the surviving spouse creates the encumbrance in a different
capacity.
10
From 2006 it does not matter if the spouse/CP acquires an IP after two years, unless the spouse
is “disabled” in the IHT sense at the time that the testator died.

the entire advantage of the debt or charge arrangement is lost. The cir-
cumstances in which a beneficiary of a discretionary trust may acquire an
interest in possession in an interest free debt have not been fully worked out
by the courts. The solution proposed before 2006 is that the debt is index
linked and:
(1) In a case where the spouse is absolutely entitled to the residuary

estate (Wills 7 or 8) she should not be sole trustee of the nil rate
trust. (Appoint an additional trustee if necessary on completion of
administration.)
(2) In the case where the surviving spouse has a life interest in the
residuary estate (Will 6) there should be separate persons as trustees
of the nil rate sum and trustees of the residuary estate.11
If this is done, it is considered impossible for HMRC to maintain that the

spouse has an interest in possession.12 But from 2006 these precautions
are not strictly necessary unless the surviving spouse is “disabled” (in the
IHT sense).
Stamp duty land tax
The nature of SDLT
App 3.3 The fundamental features of SDLT are as follows:
(1) SDLT is charged on “land transactions”.13 If there is no Land

Transaction there will be no SDLT.
(2) A “Land Transaction” means any “acquisition” of a “chargeable
interest”.14
(3) “Chargeable Interest” means (in short):
11
Under the will they will usually be the same persons, but this can be altered on completion of
administration by a suitable appointment of new trustees.
12
An interest in possession is a present right to present enjoyment: Pearson v IRC [1980] STC 318.
The spouse does not have an interest in possession for two reasons:
(1) The survivor does not have the “right” to enjoyment of the trust fund (the benefit of the
debt). Her “enjoyment” is precarious. The Courts have never decided the point, but this is
right in principle, and to some extent supported by comments in Swales v IRC [1984] 413
at p.421.
(2) The survivor does not have “enjoyment” of the nil rate sum. Because of the index linking,
she must repay more than the benefit she receives. It is not like an interest-free loan.
It should by no means be conceded that an interest in possession need exist in the absence of all
these precautions. In practice HMRC appear not to take the point.
13
Section 42(1) FA 2003.
14
Section 43(1) FA 2003.

(a) an interest in land; or

(b) the benefit of an obligation affecting the value of an interest
in land.
It does not include a “security interest” (as defi ned).15
SDLT on Debt Scheme
We need to consider what are the rights of the parties immediately before
and immediately after the spouse undertaking.
For convenience we refer to the executors (of the estate) and the trus-
tees (of the discretionary trust) as separate persons; in practice they will
usually be the same persons, but that makes no difference to the position.
Immediately before the undertaking the position is as follows:
(1) The trustees are pecuniary legatees. They are prima facie entitled
to a cash sum from the estate. That right may be satisfied by certain
things other than cash. It may be satisfied by:
(a) an appropriation of assets of the estate in specie;16 or
(b) the spouse undertaking.
Nevertheless the trustees’ right is in principle a right to a cash sum. They

can recover that sum and nothing else unless and until the executors
chose to exercise one of their powers to give them something else. That
sum is payable out of, and so a charge on, the residuary estate: see s.34
Administration of Estates Act 1925. We refer to this as “the trustees’ rights
under the will”. If the trustees’ rights can be regarded as an interest in
land the rights are a “security interest” for SDLT purposes. This is not a
Chargeable Interest.
(2) The surviving spouse is entitled to the residuary estate subject to

the trustees’ rights.
(3) The executors hold the assets subject to the obligation to give effect
to the above.
After the undertaking the position is as follows:
(1) the trustees are now entitled to a cash sum from the spouse under
the spouse undertaking; the trustees’ rights under the will have
been extinguished.
15
Section 48 FA 2003.
16
See 21.46 (Power of appropriation).

(2) the spouse is still entitled to the residuary estate; the estate is now
free from the trustees’ rights under the will;
(3) the executors hold the assets with the obligation to give effect to
the above.
What, therefore, has the spouse undertaking changed? The spouse has not
become entitled to receive the land by virtue of the undertaking. She was
entitled to receive the land before. What has happened is that her entitle-
ment has ceased to be subject to the burden of the trustees’ rights under
the will. Her undertaking has freed the land from the burden of paying
the NRB legacy.
SDLT on spouse undertaking
The execution of the spouse undertaking does not involve the acquisition
of a Chargeable Interest, so there is no SDLT on the occasion of making
the undertaking. If the spouse “acquires” an interest in the land at all,
what she acquires is by virtue of the release or destruction of the trustees’
rights under the will which is not a Chargeable Interest.17
The position is different if the spouse agrees to purchase an interest in the
land from the executors, i.e.
(1) she promises to pay a sum to (or at the direction of ) the executors
and
(2) the executors promise to transfer the land to her.
SDLT would be payable in the event of such a purchase. However the
transaction here would not be carried out in that way.18
A separate argument that there is no SDLT on the making of the spouse
17
Of course, the destruction of the trustees’ rights under the will is not, strictly, an “acquisition” of
any interest by the spouse. However s.43(3)(b) FA 2003 provides that the surrender or release of
a chargeable interest is regarded as the “acquisition” of that interest by any person whose interest
or right is benefited or enlarged by the transaction.
18
It might be argued that there is no economic difference between:
(1) the surviving spouse purchasing an interest in the land from the executors, and
(2) the survivor giving the undertaking in order to procure the release of the trustees’ right
under the will.
However “What is the relevant consideration may depend on the terms and form of the transac-
tion adopted by the parties. The parties to a proposed transaction frequently can achieve the same
practical and economic result by different methods. . . If the question is raised what method has
been adopted and the transaction is in writing, the answer must be found in the true construction
of the document or documents read in the light of all the relevant circumstances.” See Spectros
International v Madden 70 TC 349 at 374 approved in Garner v Pounds Shipowners and Shipbreakers
72 TC 561. This comment applies here. Moreover, there is a difference between:
(1) The surviving spouse giving the undertaking to procure the release of the trustees’ right
under the will (which is what happens here); and
(2) The survivor purchasing the interest in the land from the trustees.

undertaking may be based on the (daft but well established) principle that
a beneficiary of an estate in the course of administration has no interest
in the assets of the estate.19 However, it is not necessary to rely on this
argument, which, in any event, may not help in the (less usual but pos-
sible) case where the deceased’s estate is fully administered before the debt
scheme is carried out.
SDLT on transfer of land from executors to spouse following spouse undertaking
Subsequently, in the course of administration of the estate, the executors

will transfer the testator’s interest in the land to the spouse (as the residu-
ary legatee entitled under the Will of the testator). This is done by means
of an “assent”. This is a Land Transaction because at this point the spouse
acquires a Chargeable Interest (an interest in land). However there is no
SDLT on this Land Transaction.
SDLT is charged on the “Chargeable Consideration”. If there is no
“Chargeable Consideration” there is no SDLT. Chargeable Consideration
is defined:
The chargeable consideration for a transaction is, except as otherwise expressly
provided, any consideration in money or money’s worth given for the subject-
matter of the transaction, directly or indirectly, by the purchaser20 . . .
The spouse’s undertaking is not “consideration” given for the spouse’s

acquisition of the land from the executors. Consideration is a contractual
term: it means what the spouse pays for.21 The spouse undertaking here
is given in consideration of the executors exercising their power and the
extinction of the trustees’ rights under the will. It may be said that the
spouse would not receive the land unless she gave the undertaking.22 But
even if receiving the land were a consequence of the spouse’s undertaking, it
would not be in consideration of it. The spouse acquires the land as residu-
ary legatee, and not as purchaser. The reason that she does so is because
the land forms part of the residuary estate of the testator of which the
spouse is residuary legatee. If the spouse has acquired any interest in land
for consideration, what she has acquired is a security interest and not a
Chargeable Interest.
An unsatisfied creditor of the estate would be entitled to be paid (if necessary) out of a sale of the
land in case (1) but not in case (2).
It follows that the CGT case of Passant v Jackson 59 TC 230 has no relevance here. That was a case
where a beneficiary purchased an interest in land from the executors.
19
Lord Sudeley v AG [1897] AC 11; CSD v Livingston [1965] AC 694.
20
Schedule 4, para.1 FA 2003. The spouse is the “purchaser” (as defi ned); see s.43(4) FA 2003.
21
C&E Comms v Apple & Pear Development Council [1996] STC 383 at 389; R v Braithwaite [1983] 1
WLR 385 at 391.
22
This is only the case if one assumes the estate has insufficient assets to meet the NRB sum without
recourse to the land, and if one assumes (implausibly) that the charge scheme would not have been
used.

It may be said that the spouse has given consideration for the land
transaction “indirectly”. But if the above analysis is right then she has not
given consideration for the land transaction (the assent) either directly or
indirectly.23
If this argument were wrong, then prior to 1 December 2003 the same
arrangement would have been subject to stamp duty. But nobody sug-
gested that that was the case.
If this argument were wrong, then when land is held on trust for A for
life remainder to B, and B purchases A’s interest, there is double SDLT:
on the purchase and again on a later conveyance from the trustees to B.
Paragraph 3A Schedule 3 FA 2003 provides a separate reason that there
is no SDLT on the transfer to the spouse:
(1) The acquisition of property by a person in or towards satisfaction of his
entitlement under or in relation to the will of a deceased person, or on
the intestacy of a deceased person, is exempt from charge.
(2) Sub-paragraph (1) does not apply if the person acquiring the property
gives any consideration for it, other than the assumption of secured debt.
(3) Where sub-paragraph (1) does not apply because of sub-paragraph (2),
the chargeable consideration for the transaction is determined in accord-
ance with paragraph 8A(1) of Schedule 4.
(4) In this paragraph—
“debt” means an obligation, whether certain or contingent, to pay a sum
of money either immediately or at a future date, and
“secured debt” means debt that, immediately after the death of the
deceased person, is secured on the property.
However, it is not necessary to rely on this (which would not help in a case
where the NRB gift was made by instrument of variation).
HMRC view
HMRC’s view is set out in their SDLT Manual.24 They say:
The transfer of an interest in land, whether to a residuary beneficiary or to any

other person, and whether in satisfaction of an entitlement under a Will or not,
23
The correct construction of the defi nition of “Chargeable Consideration” is this: it applies where:
(1) consideration is given directly by a purchaser, or
(2) it is given indirectly by a purchaser (e.g. the purchaser gives funds to A and A uses the funds
to pay the consideration to the vendor).
One can test the matter with this theoretical example. Suppose under the will (or deed of varia-
tion) the trustees do not receive a pecuniary legacy: they are given an interest in the land, say, a
lease. Suppose the surviving spouse then pays for the extinction of that interest. That would be
the “acquisition” of a “chargeable interest” so it would be a Land Transaction subject to SDLT.
However, when the executors subsequently assent the land to the survivor, nobody would say
that there is another charge to SDLT at that point. For the consideration that the survivor gave in
this case would not be for that land transaction.
24
SDLTM04045 (scope: how much is chargeable). HMRC published their view in a statement on
12 November 2004 repeated verbatim in SDLT Newsletter No. 4, December 2004.

is a land transaction for SDLT purposes. The question is whether the transferee
gives any chargeable consideration for the transfer.
This is correct. The statement continues:
Very often a beneficiary gives no chargeable consideration for the transfer of

land under a Will. However transactions in connection with NRB Trusts may
result in the beneficiary giving chargeable consideration. (Emphasis added)
This is correct if one is allowed to stress the word “may”. The statement
continues:
The commonest examples of such transactions, and their SDLT consequences,

are as follows:
[1] [a] The NRB trustees accept the surviving spouse’s promise to pay in
satisfaction of the pecuniary legacy and
[b] in consideration of that promise land is transferred to the surviving
spouse.
The promise to pay is chargeable consideration for SDLT purposes.
This assumes that the transfer is in consideration of the spouse’s promise.

Of course it could be, and if it is then the SDLT charge applies. In the
documentation in this book the transfer is not in consideration of that
promise for the reasons set out above. It is difficult to comment further in
the absence of any analysis in the HMRC statement.
The statement continues:
[2] [a] The NRB trustees accept the personal representatives’ promise to
pay in satisfaction of the pecuniary legacy25 and
[b] land is transferred to the surviving spouse in consideration of the
spouse accepting liability26 for the promise.
The acceptance of liability for the promise is chargeable consideration for
SDLT purposes. The amount of chargeable consideration is the amount
promised (not exceeding the market value of the land transferred).
We agree that if this happened, then of course there is chargeable consid-

eration for SDLT purposes. But once again that is not the way things are
done in this book (or in any other).
The statement continues:
[3] Land is transferred to the surviving spouse and the spouse charges the
25
The author of these words is confused. It would be pointless for the NRB trustees to “accept the
PR’s promise to pay in satisfaction of the pecuniary legacy” since the pecuniary legacy is itself an
obligation of the PR’s to pay.
26
It is not strictly possible for the spouse to “accept liability” for the PR’s promise. Presumably
what is meant in contract law terms is a novation under which the trustees are released from their
liability and the spouse undertakes a new one.

property with payment of the amount of the pecuniary legacy. The NRB
trustees accept this charge in satisfaction of the pecuniary legacy. The charge
is money’s worth and so is chargeable consideration for SDLT purposes
Since no-one has and, probably, no-one ever will carry out their NRB
arrangements in precisely this way, it is not necessary to comment.
For these reasons it is considered clear that no SDLT arises in the case
of the debt scheme.
The statement concludes with a comment on the charge scheme:
[4] [a] The personal representatives charge land with the payment of the
pecuniary legacy.
[b] The personal representatives and NRB trustees also agree that the
trustees have no right to enforce payment of the amount of the
legacy personally against the owner of the land for the time being.27
[c] The NRB trustees accept this charge in satisfaction of the legacy.
[d] The property is transferred to the surviving spouse subject to the
charge.
There is no chargeable consideration for Stamp Duty Land Tax purpose[s]
provided that there is no change in the rights or liabilities of any person in
relation to the debt secured by the charge.
The conclusion of HMRC that there is no SDLT on the execution of the

charge is correct and not contentious.
FA 2004, Sch.4, para.8 has no impact on the debt or the charge scheme.
SDLT: Conclusion
There are two ways to proceed. The first is to follow the suggestion of
HMRC statement (4) and use the charge scheme rather than the debt
scheme. The charge scheme does have the attraction that documentation
falls within the precise wording of the HMRC statement and the SDLT
position is not contentious. On the other hand there are two drawbacks:
(1) Conveyancing on the subsequent sale of the property is made

slightly complicated. However the problems are soluble28.
(2) The amount of the deduction for the charge on the death of the
spouse is limited to the value of the land charged, not the value of
the residuary estate of the deceased survivor. This is not a problem
27
This is misconceived because under no circumstances would the trustees have a right to enforce
payment of the amount of the legacy personally against the owner of the land unless the owner
of the land had undertaken liability to pay.
28
If the surviving spouse purchases a new property of equal or greater value than the asset charged,
a new charge can be made over that property. If the survivor does not purchase a new property
(perhaps moving into residential care) she can enter into a debt scheme at that point. If the
survivor purchases a new property of lesser value than the value of the asset charged, it may be
necessary to do both.

if the land charged is worth the amount of the nil rate sum or more,
but it is a serious problem if the land charged is worth less than the
nil rate sum. The only solution is to use the debt scheme as well
as the charge scheme. For example, if a testator dies leaving a half
share of land worth £150,000 and assets of £80,000 then there will
be a charge on £150,000 and a spouse undertaking for £80,000.
The alternative is to rely on the analysis set out in this appendix and to
use the debt scheme as would have been done before. We think the SDLT
position is clear and this is an entirely acceptable course. On balance, we
think it is to be preferred. Indeed, we would be surprised if this view was
ever seriously challenged. The only problem is that the (relatively) small
sums of SDLT at stake in individual cases would make it difficult for a
taxpayer to manage the dispute: costs would exceed the sums at stake.
However we would be sufficiently confident in the correctness of the
analysis in this appendix to offer to act on a pro bono or contingency basis
if this view is challenged in respect of a spouse undertaking in the form
in this book.
Capital gains tax on execution of the spouse undertaking
The execution of the spouse undertaking does not give rise to any capital App 3.4
gains tax. Neither the executors nor the spouse dispose of any asset when
they execute the undertaking. The trustees of the discretionary trust do
not dispose of an asset giving rise to a chargeable gain because of the
general rule that satisfaction of a cash legacy does not give rise to capital
gains tax in the hands of the legatee.29 HMRC have in practice accepted
this.
Will 6 cases
In Will 4, the residuary estate is held on interest in possession trusts, and App 3.5
the NRB sum remains unpaid: see 19.5 (Implementation of debt scheme).
There is no difficulty in obtaining the deduction under s.103 FA 1986 and
no question of SDLT.
29
Either s.62(4)(b) or s.251 TCGA 1992 provides relief here. It may also be said that the trustees do
not, at that stage, exist for CGT purposes (the estate still being in the course of administration).

APPENDIX 4
TAX ON PAYMENT OF INDEX LINKED NIL RATE SUM
In the draft spouse undertaking in this book, the spouse undertakes to pay
to the trustees an amount called the Index Linked Nil Rate Sum, which is
(in short) the nil rate sum increased by the retail price index. In the draft
charge, the executors charge property (the testator’s interest in the land)
with payment of the index linked nil rate sum. I refer to the increase as
“the index-linked element.”
This appendix deals with the question of whether the trustees are
subject to tax on the index-linked element when this amount is paid.
These comments only apply to the drafts in this book. It is possible
that a drafter unfamiliar with the tax rules could create a debt on which
interest accrues (income-taxable if interest paid); or possibly, a deeply
discounted security (income-taxable on disposal); or a debt on a security
(CGTable on disposal).
Income tax: Interest
App 4.1 HMRC have on occasion argued that the index-linked element is inter-
est and subject to income tax. This appendix discusses the issue in detail.
If the index-linked element is interest, the position is as follows:
(1) The nil-rate band trustees (who receive the interest) are subject
to tax on the interest at the trust rate (50%) on the index-linked
element.
(2) However the actual rate of tax will be much less than 50% for the
following reasons:
(a) So far as the trustees can set expenses against that interest
income, the rate of tax is reduced to the basic rate of 20%.

TAX ON PAYMENT OF INDEX LINKED NIL RATE SUM 639
(b) So far as the trustees distribute the interest income to ben-

eficiaries who are not top rate (now 50% rate) taxpayers, the
beneficiaries can reclaim the difference between that 50% rate
and their marginal rates of income tax. Those rates are likely
to be less than 50%.
(c) The executors of the surviving spouse (who in practice will
pay the interest) treat the payment as an “allowable estate
deduction”. That amount is deducted in computing the
“residuary income of the estate during the year”. Any surplus
can be carried forward and deducted in subsequent years. See
s.666 ITTOIA. The significance of that deduction is that it
reduces the “assumed income entitlement” which is (in short)
the amount on which beneficiaries of the estate of the surviv-
ing spouse are charged to income tax. So the result is to reduce
the income tax charge on the beneficiaries of that estate. If the
payment is not interest, there is no deduction.
For these reasons the rate of tax is likely to be much nearer to 20% than
50%.
The fundamental question is whether the index-linked element is inter-
est. The following propositions are well established:
(1) Anyone who lends money faces various losses, or risks of losses, for
which one would normally require compensation or consideration
in return for making the loan:
(a) Loss of the use of the money while the loan is outstanding.
(b) The risk that the lender will not recover all the money lent,
because of insolvency of the borrower.
(c) The risk that the money which the lender does recover will
not be worth as much as when it was lent, because of inflation
or other changes in the value of currency.
(2) Compensation for (a) is classified as interest and subject to income
tax when received. Compensation for risks (b) and (c) may either
take the form of additional interest or it may be a capital receipt
(“capital”). If it is capital it is not subject to income tax. The only
difficulty is to tell which it is; this depends on the contract and sur-
rounding circumstances.
(3) So if:
(a) the loan is at a reasonable commercial rate of interest, and
(b) the supplement is identified as compensation for the capital
risk because of the risk of insolvency of the borrower
then the supplement is capital:

640 TAX ON PAYMENT OF INDEX LINKED NIL RATE SUM
“A lends £100 to B at a reasonable commercial rate of interest and stipulated

for payment of £120 at the maturity of the loan. In such a case it may well be
that A requires payment of the £20 as compensation for the capital risk; or it
may merely be deferred interest. If it be proved that the former was the case
by evidence of what took place during the negotiations, it is difficult to see
on what principle the £20 ought to be treated as income [i.e., it is capital].”1
Lomax v Peter Dixon is an example of a capital receipt. Here a loan to a

Finnish company in 1930 incurred the risk that it would not be repaid in
the event of a Russian invasion:
“The element of capital risk was quite obviously a serious one, and the parties
were entitled to express it in the form of capital rather than in the form of
interest if they bona fide so chose.”2
(4) The same applies if:

(a) the loan is at a reasonable commercial rate of interest, and
(b) the supplement is compensation for the capital risk of inflation
(reduction in the value of money).
Lord Greene gives the example of repayment linked to gold prices:
“A good example of the difficulty is to be found in the contracts of loan which

used to be made on a gold basis when the currency had left, or was expected to
leave, the gold standard.3 In such contracts the amount to be repaid was fi xed
by reference to the price of gold ruling at the repayment date, and if the cur-
rency depreciated in terms of gold, there was a corresponding increase in the
amount of sterling to be repaid at the maturity of the loan. It could scarcely
be suggested that this excess ought to be treated as income when the whole
object of the contract was to ensure that the lender should not suffer a capital
loss due to the depreciation of the currency.”4
The same principle applies to RPI indexation:
“The Inland Revenue wish to clarify the tax position regarding corporate
stock issued on an indexed basis and bearing a reasonable commercial rate of
interest. . . . Although the precise tax treatment must have regard to the terms
of any contract between the parties, in general if the indexation constitutes a
capital uplift of the principal on redemption to take account of no more than
the fall in real value because of inflation the lender, . . . will be liable only to
CGT on the uplift. . . [i.e. the uplift is capital not interest].5
1
Lomax v Peter Dixon 25 TC 353 at p.363.
2
3
Lord Greene is writing in 1943: Britain had come off the gold standard in 1931.
4
5
Press Release 25 June 1982 [1982] STI 270 approved R v IRC ex. p. MFK [1989] STC 873 at
p.877d.

(5) If a commercial loan does not provide for interest, then any supple-
ment paid on repayment of the loan is regarded as interest:
“But in many cases mere interpretation of the contract leads nowhere.

If A lends B £100 on the terms that B will pay him £110 at the expira-
tion of two years, interpretation of the contract tells us that B’s obliga-
tion is to make this payment; it tells us nothing more. The contract does
not explain the nature of the £10. Yet who could doubt that the £10
represented interest for the two years? The justification for reaching
this conclusion may well be that, as the transaction is obviously a commercial
one, the lender must be presumed to have acted on ordinary commercial lines
and to have stipulated for interest on his money. In the case supposed,
the £10, if regarded as interest, is obviously interest at a reasonable
commercial rate, a circumstance which helps to stamp it as interest.”6
The same applies if a commercial loan is at a low rate of interest: the sup-
plement may be regarded as further interest. A possible example is IRC v
Thomas Nelson & Sons: interest on the loan was payable at 3% which was
“a remarkably low rate for an unsecured loan of this kind”. The supple-
ment was held to be interest.7
In the light of these clear cases, what is the position with the index
linked sum? The key to the answer is to appreciate that the transaction
under consideration here is not a commercial transaction. The loan is a
transaction between friendly, connected persons, the executors and the
spouse. The charge is a unilateral transaction where the executors have
in mind the interests of two parties, the spouse and the trustees of the
NRB trust. In each case the index-linked element is less than market rate
interest: the object is that the spouse should pay less than the commercial
cost of borrowing. The object of indexation is not to obtain a profit: it is
to avoid a loss caused by inflation. It is the paradigm of a capital receipt.
If the agreement had included market rate interest and an indexation
element, the index-linked element would be capital. The fact that the
interest is dropped because of the element of bounty or gratuitous intent
does not turn what would otherwise be capital into income.
HMRC might rely on proposition (4): that if a commercial loan does
not provide for interest, then the supplement paid on repayment of the
loan is regarded as interest because “the lender must be presumed to have
acted on ordinary commercial terms.” This statement does not apply here
because the spouse undertaking or charge is not commercial.
It is true that Lord Greene says:
6
Lomax v Peter Dixon 25 TC 353 at p.362. Davies v Premier Investment 27 TC 27 is a straightforward
example.
7
22 TC 175. However there was a second feature of the supplement which gave it the character of
income: the amount paid increased with the length that the loan was outstanding, in the manner
of interest.

“Where no interest is payable as such, different considerations will, of course,

apply. In such a case, . . . a “premium” will normally, if not always, be interest.
But it is not necessary or desirable to do more than to point out the distinc-
tion between such cases and the case of a contract similar to that which we
are considering.”8
Here is some comfort for HMRC. But Lord Greene is at all times consid-
ering commercial loans, and he rightly qualified this broad statement so it
applies “normally” but not necessarily “always”.
One can put the matter another way. The classic definition of interest is
“payment by time for the use of money”. Index linking is not payment by
time. It is payment by reference to inflation. That can most clearly be seen
if the RPI goes down. That is not theoretical: the UK has seen deflation
before and may well do so again. In that case the sum repaid is less than
the nil rate sum originally lent.
One can put the matter another way. Would one expect the receipt to
be income or capital for trust law purposes? If the trust were an ordinary
life interest trust, would one expect the index-linked element to be paid
to the life tenant or added to capital. It is after all the normal duty of trus-
tees to preserve the real value of the trust fund, which would not be done
if the receipt were income. The income/capital divide is the same for trust
law as it is for tax law.
For these reasons there is no income tax charge on payment of the
index linked nil rate sum.
In Martin v Triggs9 the index-linked element of National Savings
Certificates was held to be income and not capital for trust law purposes.
This was very much a subsidiary issue in the case, and none of the relevant
cases (in particular the leading case of Lomax v Peter Dixon) were cited.
In the circumstances the case must simply be regarded as wrong on that
point.
If—contrary to the view taken in this appendix, one could avoid the
charge on interest from arising by waiving the debt, or the indexation
element, after the death of the debtor. Interest is not taxable if it is waived
before payment.10
Income tax: Deeply discounted securities
App 4.2 If the benefit of the spouse undertaking or charge is a deeply discounted
security, the profit is subject to IT under s.427 ITTOIA 2005. However,
this only applies if the agreement constitutes a “security” within the
8
9
[2009] EWHC 1920 (Ch) [update reference] at [101]–[105].
10
Dewar v IRC 19 TC 361.

meaning of these provisions. Clearly, not every debt is a security, there

must be something more. “Security” is not defi ned and bears its normal
commercial meaning. For the meaning of the phrase it is more appropri-
ate to turn to commercial law than to tax cases.
Benjamin’s “Interests in Securities” states:11
Securities are a type of transferable fi nancial asset. The meaning of the term
‘securities’ has varied over time.12 Originally the term was used to denote
security interests (such as mortgages and charges) supporting the payment
of a debt or other obligation. In the early modern period, companies and
government agencies began to raise capital from the public by issuing trans-
ferable debt obligations, the repayment of these debt obligations was secured
on the assets of the issuer.13 By a process of elision, these secured debt obliga-
tions came to be known as ‘securities’.14 Since late medieval times, commer-
cial companies have raised funds by issuing participations or shares. In the
Victorian era the transferability of these shares under the general principles of
company law was put beyond doubt. As shares became more readily transfer-
able, their functional likeness to debt securities became clearer, and both forms
of investment became known as ‘securities’. More recently, the term ‘securi-
ties’ has been extended to include units in investment funds and other forms
of readily transferable investment. . ..15
Transferability is an essential characteristic of securities.16
Gore-Browne on Companies states:17
The term ‘security’ has no precise legal meaning, but is traditionally used to
describe ‘something which makes the enjoyment or enforcement of a right
more secure or certain’.18 Consequently, the term ‘debt security’ traditionally
describes an instrument, given by the debtor in addition to the original debt,
and either containing an additional promise or constituting evidence of the
11
1st edn, 2000, paras 1.03, 1.10; footnotes original.
12
‘The word [securities] is not a term of art, but only a word of description. It is a commercial word
which will vary with the history of commerce’: Re Rayner [1904] 1 Ch 176, per Vaughan Williams
L.J. at 185.
13
Such secured corporate debt obligations are called debentures.
14
See Re Smithers [1939] Ch 1015 per Crossman J. at 1017–1020.
15
The connotation of a security interest has now been lost: ‘fi nally, we do not consider there is any
requirement for a security to confer a proprietary interest in the fund or assets to which it relates’:
letter, Dilwyn Griffiths, HM Treasury, to Iain Saville, CRESTCo, 19 July 2000.
See also Re Douglas’ Will Trusts, Lloyds Bank v Nelson [1959] WLR 744 per Vaisey J. at 749: “I
am prepared to make a declaration that ‘securities’ includes any stocks or shares or bonds by way
of investment”. See the discussion of the meaning of the term in Re Rayner [1904] 1 Ch 176 per
Romer L.J. at 189, per Stirling L.J. at 191.
16
Indeed, the repackaging of relatively illiquid assets into readily transferable assets is known as
“securitisation”.
17
Paragraph 17.3; footnotes original.
18
Jowitt’s Dictionary of English Law (2nd edn, 1977). Cf Singer v Williams [1921] 1 AC 41 at 49 (per
Viscount Cave LC), 57 (per Lord Shaw), 59 (per Lord Wrenbury) and 63 (per Lord Phillimore):
the comments are probably distinguishable as being primarily concerned with distinguishing
securities from possessions (for income tax purposes).

debt, designed to make the creditor’s burden easier to discharge.19 One major
example of such an instrument is obviously one which creates security, but the
creation of security is not essential. It appears to be enough that the instrument
acknowledges a liability in a form which makes its enforcement easier or more
convenient. Thus promissory notes and certificates for unsecured loan stock
are ‘securities’,20 and the term is now commonly used to describe virtually any
form of fi nancial instrument issued in connection with a loan.21
Further, a “deeply discounted security” is one where the amount payable

on maturity is or might be an amount involving a deep gain. Since the
spouse’s debt on the spouse undertaking is payable on demand, the debt
matures immediately it is made.22 Hence the debt (even it is a security) is
not a “deeply discounted security”.23
In its normal sense the word “security” can apply to a debt owed by an
individual as well as a company. However here it is considered that the
provisions apply only to corporate debt. The securities must be issued, and
the word “issued” is only appropriate to a corporate issuer, i.e. a company
can issue shares or debentures, but an individual does not “issue” a secu-
rity. In Hansard it is stated that the provisions apply only to corporate
debt.24
Capital Gains Tax
App 4.3 Section 251(1) TCGA provides:
Where a person incurs a debt to another, whether in sterling or in some other

currency, no chargeable gain shall accrue to that (that is the original) creditor
or his personal representative or legatee on a disposal of the debt, except in the
case of the debt on a security. . .
Thus no chargeable gain arises on a disposal of the debt. The spouse
19
See The British Oil and Cake Mills Ltd v IRC [1903] 1 KB 689 at 697 to 698 per Stirling L.J.: Jones
v IRC [1895] 1 QB 484 at 494 per Collins J; Brown, Shipley & Co v IRC [1895] 2 QB 598.
20
See Speyer Brothers v IRC [1908] AC 92; Rowell v IRC [1897] 2 QB 194.
21
The term ‘security’, and variations of it, are also specifically defi ned for certain statutory and
regulatory purposes: see, e.g. Criminal Justice Act 1993, s.54, Sch.2; Taxation of Chargeable
Gains Act 1992, s.132(3)(b); Financial Services Act 1986, s.142(7); Banking Act 1987 (Exempt
Transactions) Regulations 1997, SI 1997/817, The Listing Rules (the London Stock Exchange);
Trustee Act 1925, s.68(1), para.(13); Income and Corporation Taxes Act 1988, s.710; Insolvency
Act 1986, s.248. See also Bristol Airport plc v Powdrill [1990] Ch 744; Taylor Clark International ltd
v Lewis (Inspector of Taxes) [1997] STC 499.
22
See Edwards v Walters [1896] 2 Ch 157 following Re George (1890) 44 Ch D 627.
23
We are grateful to Rory Mullen for this observation.
24
Hansard 26/4/1996 col. 1360 (Lord Mackay: “Clauses 80 to 105 cover the measures in this Bill
which relate to the taxation of corporate debt.”) accessible http://hansard.millbanksystems.com/
lords/1996/apr/26/finance-bill.

undertaking clearly gives rise to a debt; it is considered that the rights of

the trustees under the charge are likewise within the relief of s.251.
The relief does not apply if the debt is a “debt on a security”. The fact
(inter alia) that the debtor is entitled to repay the debt at any time is incon-
sistent with the status of “debt on a security”: see Taylor Clark International
v Lewis 71 TC 226.
Conclusion
For these reasons there is in our view no tax on the payment of the index App 4.4
linked sum. The amount of tax at stake in any one case is likely to be
small but (to avoid cases settling by reason of the costs of defending what
is right) we would be prepared to act on a pro bono basis if this were chal-
lenged in relation to a document drafted in the form in our book. In prac-
tice HMRC have backed down on this point if their view is sufficiently
firmly challenged.

APPENDIX 5
SHARE OF HOUSE IN TRUST: CGT PRIVATE RESIDENCE

RELIEF
App 5.1 This appendix considers the availability of CGT private residence relief
(“PPR relief ”) where a share in a family home is held in a trust.
The issue typically arises where:
(1) The testator (“T”) and his spouse (“the spouse”)1 own the family
home (“the property”) as tenants in common.
(2) T dies and is survived by the spouse.
(3) T leaves a will establishing a NRB trust (or there is a deed of vari-
ation establishing a NRB trust).
(4) The executors appropriate the testator’s share in the family home to
the trust in satisfaction of the NRB legacy.2
(5) The spouse continues to occupy the property.
If the home is sold:
(1) A gain will accrue to the spouse on the disposal of her interest. That
gain will qualify for PPR relief (it is assumed all the conditions for
that relief are met).
(2) A gain will also accrue to the trustees. The question discussed here
is whether that gain also qualifies for PPR relief.
1
Or civil partner—all references in this chapter to spouses include civil partners.
2
It is best practice to make the appropriation more than two years after the testator’s death, in
order to avoid any argument that the spouse acquired an IPDI, which is an estate-IP. (This will
not prevent an estate-IP if the spouse is disabled (in the IHT sense) at the time of the death of the
testator. It is assumed that the spouse is not disabled.)

SHARE OF HOUSE IN TRUST 647
The availability of PPR relief is especially important as the trustees do not

qualify for a tax-free uplift on the death of the spouse (as they would if the
spouse had an estate-IP).3
Relief for individuals
Sections 222–224 TCGA provide PPR relief for individuals. So far as App 5.2
relevant, s.222(1) provides:
This section applies to a gain accruing to an individual so far as attributable to

the disposal of, or of an interest in—
(a) a dwelling-house or part of a dwelling-house which is, or has at any time
in his period of ownership been, his only or main residence, or
(b) land which he has for his own occupation and enjoyment with that
residence as its garden or grounds up to the permitted area.
Section 222 is headed Relief on disposal of private residence but PPR relief
itself is in fact conferred by s.223 (which is headed Amount of relief ). For
present purposes it is sufficient to set out s.223(1):
No part of a gain to which section 222 applies shall be a chargeable gain if the
dwelling-house or part of a dwelling-house has been the individual’s only or
main residence throughout the period of ownership, or throughout the period
of ownership except for all or any part of the last 36 months of that period. . . .
Relief for trustees
Of course this by itself would not help trustees, as s.222 applies to a gain App 5.3
accruing to an individual, and trustees are not an individual. However the
relief is extended by s.225 TCGA. So far as relevant this provides:
[1] Sections 222 to 224 shall also apply in relation to a gain accruing to the
trustees of a settlement
[2] on a disposal of settled property being an asset within section 222(1)
[3] where, during the period of ownership of the trustees, the dwelling-
house or part of the dwelling-house . . . has been the only or main resi-
dence of a person entitled to occupy it under the terms of the settlement,
[4] and in those sections as so applied—
(a) references to the individual shall be taken as references to the trus-
tees except in relation to the occupation of the dwelling-house or
part of the dwelling-house . . .
3
Section 72(1A) TCGA 1992.

648 SHARE OF HOUSE IN TRUST
The condition in s.225[3] is:
during the period of ownership of the trustees, the dwelling-house . . . mentioned in that
subsection has been the only or main residence of a person entitled to occupy it under the
terms of the settlement.
The word “during” is capable of bearing two meanings. It could mean

“throughout” the trustees’ period of ownership. Here, however, it clearly
means “at some time” in their period of ownership (otherwise the appor-
tionment provision in s.223(2) TCGA could never apply).
The PPR provisions in ss.222-224 apply to trusts subject to the modifi-
cations of s.225[4]. Amended as s.225[4] requires, s.222(1) provides:
(1) This section applies to a gain accruing to an individual [the trustees] so
far as attributable to the disposal of, or of an interest in—
(a) a dwelling-house or part of a dwelling-house which is, or has at
any time in his [the trustees’] period of ownership been, his [the indi-
vidual’s] only or main residence, or
(b) land which he has [the trustees have] for his [the individual’s] own
occupation and enjoyment with that residence as its garden or
grounds up to the permitted area.
As noted, PPR relief itself is conferred by s.223. Amended as s.225[4]
requires, s.223(1) provides:
No part of a gain to which section 222 applies shall be a chargeable gain if the
dwelling-house or part of a dwelling-house has been the individual’s4 only or
main residence throughout the period of ownership, or throughout the period
of ownership except for all or any part of the last 36 months of that period. . ..
If the residence has not been the beneficiary’s only or main residence
throughout the trustees ownership, only a fraction of the gain is exempt:
s.223(2) TCGA. However in the circumstances which we are envisaging,
the residence will be the beneficiary’s residence throughout the period of
ownership of the trustees.
Amount of relief
Section 223(1) TCGA provides that no part of the gain is chargeable if

the beneficiary occupied the property as his/her only or main residence
throughout the trustees’ period of ownership. As long as the spouse occu-
pies the property since death (which will normally be the case), PPR relief
is in principle available in full, i.e. without any apportionment of the gain.
Section 223 does not require that the beneficiary is entitled to occupy
4
Notwithstanding s.225[4], the reference to “individual” here must be to the beneficiary since the
reference relates to the occupation of the residence.

throughout the trustees’ period of ownership (as there is in s.225). Rather

the requirement is that the beneficiary has in fact occupied it throughout
that period.
Entitlement to occupy
The relief is only available to the trustees if, at least at some point during App 5.4
their ownership of the residence, a beneficiary is “entitled to occupy . . .
under the terms of the settlement”: s.225[3] TCGA. This raises the ques-
tion whether the spouse is entitled to occupy.
It has been suggested5 that as a matter of land law the spouse is not enti-
tled to occupy; trustees in the circumstances envisaged in this appendix
cannot have power to allow any beneficiary to occupy the property. An
express power is invalid. If this is right, the spouse does not and cannot
occupy “under the terms of the settlement” and PPR relief is not available.
Rights of occupation are governed by the TLATA 1996.6 Section 12(1)
TLATA 1996 provides:
A beneficiary who is beneficially entitled to an interest in possession in land

subject to a trust of land is entitled by reason of his interest to occupy the land
at any time if at that time –
(a) the purposes of the trust include making the land available for his occu-
pation (or for the occupation of beneficiaries of a class of which he is a
member or for the beneficiaries in general) or
(b) the land is held by the trustees so as to be so available.
The first question is whether the NRB trust is a “trust of land”. A trust of
land is “any trust of property which consists of or includes land”.7 “Land”
includes a “right, privilege or benefit in, over, or derived from land”.8
The NRB trust holds a right in land so it is a trust of land.9 There may of
course be two (or more) rights or interests in the same physical land, in
which case there may be two (or more) trusts holding those rights, each
of which are trusts of land. That is in fact the case here, since the spouse
5
Chamberlain and Whitehouse, Trust Taxation (2nd edn, 2008), paras 30.30 and 35.25
6
This section is considered in another tax context in Kessler, Taxation of Non-Residents and Foreign
Domiciliaries (11th edn, 2012) para.70.25 (Co- ownership defence to living accommodation
charge).
7
8
Section 205(1)(ix) LPA incorporated by s.23(2) TLATA.
9
TLATA repealed the words “but not an undivided share in land” which had previously appeared
in that section: s25(2), Sch.4 TLATA. It is therefore clear that the expression “trust of land” used
in TLATA includes a trust holding a share in land.

650 SHARE OF HOUSE IN TRUST
holds the legal title to the land,10 which is also a trust of land, but that does
not matter.
The spouse is “a beneficiary”.11 The next question is whether she is
“beneficially entitled to an interest in possession in land subject to a trust
of land”. If the spouse has an interest in possession in the NRB trust, she
clearly meets this condition.
Lastly, we note that the conditions in s.12(a)(b) TLATA are met.
Accordingly the spouse has a right to occupy the land under s.12 TLATA.12
We consider that any argument that the spouse has no right to occupy
the land under the terms of the NRB trust is misconceived.
Section 12 TLATA requires that the beneficiary has an IP in the trust’s
share of the land. This means that the spouse should be given an IP in the
NRB trust’s share (which is otherwise held on discretionary trusts). This
is easy enough. The trustees can appoint a life interest in it at the time
of the appropriation. The interest will not be an IPDI so no IHT conse-
quences will follow. Part II of this book contains a precedent.
If TLATA is a problem it would prevent trustees claiming PPR relief in
all cases where the trustees hold a share in land (even a 99% share), not just
NRB trusts. This is a startling proposition! HMRC do not as far as we
are aware take this point and have apparently confi rmed that CGT relief
is available for IP and also for discretionary trusts. (In the 10th edition of
this book we expressed a preference for IP trusts but now that HMRC
practice is clear, this may be thought unnecessary).13
Another (bad) argument
One other argument that is much more easily dismissed is that PPR relief
is unavailable because the right of the spouse to occupy derives from her
own half share in the home, rather than the NRB trust. Section 225
TCGA does not require that the beneficiary is only entitled to occupy it
by virtue of his/her entitlement under the settlement. It is enough that the
surviving spouse would (ignoring any other rights she may have) be enti-
tled to occupy the property under the terms of the settlement. HMRC
agree.14
10
It is assumed that legal title was vested in the testator and the spouse during their joint lifetimes;
on the death of the testator legal title would pass to the spouse by survivorship.
11
12
For completeness, the right to occupy land can be restricted under s.12(2) or s.13 TLATA 1996,
but these provisions will not apply here.
13
See CG Manual para.65407 (Entitlement to occupy under the terms of an express trust); Steel
and Dew “Can TLATA 1996 be interpreted as a fi scal bill?” (May 2009) Trusts and Estates Law
& Tax Journal p.11
14
See CG Manual para.65407 (Entitlement to occupy under the terms of an express trust);
“. . . Co- owned property
The trustees may own the property as tenants in common with another person. The co- owner
will also have rights of occupation. This does not prevent the trustees claiming relief under s.225
TCGA 1992 even if the co- owner is the occupying beneficiary. The test in, s.225 TCGA 1992 is

Summary
In summary, it is safe to appropriate the testator’s share in the family home App 5.5
to the NRBDT provided:
(1) the appropriation is made two years or more after the death of the
testator;15
(2) the spouse is not disabled in the IHT sense at the time of the death
of the testator; and
(3) the spouse is given an interest in possession in the trust fund.
This course will ensure that PPR relief is available to the trustees when
the property is eventually sold. This arrangement avoids the complex
issues raised by the debt/charge arrangements and is in our view the most
convenient way to administer a NRB trust.
that there is an entitlement to occupy under the terms of the settlement. This test can still be satis-
fied even if the beneficiary has other rights of occupation as co- owner. For example, the trustees
of a discretionary settlement co- own a dwelling house as tenants in common with a beneficiary
of that settlement. The beneficiary occupies the house as his or her only or main residence. When
the property is sold the trustees can claim relief under s.225 TCGA 1992 on their share and the
beneficiary can claim relief under s.222 TCGA 1992 on his or her share.”
15
The appointment could be made within two years if the spouse has moved out of the property.

APPENDIX 6
DEFINITIONS OF “DISABLED PERSON”
Definition for IHT Purposes
App 6.1 The definition is in s.89 IHTA 1984. There are seven categories of disa-
bled person.
Category 1: No mental capacity
A person who is incapable, by reason of mental disorder within the meaning of the Mental
Health Act 1983 of administering his property or managing his affairs.
This defi nition is narrow. “Mental disorder” is defi ned in s.1 of the
Mental Health Act 1983 as “mental illness, arrested or incomplete
development of mind, psychopathic disorder and any other disorder or
disability of mind”. It does not extend to persons with partial or fluctuat-
ing mental capacity or those with a progressive illness, e.g. Parkinson’s,
Alzheimer’s.
The Government rejected calls by the 2006 Finance Bill Standing
Committee to adopt, for IHT purposes, the Disability Discrimination
Act 1995 definition of a disabled person as “a person who has a physical or
mental impairment which has a substantial and long term adverse effect on his
ability to carry out normal day to day activities”. Calls from lobbying groups to
adopt the Mental Capacity Act 2005 definition (which repealed the 1983
Act with effect from 2007) were also rejected. That defi nition is: “For the
purposes of this Act, a person lacks capacity in relation to a matter if at the material
time he is unable to make a decision for himself ”. The outdated and narrow
definition contained in the (now repealed) 1983 Act therefore continues
to apply for IHT purposes.

DEFINITIONS OF “DISABLED PERSON” 653
Category 2 and 3: Attendance or disability living allowance
A person in receipt of an attendance allowance under:

(1) s.64 Social Security Contributions and Benefits Act 1992 or
(2) s.64 SSCB (Northern Ireland) Act 1992.
A person in receipt of a disability living allowance under:

(1) s.71 Social Security Contributions and Benefits Act 1992 or
(2) s.71 SSCB (Northern Ireland) Act 1992
by virtue of entitlement to the care component at the highest or middle rate.
The person must receive the benefit, not merely be entitled to claim
it. The IHT Manual para.42805 summarises the requirements of these
benefits:
The attendance allowance is payable only to a person who

— is age 65 or over
— satisfies prescribed conditions as to residence and presence in Great
Britain or Northern Ireland, and
— is not entitled to the care component of a disability living allowance,
and
— is so severely disabled mentally or physically that he requires from
another person:
frequent attention throughout the day (or prolonged or
repeated attention at night) in connection with his bodily func-
tions, or
continual supervision throughout the day or night in order to
avoid substantial danger to himself or others.
A person is entitled to the care component of a disability living allow-
ance at the highest or middle rate if he
— satisfies prescribed conditions as to residence and presence in Great
Britain or Northern Ireland, and
— is so disabled that
he requires frequent attention throughout the day, or for a
significant portion of the day, in connection with his bodily
functions, or
he cannot prepare a cooked main meal for himself if he has the
ingredients, or
he requires continual supervision throughout the day in order
to avoid substantial damage to himself or others.
Further details and application forms are accessible at www.direct.gov.uk/en/
MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/Disabledpeople/
index.htm.
The remaining categories concern those who nearly qualify for one of
these allowances, but fail on certain grounds.

654 DEFINITIONS OF “DISABLED PERSON”
Category 4: Renal patients
A person who would have been in receipt of attendance allowance under section 64 of
either of the Acts mentioned in subsection (4)(b) above had provision made by regulations
under section 67(1) or (2) of that Act (non-satisfaction of conditions for attendance allow-
ance where person is undergoing treatment for renal failure in a hospital or is provided
with certain accommodation) been ignored.
Section 65(2) SSCBA applies where the claimant is suffering from renal
failure and is undergoing a particular form of treatment. Paragraphs 5(2)
and (3) SS (Attendance Allowance) Regulations 1991 allow a person
having such treatment at least twice a week to be deemed (in some cir-
cumstances) to satisfy one of the attendance conditions. Section 67(1)
allows for regulations which limit the scope of this concession. The regu-
lations drawn under this particular section are paragraphs 5(3) and (4) of
of the SS (AA) Regulations 1991. The effect of this category is to ignore
these paragraphs for the purposes of IHT.
Category 5: Patients for whom accommodation is provided
A person who would have been in receipt of disability living allowance by virtue of
entitlement to the care component at the highest or middle rate had provision made by
regulations under section 72(8) of either of the Acts mentioned in subsection (4)(c) above
(no payment of disability living allowance for persons for whom certain accommodation
is provided) been ignored.
Category 6 and 7: Non-residents
(a) A person who would have been in receipt of attendance allowance under section
64 of either of the Acts mentioned in subsection (4)(b) above—
(i) had he met the conditions as to residence under section 64(1) of that Act, and
(ii) had provision made by regulations under section 67(1) or (2) of that Act been
ignored.
(b) A person who would have been in receipt of a disability living allowance by virtue
of entitlement to the care component at the highest or middle rate—
(i) had he met the prescribed conditions as to residence under section 71(6) of
either of the Acts mentioned in subsection (4)(c) above, and
(ii) had provision made by regulations under section 72(8) of that Act been
ignored.
In 2013 the DLA is to be replaced by a new benefit called Personal
Independence Payment. This will require some amendment to the defini-
tion; the issue is canvassed in an HMRC consultation paper.1
1
HMRC, “Consultation on vulnerable beneficiary trusts” (August 2012).

DEFINITIONS OF “DISABLED PERSON” 655
Definition for CGT
Only categories (1) to (3) above qualify as disabled persons for CGT App 6.2
reliefs: Sch.1, para 1 TCGA 1992 (full annual allowance) and s.169 TCGA
1992 (holdover relief ).
Definition for IT/CGT transparency
Categories (1) to (5) above qualify as disabled persons for IT/CGT trans- App 6.3
parency: s.38 FA 2005.

APPENDIX 7
NOTES ON THE TRANSLATION OF WILL PRECEDENTS

INTO WELSH
By Ian Sydenham
I am very happy to have prepared the Welsh precedents for this edition of
Drafting Trusts and Will Trusts. The precedents are to be found on the CD
with this book.
The Welsh Language Act 1993 established the principle that in the
conduct of public business and the administration of justice in Wales, the
English and Welsh languages should be treated on a basis of equality.1 It
is pleasing that there is a general awareness not only of the existence of
Welsh as a living language but also of the need for legal precedents.
While the number of Welsh speakers continues to grow and the lan-
guage is used more and more in everyday and commercial life it is an
unfortunate fact that it is not as broad as English in terms of vocabulary.
This can however be a positive advantage for translation since it imposes a
discipline of not using several words where one will do. There is therefore
possibly less of a need to ensure that the precedents are written in “plain
Welsh” as opposed to “plain English” because to complicate them would
require more work.
Welsh precedents do, I think, suffer from a different problem. In
common with other legal and technical documents which have been
translated into or, more rarely, produced in Welsh the precedents use a
technical vocabulary which may be unfamiliar even to fluent readers.
There is the risk that using Welsh documents can be simply too much
effort. I remember considerable difficulty in reading through the Civil
Procedure Rules in Welsh. The result is that translations can be seen as an
end in themselves with the production of the items rather than their actual
use being the main goal. We do hope that this will not be the case with
1
See the preamble to and ss.3, 5 Welsh Language Act 1993.

NOTES ON THE TRANSLATION OF WILL PRECEDENTS INTO WELSH 657
these precedents and that they will be of use to practitioners rather than
mere curiosities. Within Wales it should be possible to conduct matters
in Welsh if the parties desire and it is of course straightforward to prove a
Will which is written in Welsh.
One interesting grammatical aspect of Welsh (in common with Celtic
and some other languages2 ) is its use of mutations where the first letter of
a word (or sometimes the whole word or part of the preceding word) may
change. This is why the Welsh word for Wales is Cymru but road signs say
Croeso i Gymru. This did give some pause for thought when considering
defined terms since the initial, capitalised, letter will change depending
on the context. I have decided to simply capitalise the mutated initial
letter on the basis that the meaning remains clear. Similarly, where the
precedent includes options I have not mutated, considering the options
somewhat outside of the main text.
A second interesting issue is the disparity between Welsh spoken in
North Wales and that in South Wales. A good number of words and
terms do vary and it not simply a case of one being the correct form and
the other a regional variation. As the precedents are technical I hope that
this will not be too relevant. I do not think that I have been particularly
parochial although this may just be a North Walian bias meaning that I
have not appreciated where I have done so.
As with any translation it has not been possible to simply change the
precedents from English to Welsh in exactly the same form. Many words
can be translated in more than one way while retaining a similar meaning.
A translation back into English would inevitably therefore differ in look
from the original precedents but not, I hope, by very much or, in terms
of meaning, at all.
This does however give rise to a problem in ensuring consistency, par-
ticularly when translating technical terms which are likely to have been
included in government documents or legislation. It would be quite pos-
sible to translate a standard English term such as, for example, “interest in
possession”, in several different ways, each of which would convey a similar
meaning. However, as HMRC in their Welsh language forms and guidance
use a particular translation I felt it desirable to use the term already in use.
In that regard I found both HMRC and The Probate Service to have
very useful websites containing a large number of translated documents.
Considering these has, I hope, helped to produce a desirable standardisa-
tion in the translation of technical terms.
I do not doubt that my translations can be improved upon and would
welcome any suggestions for doing so.
Ian Sydenham TEP
Hill Dickinson LLP
[email protected]
2
Classical Hebrew is another example.

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White Rabbit - Alice, it's time to come home

KESSLER (11th) PRELIMS1.indd iii 07/11/2012 16:40

First Edition 1992

Published in 2012 by Thomson Reuters (Legal) Limited

No natural forests were destroyed to make this product;

Crown copyright material is reproduced with the permission of the Controller of

All rights reserved. No part of this publication may be reproduced or transmitted, in

© James Kessler 2012

KESSLER (11th) PRELIMS1.indd iv 07/11/2012 16:40

KESSLER (11th) text1.indd 1 07/11/2012 16:42

THE RAID ON TRUSTS

Policy of Finance Act 2006

(1) In most cases trusts will not be created. In particular a lifetime

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(1) The changes “aligned” the formerly “privileged” tax treatment of

To anyone knowledgeable in practice in this area, these statements were

KESSLER (11th) text1.indd 4 07/11/2012 16:42

Speaking in general terms, it is most important that young children should be

KESSLER (11th) text1.indd 5 07/11/2012 16:42

HMRC expects professionals such as accountants who act on behalf of tax-

But honesty is a two-way street. Taxpayers should also expect HMRC to

KESSLER (11th) text1.indd 6 07/11/2012 16:42

Trusts after the FA 2006

These are of course significant categories. In appropriate cases the best

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Duty to the client

KESSLER (11th) text1.indd 8 07/11/2012 16:42

Elderly or ill client

The same applies of course to a lifetime settlement made by such a client.

Does drafting matter?

KESSLER (11th) text1.indd 9 07/11/2012 16:42

ambiguity and sometimes invalidity. To ascertain the meaning of a badly

KESSLER (11th) text1.indd 10 07/11/2012 16:42

Sources for drafting

(2) Law reports

(3) Company law

KESSLER (11th) text1.indd 11 07/11/2012 16:42

(4) Legal literature and precedent books

Formal qualifications for the drafter

(1) a will or other testamentary instrument;

The Legal Services Board has recommended that will-writing is added to

KESSLER (11th) text1.indd 12 07/11/2012 16:42

restriction applies only to documents which relate to property in England

KESSLER (11th) text1.indd 13 07/11/2012 16:42

Civil claims against the drafter

(1) in contract or negligence, to the client;

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The drafting style established in earlier centuries should be adapted to 3.1

This comment drew spontaneous applause from the audience.

KESSLER (11th) text1.indd 15 07/11/2012 16:42

the present orthodoxy. The old controversy—whether mistakes are likely

KESSLER (11th) text1.indd 16 07/11/2012 16:42

mercial advantages offered by “plain English” in a competitive market8 ;

Punctuation was traditionally omitted in legal documents. Many trust 3.2

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Punctuation is a rational part of English composition . . . I see no reason of

As Lord Shaw suggests, punctuation is an aid, and no more than an aid,

KESSLER (11th) text1.indd 18 07/11/2012 16:42

the opening words: THIS SETTLEMENT