Court corrects ‘inheritance error’ made while amending trust fund

The High Court has corrected an error made when changing a trust fund because it would have led to significant inheritance tax liability.

Stephanie Johnson Senior Associate Solicitor reports on this recent case.

The declaration of trust had been executed in 1992 in respect of a life insurance policy held by the settlor. It identified “possible beneficiaries”, including any children or grandchildren of the settlor, and certain “immediate beneficiaries” (Kate, Adam, Lillie and Amanda). 

The settlor died in 2004. Her will created a trust; the claimants were its trustees. The discretionary beneficiaries of the will trust were all possible beneficiaries under the 1992 trust.

The trustees did not become aware of the life insurance policy until 2012, at which point they were appointed trustees of the 1992 trust. 

In 2013, they determined that Amanda should not benefit from the policy proceeds and a deed of appointment was drafted on that basis.

In 2017, the trustees took legal advice and were advised that the 2013 appointment did not leave the interests of Kate, Adam and Lillie as they were, but instead gave rise to significant inheritance tax liabilities.

The High Court granted their application to set aside the appointment because it had clearly been made in error.

The 2013 appointment had created radically different interests held by Kate, Adam and Lillie, and the trustees had been mistaken in doing so. That mistake was sufficiently serious as to make it unconscionable not to allow the trustees to correct it.

If you would like more information about the issues raised in this article please call Stephanie on 01228 516666 or click here to send her an email.