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Couple correct ‘£650,000 error’ in trust document

Posted: 4th February 2015   In: Wills, Trusts and Probate

A married couple have been allowed to remove a clause from a trust document that could have cost their family £650,000 in tax liability.

The issue arose after the husband set up a trust for which both he and his wife were among the trustees.

When drawing up the trust, he decided to appoint certain assets to himself, and also make dispositions in favour of his children in order to reduce any future inheritance tax liability. However, shares in various companies were left out of the settlement by mistake. The effect was to create a potential capital gains tax liability of £650,000.

The trustees signed the trust without realising that a mistake had been made. Once the error was discovered, they sought a declaration from the court that the shares could be included in the settlement and so protected from any tax liability.

The court held that a correction could only be granted if the wording of the trust did not reflect the true intentions of the trustees. In this case, the trust was set up as a legitimate way to transfer assets to the couple’s children in a tax efficient manner. The clause omitting the shares from the settlement clearly went against this intention as it left the children open to paying a large tax bill.

The couple were therefore entitled to have the clause rescinded as it clearly did not reflect their intentions and they would never had agreed to it if they had understood the implications involved.

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

 

Posted by: Nic Pestell
Private Client
Luton Office