Termination of trusts

Termination of trusts—methods of termination

An express trust, after it has become operative, may come to an end in a number of ways, for example:

  1. the settlor may exercise a power of revocation or a power of appointment reserved to them in the trust instrument

  2. it may be set aside under the provisions relating to the avoidance of transactions at an undervalue or to dispositions in fraud of creditors, on the ground that the disposition was induced by fraud, duress, undue influence or mistake

  3. in the case of matrimonial proceedings or proceedings on the dissolution of a registered civil partnership, the court has power to:

    1. adjust interests in settlements

    2. set aside a disposition intended to defeat a claim for financial relief in such proceedings

    3. set aside a settlement made in compliance with a property adjustment order in matrimonial proceedings where this would amount to a transaction at an undervalue in an insolvency

  4. the passage of time

  5. due to rules of construction: the rule in Andrews v Partington [1775-1802] All ER Rep 209; the rule in Lassence v Tierney [1843-60]

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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