Reviewing a trust deed

By Tolley

The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Reviewing a trust deed
General rules
Beneficiaries
Default trusts
Trustees
Perpetuities and accumulations

An adviser who is drafting a settlement will, at a basic level, be carrying out the wishes of the settlor or the testator. The adviser is also responsible to ensure that those wishes are carried out in the appropriate way. Generally, the courts try to avoid penalising clients for a badly drafted trust deed, unless there is ambiguity in the deed. Ambiguous construction of a deed can lead to a great deal of difficulty and expense, as well as unforeseen tax consequences. To ascertain the meaning of a badly drafted document can be difficult and expensive. Some trivial drafting errors can have enormous tax consequences and HMRC will often have no scruple in penalising a client for a badly drafted deed.

Broadly, in reviewing the trust deed it is important to make certain that it is sufficiently flexible to ensure that the terms of the trust can react to changes in taxation and beneficiaries’ circumstances.

General rules

Ideally, the style of drafting should be in modern, plain English. In the past, legal documents, and especially deeds and conveyances, did not contain punctuation, but this practice is generally no longer followed. Punctuation, when used correctly, will likely make the document easier to read and may make ambiguity less likely (although it is also possible that punctuation can inadvertently change the intended meaning or introduce ambiguity).

The rest of this guidance note will look at some particular areas of the trust deed and the type of areas the adviser should review with his client.

Beneficiaries

The trust could have been established to ensure that children do not inherit too much at an early age. The trust deed could provide for this by employing the following strategies: