The Most Noble John Michael Edward, Duke of Somerset DL v Peter Robin Fitzgerald
| Jurisdiction | England & Wales |
| Judge | Master Teverson |
| Judgment Date | 25 March 2019 |
| Neutral Citation | [2019] EWHC 726 (Ch) |
| Court | Chancery Division |
| Date | 25 March 2019 |
| Docket Number | Case No: PT-2018-000769 |
[2019] EWHC 726 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY TRUSTS AND PROBATE LIST (Ch)
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Master Teverson
Case No: PT-2018-000769
William Massey QC (instructed by Wilsons LLP) for the Claimant
James Rivett (instructed by Wilsons LLP) for the First and Second Defendants
Hearing date: 30 November 2018
Judgment Approved
This is an application under the Variation of Trusts Act 1958 (“the 1958 Act”) for the approval of an arrangement to vary the trusts of a settlement made by the Claimant by a Trust Instrument dated 30 September 1971 (“the Settlement”). The Claimant is the 19 th Duke of Somerset. The Settlement was made by him shortly after he came of age.
At the hearing of the application on 20 November 2018 I expressed myself as being satisfied that the arrangement taken as a whole was for the benefit of the unborn and unascertained beneficiaries on whose behalf the approval of the Court was sought under s.1(1) of the 1958 Act. I did however raise with counsel whether a further supplemental order was needed either under s.64 of the Settled Land Act 1925 or under s.57 of the Trustee Act 1925 in relation to those parts of the arrangement which concerned enlarging the administrative powers of the trustees of the Settlement and providing that the Settled Land Act 1925 was no longer to apply to the Settlement.
I was provided with a Joint Supplemental Submission by William Massey QC Counsel for the Claimant and James Rivett Counsel for the Defendant Trustees on 8 January 2019. I am grateful to both counsel for their written and oral submissions.
The Settlement, as created, was in the form of a Settled Land Act 1925 settlement with a tenant for life and Settled Land Act trustees. The Claimant is the tenant for life and a trustee. The First and Second Defendants are the other trustees. They are independent professional trustees both with great knowledge and experience of trust law and its application to landed estates. The First Defendant has filed evidence on their behalf for two purposes. The first is to explain why they are satisfied, with the benefit of a detailed opinion provided by James Rivett of counsel, that the arrangement taken as a whole is for the benefit of the unborn and unascertained beneficiaries. The second is to comment specifically on the desirability of certain aspects of the proposed arrangement from the perspective of the Trustees.
The Third to Fourteenth Defendants inclusive are the adult beneficiaries interested under the trusts of the Settlement. They are all fully supportive of the application. They have formally given their consent to it by a letter to the Court through their solicitor Tim Fullerlove, a partner in Wilsons LLP Solicitors. There are no minor beneficiaries and no other beneficiaries in being lacking capacity on whose behalf the Court is asked to approve the arrangement.
For the purposes of this Judgment, I need only provide a short summary of the current trusts under the Settlement. The property settled comprised property defined as “the Trust Property” and “the Reversionary Property”. The latter was the Claimant's reversionary interest under a settlement (“the Existing Settlement”) created by the will of the 15 th Duke of Somerset who died in 1922. At the date of the Settlement, the Claimant's father, the 18 th Duke, had become the tenant for life in possession under the Existing Settlement, and the Claimant was the tenant in tail in remainder.
Clause 4 of the Settlement directed that the Trust Property and the Reversionary Property be held on a series of successive entailed interests. It was declared at the end of clause 4 that the Claimant's primary purpose in declaring the trusts contained in clause 4 and the powers thereafter contained was to enable at least a substantial part of the Trust Property and the Reversionary Property and the income thereof to be available for the benefit of his father's descendants who were from time to time Dukes of Somerset or in line of succession to the Dukedom and in the order of their succession or prospective succession to the Dukedom. This makes clear the dynastic nature of the Settlement.
The successive trusts set out under Clause 4 took effect subject to wide overriding powers of appointment conferred under Clause 6 over the Trust Property and under Clause 7 over the Reversionary Property in favour of a class of beneficiaries defined as “the Discretionary Beneficiaries”. The Discretionary Beneficiaries currently in being are all parties to the application and include the Claimant's wife, the Third Defendant and Lord Francis Seymour's wife, Patricia, Lady Francis Seymour, the Ninth Defendant. The powers under Clauses 6 and 7 are exercisable by the tenant for life. The Claimant covenanted by deed in 1976 not to further exercise those powers during the remainder of his life without the consent of the trustees.
By a series of deeds, revocable and non-exhaustive, sub-funds have been created held on trusts appointed by the Claimant from time to time with the consent of the trustees. A sub-fund known as “the Discretionary Fund” is held on discretionary trusts of income as declared in a deed of revocation and appointment dated 15 November 1984 and subject thereto on the trusts and subject to the powers contained in the Settlement. The Discretionary Fund is regarded as being “relevant property” within Chapter III of the Inheritance Tax Act 1984. It is conditionally exempt from the ten yearly periodic charge that would otherwise apply under s.79(1) of the 1984 Act.
The remainder of the property subject to the Settlement is known as “the Retained Fund”. The Retained Fund was divided in 2008 into two sub-funds known as “the Retained Fund ‘A’ Fund” and “the Retained Fund ‘B’ Fund”. The A Fund is the larger in value. It is an interest in possession fund whose income is held 95% for the Claimant and 5% for the Claimant's wife. Subject to the income trusts, the A Fund is held on the trusts of the Settlement. The B Fund is also an interest in possession fund. The income of the B Fund is held 99% for the Fourth Defendant, Lord Seymour and the remaining 1% for the Claimant for life and his wife for life. Subject thereto, the whole of the capital and income of the B Fund is held on the trusts of the Discretionary Fund. 1
‘The Trust Period’ is defined in the Settlement as the period of 80 years beginning on 30 th September 1971. It is expressed to be the applicable perpetuity period. That period will expire on 29 th September 2051.
Under the terms of the proposed arrangement, it is proposed:-
(1) to extend the period during which the powers of appointment under Clauses 6 and 7 of the Settlement and the powers of revocation can be exercised;
(2) to add a power to allow the accumulation of income;
(3) to extend powers so as to allow the creation of an heritage maintenance fund;
(4) to vary the terms of the Settlement to make clear that it is no longer to be governed by the Settled Land Act 1925;
(5) to add further administrative powers to limit the self-dealing rule and to add power for the trustees to revoke and amend administrative powers subject to obtaining specialist advice from counsel before doing so;
(6) to widen the beneficial class to include same-sex spouses and civil partners;
(7) to require the trustees' consent to the exercise of the life tenant's power of appointment;
(8) to confer on the trustees a flexible overriding power of appointment.
It is well established 2 that there is power under the 1958 Act to extend a trust and perpetuity period to take advantage of s.5 of the Perpetuities and Accumulations Act 2009. This will not of itself give rise to a resettlement. The Court must in the circumstances of each application under the 1958 Act consider whether such extension looked at in the context of the arrangement as a whole is for the benefit of each beneficiary or group on whose behalf approval is sought. In the present case there is clearly a general family benefit in the extension of the perpetuity period. The additional benefits provided by the arrangement to the unborn and unascertained beneficiaries far outweigh any theoretical disadvantage caused by future generations being brought into the class of potential beneficiaries. The proposal will avoid a substantial charge to IHT in around 32 years' time at the end of the existing trust period. This is particularly significant in the context of the conditionally exempt status of the Discretionary Fund. It will also prevent a deemed disposal for Capital Gains Tax purposes arising on the termination of the Settlement. It will widen the class of unborn and unascertained beneficiaries to those born after the end of the existing perpetuity period but in my view that is far outweighed by the wider benefits provided by arrangement as a whole for the unborn and unascertained beneficiaries. The restrictions on the powers of the tenant for life and the enlargement of the trustees' powers in particular are potentially of real benefit to the unborn and unascertained beneficiaries whose interests will otherwise be subject to powers of the tenant for life for...
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