Variation of trusts: An overview

There are myriad reasons why it might be necessary to vary a trust. For example, a variation may be required in the interest of efficient administration, or trustees may lack a particular power, which they need to effect a specific transaction.

A change in a beneficiary's circumstances may also make a variation appropriate, or it may be desirable to postpone the vesting of the trust assets beyond the age of majority to avoid beneficiaries inheriting wealth before they are mature enough to manage it.

In this article, we touch on some of the key routes for variation of trusts, including those accessible without recourse to the court.

Non-court driven processes

In the interest of avoiding unnecessary expense and delay, trustees should first consider options that do not involve the court. There are two potential non-court routes:

1. Rely on the trust deed

In some instances, trust deeds expressly permit trustees to vary the terms of the trust. In this case, trustees can rely on the relevant provision to effect the necessary amendments, subject to any restrictions or conditions attached. This is usually the simplest and quickest way in which to effect a variation.

2. By consent of the beneficiaries

Under the principle established in Saunders v Vautier [1841] EWHC Ch J82, if all potential beneficiaries of a trust are absolutely entitled to the trust assets and of age and full capacity, they can direct the trustees to bring the trust to a close and distribute the assets.

Given that this route depends on the type of trust, the circumstances of the beneficiaries and their inclination to agree, it has quite limited applicability. Exercise of this power is also restricted.  Beneficiaries cannot choose to vary an existing trust and keep it in existence. If they wish to keep the assets in trust, they must dissolve the structure and resettle the assets, which may have adverse tax or other consequences.

Court driven processes

1. Section 57 Trustee Act 1925 (TA 1925)

Where a trustee does not have sufficient powers under the trust deed to carry out certain transactions, the court has power under s57 TA 1925 to authorise specific administrative or management-related acts.  The key is that the court must consider them to be expedient and beneficial to all the beneficiaries. This might include actions of sale, lease, mortgage, investment, expenditure, or other transactions.

An application under section 57 is usually made by the trustees, but can also be made by those with a beneficial interest in the trust. Regardless of the applicant, the court must be satisfied that the authority sought is in the best interests of the trust as a whole.

The added advantage of an application under section 57 is that the court has power to confer a general administrative power on the trustees going forwards, where it considers that would be appropriate. This enables trustees to avoid the need for further applications to court and to adapt to changing circumstances. The 2015 case Re Portman Estate [2015] EWHC 536 (Ch), however, suggests that the court is unwilling to go so far as to confer on trustees a general power to amend the administrative powers in the future.

2. Section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (TLATA 1996)

Applications under section 14 TLATA 1996 may be made by trustees or by those with an interest in property subject to the trust. The court has power to make an order either relating to the exercise by the trustees of any of their functions or to declare the nature or extent of a person's interest in property subject to the trust.

Applications under section 14 are usually made where there is a dispute in relation to trust property. For example, the applicant may ask the court to quantify respective beneficial shares or to determine whether a property should be sold, particularly in situations where one co-owner wishes to sell and the other does not. Trustees may also wish to make an application under this section where they want to be able to sell property subject to a trust without obtaining the beneficiaries' consent.

3. Applications under the Variation of Trusts Act 1958 (VTA 1958)

Under VTA 1958, the court has the power to approve variations of trust for certain categories of beneficiaries, who are unable to approve variations themselves. These include minors, beneficiaries lacking capacity within the meaning of the Mental Capacity Act 2005, those with a hope or expectation of benefitting, unborn beneficiaries and persons with discretionary interests under protective trusts, where the protected life interest has not yet ended.

The court's jurisdiction under VTA 1958 is wide-ranging; the court may order any arrangement which varies or revokes the trust or enlarges the management and administrative powers of the trustees. The court will not, however, approve arrangements that amount to resettlement of a trust on completely different terms.

This route may be used, for example, to terminate a discretionary trust or split a trust fund between certain categories of beneficiary. Applications under VTA 1958 are the most common types of application made where the trust deed does not contain an express power of variation.

4. Section 64 of the Settled Land Act 1925 (SLA 1925)

To authorise specific transactions where trusts are subject to the SLA 1925, trustees may make an application under this section. Since TLATA came into force on 1 January 1997, it is no longer possible to create trusts subject to SLA 1925, but there are such trusts made before that date that still exist. 

The court can order that transactions affecting settled land (which are not otherwise authorised under the Act) may be carried out by a life tenant. The court has jurisdiction to order this where, in the court's opinion, it is for the benefit of the settled land or any part of it, and the transaction could otherwise be validly carried out by an absolute owner. "Transaction" has been given a wide interpretation by the court, per Hambro v Duke of Marlborough and others [1994] Ch 158.  It could include, for example, raising money to satisfy the liabilities of the tenant for life.

The power of the court under this section is more-wide ranging than the power under section 57 TA 1925 as it is not limited to management and administrative actions. Trustees may also apply to vary beneficial interests arising under a trust. Regardless of the nature of the powers sought, the court must have regard to all the circumstances of the case in deciding whether to exercise its discretion.

Conclusion

The appropriate route to effect a variation of trust depends on the category of applicant, type of trust and amendment sought. While non-court processes are clearly preferable, not least for reasons of speed and cost, these options are not always available. However, in such a situation, there are several alternative court-based routes that may be appropriate depending on the needs and circumstances of a particular client.

The piece was first published with ThoughtLeaders4 Private Client Magazine.