Anyone who deals with trusts should have a look at HMRC’s Trusts & Estates Newsletter for December 2016. There are a number of items of note.
It will replace the current paper 41G form and provide a single online service for trusts and estates. It will affect new trusts and also existing trustees who will need to provide and update their details. The newsletter says:
‘As well as implementing the requirements of Article 31 of the EU Fourth Anti Money Laundering Directive (4MLD), the register will be in line with HMRC’s digital strategy and provide greater tax transparency going forward.’
Practitioners may well feel that this is another administrative burden.
Taxpayers (often trustees) may take a wrong step leading to unfortunate tax consequences and want to put things right or simply undo what they have done. This can be done on the basis of:
• Rectification: available where a document does not reflect the parties intentions
• Rescission for mistake: available where the causative mistake is so grave that it would be unconscionable for the donee to retain the property
•Hastings-Bass relief: now only available where trustees have acted outside their powers or acted in breach of fiduciary duty.
It is important to note that only the court can grant relief. HMRC will not accept submissions simply asserting that the appropriate conditions for relief have been met. HMRC may wish to join such proceedings.
HMRC has now got a separate address to use when writing to it about being joined in any of these proceedings. It is necessary to specify the nature of the claim and to include the relevant category and hearing date in the heading.
Two cases are worth a look.
Passing over person with best right to take a grant of representation
Under section 116 of the Senior Courts Act 1981, where ‘by reason of any special circumstance it appears to the High Court to be necessary or expedient’ it can pass over the person with the best right to a grant and appoint another. Often when there is a dispute between potential claimants, the court will appoint an independent person.
The facts of this case are unusual, but it is a good illustration of the way in which the court approaches disputes over entitlement to a grant.
The deceased had died intestate with a substantial estate. She had an adult daughter, the claimant, who claimed to be her next of kin but the defendant claimed that he had married the deceased in a Nigerian wedding ceremony, valid under Yoruba law, and together they had a child, James.
The defendant claimed to be divorced from his former wife but produced no evidence of divorce so the court had to proceed on the basis that his marriage subsisted.
The claimant alleged:
(i) there was no divorce so the marriage was void
(ii) the Nigerian ‘marriage ceremony’ was a house warming
(iii) James was not the child of either party.
The judge’s view was that the claimant was unreliable. She had lied to the court about payments she had made from the estate.
He accepted that a marriage ceremony had taken place which would have produced a valid marriage, had the defendant been free to marriage. It followed that the claimant had lied about the nature of the ceremony.
However, because the defendant was not free to marry, he was not the deceased’s widower and had no right to a grant. Had it been shown that the defendant was the father and the deceased the mother of James, the position would have been different. Both matters were challenged by the claimant and the defendant had called no evidence.
The deceased had died more than a year ago so there was some urgency in relation to the grant. Although the deceased’s daughter had the best right to a grant, she could not be allowed to take the grant:
• The parties each accused the other of interfering with the assets of the estate and of trying to exclude the other; there was mistrust and suspicion between them.
• The claimant had deliberately lied to the court
• It was necessary to have in mind the public interest and the interests of creditors who might be affected by the identity of the personal representative.
The judge, therefore, exercised his powers under section 116 to pass over the claimant and would give directions for the selection and appointment of an appropriate person unless the parties were able to agree on who it should be.
Limits on self-dealing rule
The rule against self-dealing is well known and often causes problems for trustees. The rule is described by Lord Herschell in Bray v Ford  AC 44 at 51.
‘It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict.’
Note that, although the rule is described as ‘inflexible’, there are clear limits: a person is not allowed to place himself in a position of conflict. The rule does not necessarily apply where the conflict arises in some other way.
Newman v Clarke illustrates the limitations on the rule.
• In 1996 Mr Clarke created an accumulation and maintenance trust for the benefit of his grandchildren to which he transferred £150,000.
• In April 1997 Mr Clarke was granted a lease of a property in Kent, owned by other family members. In June 1997 those family members sold their freehold reversion to the trust and Mr Clarke was appointed a third trustee.
In March 2015, Mr Clarke served a notice under the Leasehold Reform Act 1967 exercising his right under that act to acquire the freehold interest in the property. The determination of price by the first tier tribunal (FTT) is by reference to the open market value of the property subject to a sitting tenant (i.e. not with vacant possession).
The other two trustees FTT contended that Mr Clarke was in breach of the rule against self-dealing because he is seeking to acquire the freehold interest in the property. Mr Clarke applied for summary judgment and/or the striking out of the claim on the basis that there was no breach of the self-dealing rule because:
• Mr. Clarke became a tenant under the lease before he became a trustee
• his right under the 1967 act derived from the lease which was made before Mr. Clarke became a trustee.
Jonathan Klein (sitting as a Deputy Judge of the Chancery Division) granted Mr Clarke’s application. Existing case law clearly showed that the rule did not apply to the unilateral exercise of a right granted before the trusteeship came into existence.