Ridgwell & Ors v Ridgwell & Ors

Under section 1 of the Variation of Trusts Act 1958, the court may approve a proposed trust variation for persons unable to consent only if it is an arrangement within the Act and is for their benefit. Benefit may include tax mitigation, increased flexibility in making advancements and reduced insurance costs. A variation may remain an arrangement even where it postpones beneficiaries’ interests, provided it does not fundamentally alter the trust’s basis. The court must weigh that disadvantage against the practical and financial benefits. Tax avoidance is not, in itself, contrary to the statutory requirement or public policy.

The trustees of the RGST applied under section 1 of the Variation of Trusts Act 1958 for approval of variations to a family settlement. The proposed changes would give the settlor’s grandson’s surviving spouse a life interest after his death and would extend the trustees’ power to advance capital during the spouse’s lifetime.

The beneficiaries included three minor children and unborn children, who were represented by a litigation friend. The central issue was whether postponing their interests could nevertheless be for their benefit, having regard to inheritance tax, capital gains tax, flexibility in making advancements and insurance costs.

1. The court had jurisdiction under section 1 of the Variation of Trusts Act 1958 only if the proposed change was an arrangement within the Act and its implementation would benefit the children and unborn children.

2. The word arrangement has a wide meaning. Following Re Steed’s Will Trust [1960] 1 Ch 407, it covers proposals to vary or revoke trusts or enlarge trustees’ powers. The proposed life interest did not fundamentally alter the basis of the settlement and therefore qualified as an arrangement. The court distinguished the possible limitation on variations illustrated by Re T [1964] Ch 168.

3. Benefit generally means financial benefit. Tax mitigation can constitute such a benefit. The court applied the principles in Re Drew’s Settlement [1966] 1 WLR 1518, Re Chapman’s Settlement Trusts (No. 2) [1959] 1 WLR 372, Re Holt’s Settlement [1969] 1 Ch 100 and Re Weston’s Settlement [1969] 1 Ch 223. The court was not required to reject a variation merely because its purpose included inheritance tax avoidance or mitigation.

4. The postponement of the children’s remainder interests was a theoretical disadvantage. It was outweighed by the increased flexibility to make potentially exempt transfers, possible capital gains tax savings and the prospect of substantially cheaper life insurance. The variation was therefore for the benefit of the children and unborn children.

5. The court exercised its discretion to approve the variation on behalf of the children and unborn children.