Collins v Collins & Ors

Under Variation of Trust Act 1958, s 1(1), a variation may be approved for a minor where it secures a clear financial advantage and is more beneficial than the existing trust position. The court must examine the legal effect of the existing instruments before assessing the proposed arrangement. A variation should be drafted to reflect the actual trust property and the intended beneficial interests. It should not require an assignment of property that no longer exists, and the vesting consequences must be legally clear. Tax consequences may also require consideration where entitlement is deferred.

The claimant, acting as trustee and personal representative, sought approval of an arrangement varying trusts arising from two declarations concerning life-policy proceeds. The arrangement followed mediation of disputes about the ownership of the proceeds, entitlement to income and capital, and a possible claim under the Inheritance (Provision for Family and Dependants) Act 1975. Approval was required on behalf of Charley, who was still a minor.

The central issues were the likely effect of the 2005 and 2006 declarations, whether the proposed variation benefited Charley, and whether the arrangement was properly drafted.

1. Nature of the existing trusts. The 2005 Declaration was treated, provisionally and without finally determining every issue, as an effective trust of the settlor’s beneficial interest in the policy. The children were entitled equally to the benefit of the policy while any of them remained in full-time education. Charley’s continuing education meant that the children presently had interests in income, but apparently no capital interest. The 2006 Declaration effectively assigned the legal title to the trustees, but could create fresh trusts only in relation to the settlor’s reversionary interest.
2. Benefit to the minor. The proposed variation was for Charley’s benefit under s 1(1) of the Variation of Trust Act 1958. It secured an absolute interest in a fund in which she might otherwise have had only a terminable income interest. That was a clear financial advantage. The court found no evidence that she would deal imprudently with the fund.
3. Drafting of the arrangement. The proposed form could not be approved. The policy no longer existed, so no fresh assignment was required. Instead, Tracey Collins was to retire as trustee and Valerie Collins was to be appointed in her place, enabling the trustees to give Zurich a valid receipt for the proceeds. The court also considered that the draft would give Charley an absolute right to call for her share at 18, rather than vesting it only at 23, applying the reasoning in Re Smith [1928] 1 Ch 915. Tax consequences would require further consideration if vesting at 23 were intended.
4. Revised form. The court indicated that the order should vary the 2005 Declaration by deleting the words limiting the trust to the education period, and amend the 2006 Declaration so that it operated in accordance with the varied 2005 Declaration. The trustees were also to undertake to submit the order for stamping. A compromise could alternatively have been approved under Chapman v Chapman [1954] AC 429, but the application proceeded under the variation legislation.

Not stated in the judgment.