Pemberton v Pemberton & Ors

Under section 1 of the Variation of Trusts Act 1958, the court may approve a trust variation for persons unable to consent, unborn persons and future members of a class only where the arrangement is for their benefit. Benefit is assessed practically and commercially, by weighing the advantages and disadvantages to the relevant beneficiaries and considering their bargaining strength. An arrangement may extend perpetuity and accumulation periods, enlarge administrative powers and alter beneficial provisions without becoming a resettlement, provided the existing trusts remain substantially recognisable. Legitimate tax mitigation, preservation of trust assets and family benefits may contribute to the requisite benefit.

The claimant sought approval under the Variation of Trusts Act 1958 for a scheme varying the terms of a 1965 family settlement. The scheme would extend the perpetuity period, permit accumulation, enlarge the trustees’ administrative powers, create spouses’ reversionary interests, replace future trusts with discretionary trusts and remove the application of the Settled Land Act 1925.

The adult beneficiaries consented. The court was asked to approve the arrangement on behalf of minor, unborn and unascertained beneficiaries. The central issues were whether the scheme was a variation rather than a resettlement and whether it was for the benefit of those beneficiaries.

1. Approval granted. The court approved the proposed arrangement on behalf of the minor, unascertained and unborn beneficiaries. It was satisfied that the arrangement was for their benefit and that the discretion under section 1(1) of the Variation of Trusts Act 1958 should be exercised.
2. The benefit requirement requires more than showing that a beneficiary will suffer no detriment. The court must undertake a practical and businesslike assessment of the advantages and disadvantages, including the parties’ bargaining strength. The interests of the affected minor beneficiaries were precarious because they could be defeated by existing powers of appointment. The variation therefore did not deprive them of a valuable bargaining position.
3. Legitimate tax mitigation could be taken into account. The proposed preservation of inheritance tax and capital gains tax advantages, together with the extension of the settlement, improved administrative powers and potential family and moral benefits, outweighed the possible dilution or deferral of discretionary interests.
4. The arrangement was a variation, not a resettlement. Applying the approach in Allfrey v Allfrey and others [2015] EWHC 1717 (Ch) and DC v AC [2016] EWHC 477 (Ch), the trusts would remain substantially unaltered and recognisably the same, despite the extended trust period and modifications.
5. As to costs, this was not ordinary adversarial litigation. No party could be said to have succeeded or failed. The judge was minded to order the claimant, as author of the variation and the only person apparently able to pay, to pay all parties’ costs on the indemnity basis, subject to further submissions.