Variation of Trusts Act 1958
Encyclopedia
The Variation of Trusts Act 1958 (C.62) is an Act
of the Parliament of the United Kingdom
that governs the courts' ability to vary the terms of trust documents. Prior to the 1950s, the courts were willing to approve "compromise" agreements as to what terms meant, not only when they were disputed but also for the benefit of certain parties, such as minors. In 1954, the House of Lords
decided in Chapman v Chapman that this would no longer be permitted, creating a gap between the rights of trusts under the Settled Land Act 1925 (which could be altered if there was a flaw) and those trusts that were not (which were affected by the Chapman decision). As a result, following a report by the Law Revision Committee, Petre Crowder
introduced the Variation of Trusts Bill to Parliament, where it was given the Royal Assent
on 23 July 1958, and came into force as the Variation of Trusts Act 1958.
The Act gave the courts near-unlimited discretion to approve "compromise" agreements, for the benefit of infants or other incapable individuals, for individuals who may become beneficiaries, or for unborn beneficiaries. The courts are also able to approve agreements for individuals who may be beneficiaries under protective trust
s, with no requirement that the alterations be for their benefit. The courts have interpreted the Act's scope fairly widely, stating that almost any "variation" is acceptable, and that "benefit" may mean not just a financial benefit, but also a social or moral one. Despite initial fears that it would allow tax planners another way to hide funds and create a back-and-forth fight between the Chancery Division and Parliament, the Act was met with general approval. The ability of the courts to alter trustees' investment powers under the Act was criticised as slow and expensive, and as a result this is now covered by the Trustee Investments Act 1961
.
decided in Chapman v Chapman [1954] AC 429
that this power was reserved for a genuine dispute. This decision caused frustration: where previously all trusts could be varied, either through the court's ability to create a "compromise" agreement or the rights granted to trusts which came under the Settled Land Act 1925, Chapman limited this right to those created under the 1925 Act. In January 1957 the Lord Chancellor
asked the Law Revision Committee "to consider whether any alteration is desirable in the powers of the court to sanction a variation in the trusts of a settlement in the interests of beneficiaries under disability and unborn persons, with particular reference to the decision in Chapman v. Chapman", and a report was presented to Parliament in November of that year. A draft bill was drawn up and introduced by Petre Crowder
, the Member of Parliament for Ruislip-Northwood
; it received its second reading in the House of Lords on 12 June 1958, and was given the Royal Assent
on 23 July 1958.
s. The first three classes may only have a "compromise" agreement if the alterations are for their benefit, while potential beneficiaries under protective trusts have no such limit. The courts have chosen to interpret "benefit" widely, increasing their powers to alter trusts; in Re Holt's Settlement [1968] 1 All ER 470
, Megarry J
said that "the word benefit is... plainly not confined to financial benefit, but may extend to social or moral benefit". Under Section 1(3), the Act does not apply to trusts created by an Act of Parliament. The wide scope of the act was quantified in Re Steed's Will Trusts, where the Court of Appeal
ruled that the word "arrangement" was "deliberately used in the widest possible senses so as to cover any proposal which any person may put forward for varying or revoking the trusts", essentially allowing the courts the right to make any alteration whatsoever. Despite this, the Court of Appeal noted in Re T's Settlement Trusts [1964] Ch 158
that the court would not permit a compromise agreement where it not only varied the terms of the trust but constituted the creation of an entirely new one.
There is the question as to what to do with proposed "compromise" agreements where it is not certain that a benefit will ensue. In this situation, the courts have sometimes agreed to take the chance, as in Re Holt's Settlement; on other occasions, as in Re Cohen's Settlement Trusts [1965] 3 All ER 139
, they have found that if the claimant, a member of a class of beneficiaries, applies and cannot benefit (although other members of the class can), the court is obliged to refuse the request. It is debatable as to whether the intentions of the testator should be taken into account; in Re Steed's Will Trusts [1960] 1 All ER
the courts refused to alter a trust document, partially due to the testator's wishes; in Re Remnant's Settlement Trusts [1970] 2 All ER 554
, however, the court took the opposite view.
While some critics feared that granting the courts unlimited jurisdiction would create "a most undignified game of chess between the Chancery Division and the legislature", and that it allowed tax planners another way to hide funds, the Act received general approval at the time. It was later criticised as expensive and slow in regards to allowing trustees the right to alter their investment powers, and this part of the Act was later superseded by the Trustee Investments Act 1961
. The second class of beneficiaries covered in Section 1(1) caused problems for the courts; since it only allows the court to alter a trust document where a person "may be entitled", nothing can be done once this entitlement is confirmed.
Acts of Parliament in the United Kingdom
An Act of Parliament in the United Kingdom is a type of legislation called primary legislation. These Acts are passed by the Parliament of the United Kingdom at Westminster, or by the Scottish Parliament at Edinburgh....
of the Parliament of the United Kingdom
Parliament of the United Kingdom
The Parliament of the United Kingdom of Great Britain and Northern Ireland is the supreme legislative body in the United Kingdom, British Crown dependencies and British overseas territories, located in London...
that governs the courts' ability to vary the terms of trust documents. Prior to the 1950s, the courts were willing to approve "compromise" agreements as to what terms meant, not only when they were disputed but also for the benefit of certain parties, such as minors. In 1954, the House of Lords
Judicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
decided in Chapman v Chapman that this would no longer be permitted, creating a gap between the rights of trusts under the Settled Land Act 1925 (which could be altered if there was a flaw) and those trusts that were not (which were affected by the Chapman decision). As a result, following a report by the Law Revision Committee, Petre Crowder
Petre Crowder
Petre Crowder, QC was a British Conservative Member of Parliament and barrister.Crowder was the son of Sir John Crowder, a Conservative Member of Parliament and predecessor as MP for Finchley of Margaret Thatcher. He was educated at Eton College and Christ Church, Oxford just as his father was...
introduced the Variation of Trusts Bill to Parliament, where it was given the Royal Assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
on 23 July 1958, and came into force as the Variation of Trusts Act 1958.
The Act gave the courts near-unlimited discretion to approve "compromise" agreements, for the benefit of infants or other incapable individuals, for individuals who may become beneficiaries, or for unborn beneficiaries. The courts are also able to approve agreements for individuals who may be beneficiaries under protective trust
Protective trust
The Protective Trust is a form of settlement found in England and Wales and several Commonwealth countries. It has marked similarities to asset-protection trusts found in several offshore jurisdictions and US Spendthrift trusts....
s, with no requirement that the alterations be for their benefit. The courts have interpreted the Act's scope fairly widely, stating that almost any "variation" is acceptable, and that "benefit" may mean not just a financial benefit, but also a social or moral one. Despite initial fears that it would allow tax planners another way to hide funds and create a back-and-forth fight between the Chancery Division and Parliament, the Act was met with general approval. The ability of the courts to alter trustees' investment powers under the Act was criticised as slow and expensive, and as a result this is now covered by the Trustee Investments Act 1961
Trustee Investments Act 1961
The Trustee Investments Act 1961 was an Act of the Parliament of the United Kingdom that covers where trustees can invest trust funds. Given the Royal Assent on 3 August 1961, it removed the "Statutory Lists" system and replaced it with sets of specific investment areas...
.
Background
Prior to the 1950s, the courts commonly accepted that they could approve a "compromise" agreement where there was a dispute over the precise meaning of words in a trust document. In some cases, the courts used this to rearrange trusts for the benefit of certain parties (such as minors) where there was no real dispute. In 1954 however, the House of LordsJudicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
decided in Chapman v Chapman [1954] AC 429
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
that this power was reserved for a genuine dispute. This decision caused frustration: where previously all trusts could be varied, either through the court's ability to create a "compromise" agreement or the rights granted to trusts which came under the Settled Land Act 1925, Chapman limited this right to those created under the 1925 Act. In January 1957 the Lord Chancellor
Lord Chancellor
The Lord High Chancellor of Great Britain, or Lord Chancellor, is a senior and important functionary in the government of the United Kingdom. He is the second highest ranking of the Great Officers of State, ranking only after the Lord High Steward. The Lord Chancellor is appointed by the Sovereign...
asked the Law Revision Committee "to consider whether any alteration is desirable in the powers of the court to sanction a variation in the trusts of a settlement in the interests of beneficiaries under disability and unborn persons, with particular reference to the decision in Chapman v. Chapman", and a report was presented to Parliament in November of that year. A draft bill was drawn up and introduced by Petre Crowder
Petre Crowder
Petre Crowder, QC was a British Conservative Member of Parliament and barrister.Crowder was the son of Sir John Crowder, a Conservative Member of Parliament and predecessor as MP for Finchley of Margaret Thatcher. He was educated at Eton College and Christ Church, Oxford just as his father was...
, the Member of Parliament for Ruislip-Northwood
Ruislip-Northwood (UK Parliament constituency)
Ruislip-Northwood was a borough constituency represented in the House of Commons of the Parliament of the United Kingdom. It elected one Member of Parliament by the first past the post system of election...
; it received its second reading in the House of Lords on 12 June 1958, and was given the Royal Assent
Royal Assent
The granting of royal assent refers to the method by which any constitutional monarch formally approves and promulgates an act of his or her nation's parliament, thus making it a law...
on 23 July 1958.
Act
The Act gives the courts almost unlimited power to exercise their jurisdiction to form "compromise" agreements, with Section 1(1) allowing them to approve "any arrangement...varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts". This power can be exercised for people in one of four categories: beneficiaries who are incapable of assenting to the change (infants or those who are otherwise incapable); individuals who may "be entitled" to be beneficiaries in the future, but who are not at present; unborn beneficiaries; or people who may be beneficiaries under protective trustProtective trust
The Protective Trust is a form of settlement found in England and Wales and several Commonwealth countries. It has marked similarities to asset-protection trusts found in several offshore jurisdictions and US Spendthrift trusts....
s. The first three classes may only have a "compromise" agreement if the alterations are for their benefit, while potential beneficiaries under protective trusts have no such limit. The courts have chosen to interpret "benefit" widely, increasing their powers to alter trusts; in Re Holt's Settlement [1968] 1 All ER 470
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
, Megarry J
Robert Megarry
Sir Robert Edgar Megarry FBA PC QC was a British lawyer and judge.Originally a solicitor, he requalified as a barrister and also pursued a parallel career as a legal academic. He later became a High Court judge and served as Vice-Chancellor of the Chancery Division from 1976 to 1981...
said that "the word benefit is... plainly not confined to financial benefit, but may extend to social or moral benefit". Under Section 1(3), the Act does not apply to trusts created by an Act of Parliament. The wide scope of the act was quantified in Re Steed's Will Trusts, where the Court of Appeal
Court of Appeal of England and Wales
The Court of Appeal of England and Wales is the second most senior court in the English legal system, with only the Supreme Court of the United Kingdom above it...
ruled that the word "arrangement" was "deliberately used in the widest possible senses so as to cover any proposal which any person may put forward for varying or revoking the trusts", essentially allowing the courts the right to make any alteration whatsoever. Despite this, the Court of Appeal noted in Re T's Settlement Trusts [1964] Ch 158
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
that the court would not permit a compromise agreement where it not only varied the terms of the trust but constituted the creation of an entirely new one.
There is the question as to what to do with proposed "compromise" agreements where it is not certain that a benefit will ensue. In this situation, the courts have sometimes agreed to take the chance, as in Re Holt's Settlement; on other occasions, as in Re Cohen's Settlement Trusts [1965] 3 All ER 139
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
, they have found that if the claimant, a member of a class of beneficiaries, applies and cannot benefit (although other members of the class can), the court is obliged to refuse the request. It is debatable as to whether the intentions of the testator should be taken into account; in Re Steed's Will Trusts [1960] 1 All ER
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
the courts refused to alter a trust document, partially due to the testator's wishes; in Re Remnant's Settlement Trusts [1970] 2 All ER 554
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
, however, the court took the opposite view.
While some critics feared that granting the courts unlimited jurisdiction would create "a most undignified game of chess between the Chancery Division and the legislature", and that it allowed tax planners another way to hide funds, the Act received general approval at the time. It was later criticised as expensive and slow in regards to allowing trustees the right to alter their investment powers, and this part of the Act was later superseded by the Trustee Investments Act 1961
Trustee Investments Act 1961
The Trustee Investments Act 1961 was an Act of the Parliament of the United Kingdom that covers where trustees can invest trust funds. Given the Royal Assent on 3 August 1961, it removed the "Statutory Lists" system and replaced it with sets of specific investment areas...
. The second class of beneficiaries covered in Section 1(1) caused problems for the courts; since it only allows the court to alter a trust document where a person "may be entitled", nothing can be done once this entitlement is confirmed.