Divorce Proofing Trusts - A Step Too Far?

Published date28 November 2021
Subject MatterCorporate/Commercial Law, Family and Matrimonial, Family Law, Divorce, Trusts
Law FirmOgier
AuthorMr James Campbell, Damian Evans and George Yates

Representation re The V Trust The W Trust The X Trust and The Y Trust [2021] JRC 208

Introduction

The trustees of four trusts, known as the Y, V, W and X Trusts (together the Trusts) approached the Jersey Royal Court (the Court) to seek its blessing in respect of a momentous decision to (i) exclude from the beneficial class the future spouses, widows and widowers of beneficiaries of the Trusts and (ii) to establish a separate trust in which spouses, widows and widowers would be included in the beneficial class. The Trusts had been subject to a history of litigation involving wider family members and it was in this context that the trustees of the Trusts (the Trustees) sought the Court's blessing for its decision to amend the terms of the Trusts to mitigate the risks of further litigation for the benefit of current and future beneficiaries.

Although the judgment is focused on the role of the Court in blessing a trustee's momentous decision, the judgment also clarifies the relevant considerations for a trustee when exercising a power of exclusion. Fundamentally, any trustee exercising a power of exclusion needs to have properly taken into consideration the interests of those being excluded, otherwise a decision to exclude is vulnerable to being struck down.

The judgment also highlights some of the practical difficulties for trustees and their legal advisers when seeking to "divorce proof" a trust structure against future claims by spouses of beneficiaries on any future divorce. In this case, the proposed steps to "divorce proof" the structure removed a large degree of the flexibility of the trusts to meet changing circumstances and crucially left a number of key questions unanswered. If trustees and their legal advisers are looking to protect a trust or trusts against the possibility of future divorce claims then the proposed structuring steps must be carefully considered and, if a blessing of the Court is sought to the momentous decision, then the full rationale for the structuring steps needs to be presented to the Court.

Facts

The Trusts were established for the benefit of a husband (B), wife (C) and their two children (D and E) and their remoter issue and future spouses. As such the Trustees were bound to consider the interests of B,C D, E and all of the unborn remoter issue and unascertained and unborn future spouses when making its decision regarding the amendment to the Trusts.

The amendments to the Trusts proposed by the Trustees were motivated by a...

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