No Re-writing History: The Flexibility Of Jersey's Remedies For Mistake And Inadequate Deliberation

• Published date: 12 June 2020
• Author: Mr Andreas Kistler and Victoria Connolly
• Subject Matter: Wealth Management, Tax, Wealth & Asset Management, Inheritance Tax
• Law Firm: Carey Olsen

Re the G Trust, Royal Court of Jersey (MacRae, Deputy Bailiff and Jurats Olsen and Austin-Vautier) 27 April 2020.

In an important new case, the Royal Court declared voidable the decision of the former trustee of the G Trust to irrevocably exclude a beneficiary, pursuant to Article 47H of the Trusts (Jersey) Law 1984 (as amended) (the Trusts Law).

However, rather than setting the exclusion aside entirely (as had previously been the remedy granted in such cases), the Court ruled that the exclusion would have effect as if it had been exercised in the manner which the former trustee should have contemplated and adopted at the time when it originally exercised its power.

In making the order, the Court made clear that it would not "re-write history", "make a new decision which the [former] trustee wished it had made at the time" or "substitute a different transaction for that which was undertaken", but would exercise its power to declare that the former trustee's exercise of its fiduciary power would have such effect as the Court may determine.

The Court's ruling demonstrates the flexibility of the remedies that the Court can grant in cases of mistake or inadequate deliberation in the exercise of a fiduciary power, so that a more beneficial outcome could be achieved for the Settlor and his Wife.

Background

The Settlor and his Wife were beneficiaries of a Jersey law trust (the Trust).

Changes were to be made to the UK IHT regime, taking effect from 6 April 2017, the effect of which was to bring UK property owned through an offshore company held by a trust within the estate of the settlor for UK inheritance tax (IHT) purposes, which would have meant that certain UK property held within a Cayman company wholly owned by the Trust would have become taxable at 40% upon the death of the Settlor. Prior to the changes coming into effect, the former trustee quite properly took tax advice on the options available to it to mitigate the effects of the change in law.

Exercise of power of exclusion

The former trustee was advised in early April 2017 that it had two options:

1. the Settlor and his Wife could be wholly excluded from benefitting under the Trust, so that they could not benefit from the Trust or be added back as beneficiaries; or
2. the company holding the UK property could be transferred to a new trust from which the Settlor and his Wife would be excluded from benefit, but they would still be able to benefit from the substantial assets remaining in the Trust.

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