In The Matter Of The E Trust And The F Trust: Mistake

This case concerned an application by the Representors, in S and his mother WS to set aside the E Trust on the grounds of mistake. The application was brought by Carey Olsen Advocate and Partner, Andreas Kistler.

Facts

The E Trust was established on 1 August 2001 pursuant to an instrument made between WS, who was believed at the time to be UK resident but non-domiciled, and the Trustee. The trust was governed by Jersey law. Then initial trust fund was in the sum of £1,000 which was provided by WS. The beneficiaries of the Trust were NS, his children and remoter issue and his two sisters. NS's wife KS, was added as a further beneficiary in 2005.

Shortly after the trust was established NS transferred shares in a property investment company to his mother and she accepted those shares on the basis that she would settle them on trust. NS understood, from the tax advice received, that to do so would allow him to save tax in the United Kingdom.

In 2009 NS decided to establish an estate agency company, the shares of which were to be held in another Jersey trust, the F Trust, which was settled by NS's UK non-resident, non-domiciled uncle for the benefit of NS and his family. However, NS received advice that it would be better from a tax perspective if the shares in the property investment company were transferred from the E Trust to the F Trust. On 15 December 2010 the Trustee of the E Trust exercised its powers under the trust to appoint the entire issued share capital in the property investment company to itself as Trustee of the F Trust.

Contrary to the tax advice that NS had received, the establishment of the E Trust gave rise to disastrous inheritance tax and capital gains tax consequences, not least because he, as a UK resident and domiciled individual, would be treated as the settlor of the shares in the property investment company which had increased in value substantially from the initial settlement.

The Law

The Court accepted that it could apply the established approach under Article 11 of the Trusts ( Jersey) Law 1984 ("Trusts Law"). In doing so, the Court did not need to consider the application of the recently enacted Article 47E of the Trusts Law which was considered in re the Strathmullan Trust [2014] JRC 0561 (Carey Olsen's briefing note on this case can be accessed here). The Court accepted that the Representor's contention was that the E Trust itself should be set aside as having been established by mistake. The Court applied the...