Variation of Trusts

Requirement for Variation

Generally, a trust must be executed in accordance with its terms in order for the trustees to avoid a breach of trust. Apart from the statutory powers, a court will not, save in limited circumstances, allow performance of acts which constitute a breach of trust.

Trust may need to be adapted to meet changed circumstances both from a practical, legal and fiscal perspective.  The trust may incorporate provisions and mechanisms for variation. Such a provision is less common in the case of older trusts.

Where all beneficiaries are of full age and have legal capacity, they collectively may terminate the trust or they may vary it as they agree. This power may be used to vary the trust.  However,  there will frequently be unborn and unascertained beneficiaries, which may make this course impossible. Trust sometimes empower trustees to resettle the trust assets on new terms and conditions.  This power may be available to effect amendments to the trust.

Application to Court

The Land and Conveyancing Law Reform Act, 2009 confers a general jurisdiction on courts to vary trusts.  An appropriate person may apply to court, in relation to a “relevant trust” for an order to approve an arrangement specified in the application for the benefit of the relevant person, provided that the arrangement has been agreed by each other person who is not the relevant person, who is beneficially entitled to the trust assets and is capable of assenting to the arrangement.

The appropriate person, in relation to a relevant trust, is the trustee, beneficiary or another person that the court considers appropriate to make an application. An arrangement is one for the purpose of varying, revoking or resettling the trust.  It may also vary, enlarge, add or restrict the powers of the trustees to manage and administer the trust.

A relevant person, in relation to the trust, is any of the following

• a person who has a vested or contingent interest under the trust but is incapable of assenting by reason to an arrangement by reason of lack of capacity;
• an unborn child;
• a person whose identity, existence or whereabouts cannot be established by taking reasonable measures; or
• a person with a contingent interest but who do not fall within the above category.

A relevant trust is any trust, whether made before or after the commencement of the 2009 legislation. However, it does not include occupational pension scheme trusts, trusts created by statute, a trust created for a charitable purpose.

The court shall not hear the application unless it is satisfied that the application has given notice in writing to the Revenue Commissioners and such other persons as may be prescribed by Rules of Court at least two weeks in advance.

Criteria

The court may determine an application in relation to a relevant trust by making an order approving the arrangements specified if it is satisfied that the carrying out of the arrangement would be for the benefit of the relevant person and any other relevant persons.  It may refuse to make an order where it is not so satisfied or where the Revenue Commissioners are satisfied the court that the application is motivated by a desire to reduce or avoid tax.

In deciding whether an arrangement would be for the benefit of the relevant person, the court may have regard to any benefit or detriment, financial or otherwise that may accrue to the person directly or indirectly.

The legislation does not affect the general rules of law and jurisdiction of courts to may make orders in respect of charities. It does not affect other power whether conferred by statute or otherwise, to vary, revoke or resettle the trust or to vary, enlarge, add to or restrict the powers of a trustee under a trust or any other rule of law relating to termination or revocation of trusts.

It is necessary to show a legitimate need for the variation of the trust.  The court will have regard to the interest of unborn, minor or unascertained beneficiaries.

Older Inherent Powers

The court has an inherent power to allow a variation as necessary to avoid destruction of or to preserve the trust property.  The so-called “salvage” jurisdiction may be exercised, where some unforeseen event occurs and where it is necessary to take action.  This may arise for example, where trust assets are in disrepair and it necessary to sell some assets in order to raise money or to borrow and grant security to repair the relevant asset. The extent of this older power is unsettled.

In older cases, the Irish courts have allowed mortgages to be raised on real property, for the purpose of repairs on real property in older cases.  In newer cases, the English courts have allowed schemes of reconstruction, which are advantageous to the parties, without any apparent urgent necessity. However, the courts have emphasised that the power will be exercised with great caution.

The courts may authorise a variation of the trust in order give effect to a compromise or settlement of a dispute.  There must be a genuine dispute and not simply one brought about by a desire to vary the trust itself.

Maintenance may be paid under section 43 of the Conveyancing Act 1881, out of trust funds. The court may allow maintenance to be paid out of accumulated interest.  This may be permitted on the basis of an inference that the person who created the trust, in creating that trust would not have intended that the beneficiaries be left without reasonable means.  It is based on an interpretation of the testator’s presumed intentions.

Powers of Appointment

The 2009 Act made provision in relation to powers executed after the Act became effective.  A power of appointment is valid provided it complies with the formalities in respect of a deed.   This does not prevent a donee of a power from making a valid appointment in a way that is expressly authorised by the instrument which created the power. It does not relieve the donee

• from compliance with any direction in the instrument creating the power;
• from getting the consent of any person that is necessary for a valid appointment;
• any requirement regarding the manner an act is to be performed having no relation to the mode of executing and attesting the deed of appointment, in order to give validity to that appointment.

A person in whom any power (whether coupled with an interest or not) is vested,  may release or contract not to exercise the power. This may not be done in relation to a power in the nature of a trust or to a fiduciary power.

A person to whom any power (whether coupled with an interest or not), is given, may (by deed) disclaim the power.  After disclaimer, the power is not exercisable by the person in whom it was vested.  After the disclaimer, the power may be exercised by other persons or the survivor(s)  of another person to whom the power was given, subject to the terms of the instrument creating the power.

No appointment made in exercise of any power to appoint property to or amongst two or more persons is invalid on the ground that no share or an insubstantial, illusory or nominal share only, is appointed or otherwise passes to any one or more of those of persons. This does not apply to any provision in the instrument creating the power which specifies the amount of any share, from which any such person is not to be excluded.