Mubarak does not refer to the tax position of the parties concerned, but it should be borne in mind that any change to a trust that varies its terms or can be seen as a resettlement can have significant tax consequences for the trust itself and for settlors and beneficiaries subject to UK taxation. The powers that the Court does possess to change a trust are strictly limited for example where it is seen to be in the interests of minor or unborn children to do so. The Court’s jurisdiction over trusts is essentially supervisory and concerned to ensure that a trust is given effect, not its wholesale variation. The Royal Court in Jersey in Mubarak (see below ) noted that it enjoys no overriding power to change the terms of a trust. The offshore Court will not normally give effect to an alteration in a trust which the trustees themselves have no power to make. In order to vary, an application to court is necessary, and the court does not have jurisdiction to vary trust without consent of all beneficiaries. These are known as ‘Bare’ or ‘Simple Trusts’ also ‘Nomineeship’, ‘Mandate’ or ‘Agency Arrangement’. When it is the nominee of the settlor, and in effect acts on his instructions, and is managed by him rather than the Trustee. This makes the UK one of the best places to be in the world for anyone wanting to avoid paying tax. There is speculation that this rule has fuelled the property boom in London, as foreign domiciliary can live here on a permanent (undeclared) basis, whilst paying no tax although being resident here for tax purposes. This simple device enables tax avoidance on foreign income and on capital gains in the UK. The offshore trust is attractive to those resident in the UK, but who are not domiciled here.
Since the Second World War, some trusts became a mechanism by which estate and other duties could be avoided. So a beneficiary can ask the court to look at how the actions of the Trustee if there are concerns about how he is managing the Trust.
If there is a dispute, it is governed by the rules of equity and by the Chancery Division. Although the trustee must follow the duties imposed upon him by the law and terms of the trust, this is not a contract capable of enforcement by the Settlor. It is set up by a settlor transferring title of an asset to a trustee, and the trust deed evidences the terms upon which the trustee holds that asset. It is an entity set up by a Settlor and managed by a Trustee for the benefit of a Beneficiary.
Trusts are becoming more and more of an issue for family courts, especially with the ‘yardstick of equality’ guidelines rather than the needs-based guidelines, and anecdotally we hear from the family judiciary that they are spending more time on trust litigation.
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