The Deed is Not the Defence. The Purpose Is.

A recent High Court decision provides an important warning for anyone involved in trust and estate planning.

The court set aside declarations of trust under which an individual purported to transfer his present and future assets, income and property to his wife. Although the arrangements were described as inheritance tax planning, the court found that their purpose was to place assets beyond the reach of potential creditors.

Calling an arrangement “IHT planning” does not make it so.

Trust planning must be created for a genuine and clearly evidenced purpose. The drafting must accurately reflect the intended transaction, and the parties’ subsequent conduct must remain consistent with the documents.

This case also demonstrates the value of appointing a genuinely independent trustee.

An independent or professional trustee can provide scrutiny, maintain proper records, challenge questionable instructions and demonstrate that decisions are being taken in accordance with the trust’s stated purpose. Independence is not a magic cure, however: no trustee and no amount of elegant drafting can legitimise an arrangement designed to defeat creditors.

Good planning should therefore include:

• a clearly recorded family, succession or asset-protection purpose;

• evidence of the settlor’s financial position and solvency;

• proper identification and valuation of the assets transferred;

• independent trustee consideration and acceptance; and

• continuing administration consistent with the trust deed.

A transfer made without consideration is not automatically invalid. However, where substantial assets are given away, the need for clear evidence, correct drafting and demonstrably proper purpose becomes even greater.

At iTrust121, our view is simple: a trust must be a genuine legal and administrative arrangement—not a document placed in a drawer and produced when a creditor arrives.

James Berkeley

Senior Counsel | iTrust121