CG37850 - Separate settlements: form of the transaction: pre- existing settlement
Form of the transaction: Pre-existing settlement
Non-exhaustive trusts and revocable trusts
Preservation of powers of old settlement
Form of the transaction: Pre-existing settlement
For the reasons given in CG37800, if property is transferred to a settlement which has been separately created by the original settlor, as in Hart v Briscoe, or one of the beneficiaries, even though this was set up specifically to receive property from the original settlement, it must be a disposal to the trustees of a separate settlement and therefore within TCGA92/S71 (1). This is so even if the trusts are not exhaustive. The same clearly applies if the receiving settlement is not newly formed. It is however different if it is a new settlement created by the trustees of the old settlement under the powers given to them in that settlement. In such circumstances the principles which follow apply.
Power in wider form
In Bond v Pickford, 57TC301, the Court of Appeal held that unless the trustees used a power in wider form', they could not create a new settlement. As explained by Slade LJ at 320, Section I, trustees, who are given a discretionary power to direct which of the beneficiaries shall take the trust property and for what interests, do not have the power thereby to remove assets from the original settlement, by subjecting them to the trusts of a separate settlement, unless the instrument which gave them the power expressly or by necessary implication authorises them to do so. In the absence of such authority, any exercise of the power, other than one which renders persons beneficially absolutely entitled to the relevant assets, will leave those assets subject to the trusts of the original settlement.’
In Bond v Pickford the trustees had several different powers which they could have used, but the one which they used was clearly in `narrower form’, because
- it clearly contemplated that the trustees of the original settlement would continue to administer the property, and
- did not provide for any delegation of power to other trustees.
The latter is in general the most important factor in determining that a power is in narrower form. You should look for references to other trustees having powers or being able to exercise discretion. A statutory power of advancement is a power in `wider form’.
In Swires v Renton the court rejected the Revenue’s argument that the power which was exercised could only be used to create a new settlement.
Non-exhaustive trusts and revocable trusts
The deed of appointment may specify that the appointment is revocable. If so clearly the property may return to being held upon the trusts of the original settlement and the appointment cannot give rise to a new settlement.
It may also be possible for the property to return to being held on the original trusts if the appointment is not exhaustive. This may be because the appointment only applies for a specific period, but most commonly it will be because it fails to cover every eventuality. For example it may provide for X and Y to be entitled to the income immediately, and to be entitled to the capital provided they reach the age of 35. But if both fail to reach 35, and there are no alternatives specified, the property will be held upon the trusts of the original settlement. The other common example is where the appointment is to A for life with remainders to A’s children. If A has no children currently then the appointment might fail. Therefore it is not exhaustive and there is no new settlement.
Preservation of powers of old settlement
It is quite common for a deed of appointment to specify that particular clauses of the original deed should continue to apply to the property subject to the deed of appointment. Generally this means that the powers of administration are preserved. Does this mean that the property concerned is still subject to the trusts of the original settlement?
In Ewart v Taylor 57TC, at page 468A, the judge said that introducing some of the powers found in the old settlement into the deed of appointment in this way did not necessarily prevent a new settlement from having been created if the powers were only incorporated `reverentially’, that is to say to save the draughtsmen from having to write them word for word into the text of the deed of appointment. It is necessary to consider the nature of the powers themselves, in deciding whether a new settlement has been brought into existence, not merely the manner in which they have been introduced into the deed of appointment. See also Swires v Renton, 64TC315.