Variation of trusts and minors lacking mental capacity: ET v JP and others [2018] EWHC 685 (Ch)

ET v JP & Ors [2018] EWHC 685 (Ch) is a short but an important decision which deals with the question of the boundaries between the Court of Protection and the High Court when considering the variation of a trust on behalf of a minor who will never possess mental capacity.

The case concerned an application for the court’s approval to a variation of a trust pursuant to the Variation of Trusts Act 1958. We are not told why a variation was sought. Tax planning is one of the most common reasons for varying a trust but there are many other reasons why a variation might be sought.

The Variation of Trusts Act 1958

Adult beneficiaries, who possess the necessary mental capacity to take decisions of this nature, can join together and agree to vary or break a trust, or to sanction a course of action on the part of the trustees that is outside of their powers under the trust instrument, under the principle in Saunders v Vautier (1841) 4 Beav 115.

Saunders v Vautier rights cannot be exercised where the beneficiaries interested in the fund include minors, adults lacking capacity without an attorney or deputy who can consent on their behalf, or persons who are as yet unborn or unascertained. 

Save in very limited circumstances, most typically where there is some emergency or threat to trust property or to approve a compromise where there is a dispute about the destination of trust funds, the High Court has no inherent jurisdiction to approve a variation of a trust on behalf of any parties unable to provide consent under the Saunders v Vautier rule.

The Variation of Trusts Act 1958 plugs that gap. S. 1 of the 1958 Act allows the court to approve the variation of a trust on behalf of certain beneficiaries who lack the capacity to consent to the variation themselves.  

The court can give consent on behalf of four categories of beneficiaries: those incapable of consenting by reason of “infancy or other incapacity” (1(1)(a)); unascertained persons (1(1)(b)); unborn persons (1(1)(c)); and potential discretionary beneficiaries under a protective trust where the principal beneficiary’s interest is not yet forfeited (1(1)(d)).

S. 1 of the 1958 Act gives the courts a very broad power to approve “any arrangement…varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts”. 

In the case of minor beneficiaries and those lacking capacity, unborn and unascertained persons, the court must be satisfied that the variation is for their benefit.

In terms of the delegation of responsibility for approving a proposed variation, s.1 of the 1958 Act operates, as summarised by Morgan J, as follows:

  1. In the case of an adult beneficiary who has capacity within section 2(1) of the 2005 Act, the adult can decide for himself whether to agree to a proposed variation of a trust and the court has no power to give approval on his behalf;
  2. In the case of an adult beneficiary who does not have capacity within section 2(1) of the Mental Capacity 2005 Act to agree to the variation of a trust, the court has power to give approval on his behalf but the question as to whether the variation is for his benefit is to be decided by the Court of Protection rather than by the High Court (s.1(3));
  3. In the case of a minor beneficiary, the minor does not have capacity (by reason of being a minor) to decide for himself whether to agree a proposed variation of a trust and the court has power to give approval on his behalf.

The facts

On the facts of the case, the adult beneficiaries all consented to the proposed variation. However, the variation could affect the position of three beneficiaries who were minors and also the position of unborn and unascertained beneficiaries, none of whom could consent to the variation, and the court’s approval to the variation was sought on their behalf. One of the minor beneficiaries, referred to in the judgment as “X”, was severely autistic and was not expected to have the capacity to make decisions of this nature for himself as an adult.

The  court was invited to determine whether it was necessary to refer the question of whether or not the variation was for X’s benefit to the Court of Protection, as would be the case for an adult lacking capacity pursuant to s1(1)(3), or whether that was an issue that the High Court could deal with.

Morgan J is actually a nominated judge of the Court of Protection in addition to being a High Court judge and could therefore have sat in both capacities without being required to decide this point. However, since there is no authority on the point and such applications are listed before other judges and masters who are not also COP judges, he was invited to give judgment on the point.

The decision

Morgan J’s analysis is as follows:

  1. I can see that it might be argued that there are two reasons why X lacks capacity, the first reason being that he is a minor and the second being that he has an impairment or disturbance of the mind or brain. It might then be argued that because one of the reasons X lacks capacity to assent is the impairment or disturbance of the mind or brain the matter should be referred to the Court of Protection. However, section 1(3) of the 1958 Act appears to apply to a person where the impairment etc is the single or only reason for the lack of capacity to consent. That requirement is not met where there are argued to be two reasons for the lack of capacity.

  2. I consider that on the literal reading of section 1(3) of the 1958 Act taken together with section 2(1) of the 2005 Act, X is not able to assent to the variation by reason of being a minor. His inability is not by reason of another incapacity and is not because of an impairment or disturbance of mind or brain.

 

Accordingly, it is clear from the decision that the question of whether or not the court should approve a proposed variation of a trust on the part of a beneficiary who is under the age of 18 will always be a matter for the High Court. This will be the position even if that person is nearly 18 and lacks capacity in relation to other matters within section 2(1) of the Mental Capacity Act 2005. The involvement of the Court of Protection is only required in cases of adults lacking capacity.

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