Trust  

Lessons to learn about the use of trusts

  • Identify the insight that the case gives into the Family Court’s approach towards trusts.
  • Describe the methods that might be used to elicit funds from that resource.
  • List the circumstances in which such methods might be deployed.
CPD
Approx.30min

In the face of such a difficult litigant, one cannot criticise Mrs F for seeking a sum far higher than the court provided her with.

The old saying, “if you don’t ask, you don’t get” rings true and the determination of what a party’s “reasonable needs” are often involves a tug of war between two extremes of spending – often with neither truly reflecting the standard of living that was really experienced during the marriage.

Nevertheless, when the calculation of needs remains a discretionary exercise of the judge then a well-crafted budget will be a key foundation of a party’s case, which combines factual spending with aspirational requirements widely drawn but with intellectual justification.

The fact that Mrs F wanted a second home in London, despite not having enjoyed this facility during the marriage, did not deter her from seeking one so that she could be closer to her family, her network of support and her place of work.

However, the judge found that there was not sufficient capital to buy such a property and that the amounts she quoted for rental costs were too high. But that, ultimately, once she had received her financial settlement she could then cut her cloth as she wished and take a property in London, though at the risk that she may run out of money sooner than forecasted.

Doing the sums

Any assessment of needs by the court is a forecast.

It is not an exact science and usually the two components of the formula are the cost of housing plus the maintenance sum needed to meet future living costs.

If there is sufficient capital, then the maintenance can be capitalised into a one-off sum or series of sums paid over a short period of time.

How the party receiving that maintenance then chooses to spend the money is up to them and, if spent unwisely, is almost impossible where a clean break has taken effect to come back for more.

As far as the trust is concerned, the following principles were applied:

(1) The court relied upon well-worn case law, namely the leading Court of Appeal case of Thomas v Thomas, which found that though it could not make orders directly against the trustees it would be possible to make orders against the beneficiary – in this case the husband, which would place “judicious encouragement” on the trustees to provide him with the funds he needs to meet his obligations under a court order.

(2) The history of capital distributions from the trust, or as in this case the lack of them, was key to informing the court whether it was appropriate to make orders that might require capital payments to be made. Ultimately a trustee is responsible for providing for not only the requirements of the beneficiary who is the subject of the proceedings, but also all the other beneficiaries of the trust. To order a significant capital payment out of the trust could prejudice other beneficiaries and the court has to take this into consideration.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. The judgment described how the husband behaved as what?

  2. According to the author, the court process was temporarily frustrated, to the financial cost of which family member?

  3. Finish the sentence: "Capacity at its broadest level is often linked to..."

  4. What income would the husband continue to receive from the trust after tax?

  5. Any assessment of needs by the court is what?

  6. True or false? "How the party receiving that maintenance then chooses to spend the money is up to them and, if spent unwisely, is almost impossible where a clean break has taken effect to come back for more."

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Identify the insight that the case gives into the Family Court’s approach towards trusts.
  • Describe the methods that might be used to elicit funds from that resource.
  • List the circumstances in which such methods might be deployed.

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