Case Study: Legal Insights From A Case Of Real Estate Held In Trust For An Adult Beneficiary
In this month’s article, we look at a case where real estate was held on trust for a beneficiary who was already 24 years old at the time of inception of the trust (the “Trust”).
The Beneficiary was 26 years old when he made the application to invoke the rule under Saunders v Vautier (1841) 4 Beav 115 (the “S v V Rule”) to terminate the Trust and have the property vested directly in him. The settlors and trustees were his parents. While his mother had no objections to the application, his father had contended that the Trust was a sham trust, incepted to avoid Additional Buyer’s Stamp Duty (“ABSD”).
There was also the issue of a loan agreement that was prepared but never signed. The Beneficiary’s mother had claimed that the loan agreement was to protect the property from division should be Beneficiary be involved in divorce proceedings, as it would be a matrimonial debt to be paid prior to division of assets. The Beneficiary’s father had alleged that the loan agreement was prepared to safeguard their interests as the Beneficiary’s parents instead, since they were the ones who paid for the property.
The Beneficiary was prompted to terminate the Trust as his parents were undergoing a divorce. In an attempt to prevent more disputes between his parents, and to ensure that his mother, his sister and himself have a home to call their own after the divorce, he sought to have the property vest in him.
The S v V Rule is a legal precedent that grants adult beneficiaries of a trust the authority, with unanimous agreement, to prematurely terminate the trust and gain access to the trust assets, regardless of the settlor’s original intentions or the trust’s designated timeline. This ruling respects the autonomy of beneficiaries, allowing them to make decisions about trust assets when they are legally capable, even if it contradicts the trust’s original purpose or the settlor’s wishes.
The Beneficiary’s father argued that the Trust was set up to avoid ABSD and for them to have more time to dispose of their other residential properties. Hence, the Trust is illegal, and therefore invalid, and therefore the S v V Rule should not apply.
The Court’s Findings
The Court had found that the S v V Rule should apply for the termination of the Trust, as the Beneficiary has fulfilled all the requirements. He was of the age of maturity, of sound mind, and the sole beneficiary of the Trust. The application of the S v V Rule would therefore only be defeated if the Trust were illegal.
In deciding that the Trust was not a sham instrument and/or illegal, the Court had considered whether there was an intention to give a false impression of having transferred beneficial ownership to someone else while it not being the case. Hence, an intention to mislead was needed.
The Court had found that the Trust was not a sham instrument. This was because the Trustees were already in their mid-50s at the time the Trust was incepted, and it was reasonable for them to be making provisions for their elder child and only son, who was already above 21 years old.
The Court had also found that the Trustees had sufficient assets to pay the ABSD that would have been applicable, as they had liquidated some, but not all, of their other real estate, and had further assets available to them thereafter. The liquidation of their real estate gave them substantial profit that would have been more than sufficient to pay the ABSD involved.
The Court also took the view that the Trustees were also aware of the fact that the Trust could be terminated at any time by the Beneficiary, but still proceeded to set up the Trust. This was bearing in mind that the Trust was prepared as an irrevocable trust, which meant that upon the termination of the Trust, the property would not vest in the Beneficiary’s parents but instead the Beneficiary.
The loan agreement was considered, and on the circumstances, the Court took the view that it could not be for the purpose of safeguarding the Beneficiary’s parents’ interests. The Beneficiary was an undergraduate student of 24 years old at that point in time, and had dated his girlfriend for about 1 year. In the event that the Beneficiary’s father’s allegations were true, this would mean that the Beneficiary’s parents had intended to call upon the repayment of the loan sum when the Beneficiary was 28 years old, and would have been married and then divorced by then.
It is clear from this case that a valid trust involving real estate can be established for beneficiaries above the age of 21 years old. However, the crux of the matter lies in the intentions of the settlor(s) when establishing the trust. The local Courts looked at the circumstantial evidence leading up to the establishment of the said trust.
Further, settlors need to be aware that there may be unforeseen events such as a change in family dynamics, the suitability for a person to act as trustee in the future, or even a change in the beneficiary’s circumstances. Hence, contingency plans need to be made for such potential situations to avoid disputes and legal challenges.
Before committing to a trust, settlors must understand the implications of placing assets in the trust. If it were a irrevocable trust, the assets will be placed outside of the control and estate of the settlors. It is essentially a gift to the beneficiary.
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