This recent case of the Jersey Royal Court considered the legal
test for rectification and, in particular, whether suing a
professional advisor who had given mistaken advice on which the
settlor relied, is an alternative practical remedy to
The settlor, who at the time of the establishment of the trust
was a UK resident non-domiciled individual but deemed domiciled for
IHT purposes, sought specialist tax advice about the implications
of transferring assets into a trust. The advice given to the
settlor was that if funds were to be transferred to a trust, that
it should be a trust in which the settlor and his spouse had
successive life interests and not a discretionary trust.
The settlor instructed the tax advisor to proceed with the
transfer of securities held through two bank accounts to a trust.
The tax advisor then mistakenly instructed the original trustee to
establish a discretionary trust, not an interest in possession
trust. In addition, the trust deed mistakenly referred to a third
personal account of which the settlor did not in fact transfer
The mistake was realised following the appointment of a new
trustee, following which, advice was given that the settlor and
trustee were liable in respect of IHT liabilities arising on the
assets transferred into trust, together with penalties and interest
for unpaid tax on chargeable transfers and potential charges on
each ten year anniversary. The new trustee and the settlor,
therefore, made a representation to court seeking the discretionary
remedy of rectification.
Remedy of Rectification
There is a well established three stage test to be satisfied on
rectification. Firstly, the court must be satisfied that there is
sufficient evidence that a genuine mistake has been made so that
the document does not carry out the intentions of the parties.
Secondly, there must be full and frank disclosure. Thirdly, there
should be no other practical remedy.
In considering the test, the court considered whether suing the
settlor's tax advisor would be alternative practical remedy to
rectification and, in doing so decided, that the cost and risk of
such litigation to the settlor, who had already been let down by
his professional advisors was not a remedy sufficiently practicable
to decline the remedy of rectification.
The court also considered whether the discretionary remedy of
mistake would be an alternative practical remedy. Whilst the remedy
of mistake would be at the disposal of the court, rectification,
the remedy which preserved the trust, was to be preferred to
mistake, a remedy which set aside that which the settlor intended
In a decision which follows In the matter of GLG Green Trust
(2002) and the growing Jersey case law on rectification, the court
granted rectification of the trust retrospectively from the date
that the trust was established and avoided the prospect of
additional litigation for the settlor.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Many people are baffled by trusts, the purpose of which they don't fully comprehend. Some even regard them with suspicion, as tools of of opaque tax evasion strategies of a type favoured by wealthy individuals.
We were recently instructed by a Bank in relation to a regulatory matter. The Bank had made a suspicious activity report to the Financial Investigation Unit ("FIU") due to their concerns about the potential source of funds in an account.
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