by Ann Wylie


A number of leading London law firms now perceive that litigation against off-shore trustees is a potential growth area with trustees of pre March 1991 "golden trusts" being particularly at risk.

[1] Whilst vigilant trustees will have made the utmost endeavour to ensure that the settlements which they administer remain "untainted" (outside the scope of TCGA 1992 Schedule 5 paragraph 9) many will by now have discovered to their cost that there are far more subtle ways of falling foul of the legislation than simply accepting new assets into the trust.

As a result many trusts created to provide either complete CGT protection or at least CGT deferral will no longer be able to provide these advantages. Litigation against the trustees may well follow.

[2] Disputes among beneficiaries may also result in legal action being brought against the trustees. For example, failure to ensure fairness between the income and capital beneficiaries or for taking a course of action which is deemed to be prejudicial to certain members of the beneficial class. Whilst the trust lawyers will initially look to the trust document itself in order to prepare their case they may discover that the trust has been in existence for many years without formal ledgers being kept or accounts prepared so that it is impossible for them to proceed without further information as to exactly what has happened in the past.

Even in cases where the trust records are complete and the trust lawyers are in a better position to examine the dissatisfied beneficiary's claim there will almost certainly be tax consequences to consider before any remedial action is taken.

In extreme cases the trustees could be asked to resign and would need to obtain appropriate indemnities from the new trustees but may discover that they are unable to quantify the potential liabilities arising during the period of their trusteeship.

In all cases the trustees require specialist advice in order to enable them to defend their position and decide on future action.

We are able to provide specialists in trust taxation and accountancy who will work alongside the trust lawyers in the following ways :

  • Preparation of ledgers and accounts from the trust's prime records to establish the trustees' position.
  • Preparation of income tax, capital gains tax and inheritance tax computations to quantify the trust's potential exposure to UK tax.
  • Advice in connection with limiting the tax disadvantages resulting from the tainting of pre March 1991 "golden trusts".
  • Advice on mitigating the trust's tax liabilities in the future and assessing the trust's overall viability.

Taking advantage of the services outlined above at the earliest opportunity will assist the trust lawyers to assess the trustees' position fully and settle the dispute with the minimum of delay and cost.

Taking advantage of specialist services before disputes arise and litigation is contemplated would be doubly beneficial !

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.