Variation Of Trusts Act 1958 Applications: A Practical Guide For Trustees

What is the Variation of Trusts Act?

The Variation of Trusts Act 1958 (VTA) gives the court the power to approve arrangements varying or revoking trust provisions, or enlarging trustees' powers of management or administration, provided this is for the benefit of specific classes of beneficiary.

It is a useful tool where a trust structure no longer reflects a family's circumstances or practical needs. However, it is important to remember that the arrangement must remain a variation rather than a resettlement; the essential substratum, or beneficial core, of the existing trust must continue.

When might trustees consider a VTA application?

A VTA application commonly arises where trustees consider a change desirable but lack the power to achieve it. This is particularly relevant to older settlements, whose drafting may not contain the flexibility now routinely included in modern trust instruments.

Typical applications include:

• Extending the trust period: this is particularly useful for trusts holding a landed estate, family business or dynastic structure where the existing end date would cause assets to vest outright or pass to a default beneficiary.
• Varying beneficial interests: for example, to equalise treatment between male and female beneficiaries in historic trusts, or to create new funds for beneficiaries with different classes of interest.
• Postponing an age of absolute entitlement: for example, postponing the age at which a beneficiary is entitled to capital from 18 to 25 or 30 to allow them time to mature before receiving large sums of money.
• Enlarging or modernising trustee powers: for example, express powers to lend, appropriate assets or add beneficiaries.

Before considering proceedings, trustees should ask whether the trust instrument or general law already provides the necessary power. Powers of appointment, particularly powers to appoint onto new trusts, can sometimes achieve the same result without the need for an application. Trustees may also not need the court's assistance to vary a trust where all of the beneficiaries are adults and can otherwise consent to the changes.

When can the court approve a VTA application?

The court's jurisdiction under the VTA is only engaged if certain categories of beneficiary exist, as the court's role is to supply consent to the variation on these beneficiaries' behalf. The categories are:

• Beneficiaries with a direct or indirect, vested or contingent interest who cannot consent because of infancy or another incapacity, such as children or adults lacking mental capacity.
• Unborn beneficiaries.
• Someone who may become entitled on a future event.
• Beneficiaries with discretionary interests under protective trusts while the principal interest continues.

How are adult beneficiaries engaged?

An important limitation of the VTA is that the court cannot approve a variation on behalf of an adult beneficiary with capacity. Their consent must therefore be obtained directly and, if no beneficiary falls within one of the statutory categories above, the VTA will not assist.

It is therefore essential that adult beneficiaries are consulted on the proposed changes and are willing to consent to them if the application is to succeed.

This can cause practical difficulties where there is a wide discretionary class because the court will not ordinarily allow one adult beneficiary simply to represent all other adults.

In an appropriate case, existing powers may permit the class to be narrowed or powers in favour of remote objects could be released before the application. This may mean that only the 'core' beneficial class needs to be joined and consulted. However, this must not be an artificial reorganisation designed merely to make the application more attractive.

How does the court assess benefit under the VTA?

When considering whether to approve a variation, the court must be satisfied that the arrangement benefits each person on whose behalf it is asked to approve. Trustees should think carefully about the benefit to each individual rather than relying on a general assertion of overall family benefit in the round.

The arrangement does not need to be for the benefit of consenting adult beneficiaries, as they are treated as capable of protecting their own interests.

Benefit can include:

• Financial benefit: a variation may preserve value, avoid premature vesting, mitigate tax or improve administrative flexibility. Tax should always be analysed, even where it is not the principal benefit. Legitimate tax mitigation can support an application, and trustees should obtain specialist advice on whether the variation could itself trigger a tax charge.
• Social benefit: such as educational, social and welfare considerations, stability and continued professional stewardship. Postponing an entitlement may deprive a beneficiary of immediate access to capital but still be beneficial if it supports maturity and long-term independence. Likewise, extending a trust period may preserve a family estate or business under professional management and create greater succession flexibility, even though it delays a beneficiary receiving assets outright.