DRAFTING TRUSTS AND WILL TRUSTS
Richard Moyse reviews the latest edition of James Kessler’s guide to modern drafting, admiring the clarity of its language, arguments and structure
When James Kessler QC’s Drafting Trusts and Will Trusts: A Modern Approach was first published in 1992, it was something of a revelation. The short, concise, grammatically correct precedents for lifetime and will trusts were very different to the more traditional, unpunctuated and verbose versions that most of us were used to. Twelve years on, the style and language of the precedents is still very different to many of the others available, but they have become a widely used resource.
The latest and seventh edition of Kessler’s book is now available and is up to date as to 1 August of last year. The revised version reflects changes to both case and statute law since 2002, when the book was last updated to include the substantive changes following the introduction of the Trustee Act 2000. In addition to updating case law and touching upon newly introduced legislation such as the pre-owned assets charge, the main additions to this edition concern the introduction of stamp duty land tax (SDLT).
Kessler’s book provides the reader with modern and succinct precedents for both lifetime and will trusts that are refreshingly different to the more traditional precedent. Each example trust or will tends to be much shorter, with punctuation, clear numbering and headings, and written in concise plain English (which may well be easier for the lay client to understand). They do not generally include re-statements of the blindingly obvious, or of general law. A CD Rom is included with the book to allow easy practical use of the precedents.
In addition to the whole precedents, many examples of wording of individual clauses are included. Helpfully, these are contained within chapters concentrating on the particular subject matter. For instance, tips on wording to be included and excluded in deeds of appointment and retirement are included within the part of the book setting out the relevant law and considerations. This both helps illustrate the points Kessler makes and is easier for the reader to follow.
Kessler’s book is, however, much more than simply a manual of precedents. The principles and styles of modern drafting are clearly set out and usefully explain to more experienced practitioners reasons why they may need to look at using more modern and user-friendly forms, whilst providing reassurance that they are just as effective in achieving their objectives as an elaborately worded document which is considerably longer.
Kessler’s also an excellent easy reference guide to various key aspects of trust law. There are, for instance, comprehensive chapters on beneficiaries, trustees and trustees powers that contain concise but informative advice on all aspects of the topic, often concentrating on what on the face of it appear to be minor points, but which could be very salient ones. For instance, the section concerning beneficiaries includes reference to a wide range of potential beneficiaries (including the insolvent, separated and divorced, step-children, children conceived by artificial insemination and surrogacy and foreign charities) with discussion as to whether the different types of beneficiary are included within the scope of the usual definitions given in standard trust forms and the possibilities for altering wording to either include or exclude, together with example wording.
Kessler does make it clear at the start that this book is not a tax manual and does not provide precedents for the more convoluted tax schemes. It does, however, contain tax advice that is clearly relevant to the drafting under consideration. For instance, as the rationale of nil-rate band trusts is to minimise IHT, any guide to drafting them that did not refer to the tax aspects would clearly be incomplete. Indeed, many of the updates to this edition were necessitated by changes to the tax regime.
Kessler’s book provides the reader with modern and succinct precedents for both lifetime and will trusts that are refreshingly different to the more traditional precedent.
References in this new edition are made to the pre-owned assets charge where relevant. However, most of the references are a little sketchy, presumably because, as at the time of publication, precise details regarding the interpretation of the legislation and what situations are caught and which aren’t were still unclear—and indeed they were issued only three weeks before they came into effect. Doubtless the eighth edition will be much clearer on these points so far as they relate to the topics under discussion.
This new edition contains a very useful appendix on nil-rate band debt and charge arrangements with, in particular, a very comprehensive analysis of the impact of the introduction of SDLT. This is clearly an important topic, because when the tax was first introduced many experts feared it would render such schemes effectively unusable.
The arguments for the circumstances in which SDLT should not be imposed on debt charge arrangements are very clearly structured, to the extent that they could be followed when corresponding with the Revenue on specific clients. On the STEP Trust Discussion Forum (an Internet discussion group of which Kessler is a founder, as mentioned towards the front of the book) a reader has recently reported that by following Kessler’s analysis of why SDLT could not be said to apply to each stage of a debt/charge transaction in correspondence with the Revenue, his client was awarded back tax that had been incorrectly demanded and paid, albeit with no explanation, so it is not absolutely clear that Kessler’s interpretation was accepted.
A further new chapter specifically concerns stamp duty and SDLT and is in particular extremely helpful in clarifying the now limited, but frankly very confusing, circumstances in which £5 stamping of documents and stamp duty certificates are still required. The conclusion seems to be that, nominally, stamping should still be required on various documents such as declarations of trust, but due to a separate set of exemptions they will, in most cases, not be unless stock is being transferred. As Kessler rightly points out, these rules need to be reviewed and largely abolished. This point is again picked up in the section on appointment and retirement of trustees, where the rules regarding stamping of deeds or appointment and forms transferring ownership of stock to trustees are set out. It is an ill thought-out tax. Indeed, this reviewer has seen correspondence where in a response to a request for a COP 10 ruling application, where property was being transferred between two sub-funds of the same settlement, the Revenue Policy department have stated that this is a ‘complex and specialist area’ and they cannot comment!
The chapter on restricting rights of beneficiaries has been updated, following the Privy Council’s decision in Schmidt v Rosewood Trust [2003]. It is now advised that a beneficiary’s right to receive information should not be limited to any extent by the trust deed, because the Privy Counsel recognised the right to acquire information as a core beneficiary right and any such restriction may well not be valid and will be ignored. It cannot now be assumed that there is a minimum duty of disclosure.
Schmidt v Rosewood Trust [2003] WTLR 565
Instead, Kessler suggests that trustees who would like to minimise the information a potential beneficiary may have access to, for instance about their family members, should ensure that each beneficiary has a separate settlement, so that they will not be entitled to information regarding another family member who will have a separate settlement.
This is not easy to achieve in the case of existing settlements without a CGT, disadvantage.
Generally, Kessler’s book is an excellent reference work and provider of modern user-friendly precedents. As this is the seventh edition in 12 years, readers can be reassured that it is as up to date as any text book can reasonably be expected to be. Kessler may, in the future, like to consider bringing out a loose-leaf version, so that it could be updated for minor changes in the law at more regular intervals. He is also not afraid to express his views were he feels the current law is unclear or inconsistent and where changes are necessary; which is always refreshing to see.
The precedents are, of course, very different from more traditional styles and may not be to everybody’s taste or, more significantly, sit well with other precedents in common use. Particular care would need to be taken when slotting in some of Kessler’s suggested wording to a traditional precedent (as with any drafting involving the mix and matching of precedents) to ensure that no conflict of definitions occurred, as well as to check for sense. Even though Kessler is very thorough in leaving out provisions that are unnecessary or redundant following changes to the law (for instance following the Trustee Act 2000), the more cautious amongst us may prefer to keep these in for safety’s sake. This reviewer would, however, concede that any difficulty with the language and structure of Kessler’s precedents or approach probably lies more with the attitude of the reader rather than with the quality of the precedents or advice given. The ultimate accolade is contained in Professor David Hayton’s foreword: ‘This book has now established for itself an indispensable place in the library of any serious trust lawyer’.
Richard Moyse is a partner in the tax and financial planning department at Boodle Hatfield
For details of Trusts & Estates Law & Tax Journal go to
http://www.legalease.co.uk/lj_teltj.htm.
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