Drafting Trusts and Will Trusts: A Modern Approach James Kessler

Sweet & Maxwell

The increase in the interest in the use of trusts around the world leads naturally to the need for practical advice on the creation of trusts. A vitally important part of this is the drafting of a trust deed. In Drafting Trusts and Will Trusts; A Modern Approach, James Kessler amply provides this practical guidance.

The book is essentially a practical manual. James Kessler makes the point at the beginning on style which he now regards should be simplified. He is a supporter of the 'plain language plain law school' and devotes a chapter to his views. He comments that punctuation was traditionally omitted in legal documents but is likely to appear increasingly in trust drafting. He is also in favour of a number of short clauses in preference to a single lengthy clause. In one example he gives a lengthy clause which describes a standard but tortuous provision in which a trust for sale, a duty to invest trust money, a power to vary investments and a power to use nominees are all hidden. He says that each of these could be more clearly contained in separate clauses.

Similar matters of presentation, the use of words and figures, clause headings, indentation as well as a table on archaic forms which should be replaced by his suggested forms is included. The technicalities of trust law are summarised concisely and in support of the plea for clarity are easily readable. Although the author believes in simplification there is no question that the reader is deceived into thinking that drafting is easy. Drafting, he says, is a deceptive skill; like skating on thin ice, innocent of danger one falls into traps; subsequent rescue is difficult or impossible.

He states that most family settlements fall into interest in possession settlements, discretionary settlements and accumulation and maintenance settlements. In terms of drafting, the discretionary settlement is relatively easy, accumulation and maintenance forms are exacting and interest in possession settlements fall somewhere in between. He states that it is largely tax considerations which determine which form of settlement is used.

In a separate chapter reference is made to the tax position although the book does not pretend to be a complete tax treatment of trusts. Some useful summaries are given, for example, as to why one might use an accumulation and maintenance trust. Summaries on inheritance tax holidays, the availability of potential exempt transfers and the holdover relief from capital gains tax help. This chapter comprises an outline of the considerations which must be taken into account in drafting such a settlement, and here the balance between the terms of the trust and the tax situations are neatly balanced.

Drafting of an accumulation and maintenance settlement is one of the great challenges to the draftsman. A general practitioner needs specialist advice. Although the rules when considered separately can, like the rules of chess be stated simply, when put together they result in a game which is infinitely subtle.

The accumulation and maintenance trusts are a prime illustration of this in the UK tax system and the chapter on these outlines the basic rules and some of the basic moves. This is followed by drafting notes and in places suggests some solutions which are simpler than those normallv adopted and where the class of beneficiaries in this type of settlement includes future born children there are suggestions on how to overcome transgressing the rule against accumulation.

The second part of the book contains precedents which follow the principles described. Earlier in the book the author warns that the adoption of a precedent verbatim is no guarantee of safety, however, the precedents given will form a very useful basis if used in the way the author suggests.

John Goldsworth

The Mill Office, Saffron Walden

Book Review

John Goldsworth in Trusts & Trustees

Drafting Trusts and Will Trusts Third Edition

The drafting of trusts and will trusts is, undoubtedly, an art. This art, like many others, changes over the years. The present preference is for legal drafting to take greater notice of what is normally called "plain English". A champion of this trend is undoubtedly James Kessler whose book DRAFTING TRUSTS and WILL TRUSTS, in his first edition in 1996, won the Clarity Prize for its clear and easy to understand guidance on the drafting.

The traditional thinking has been that plain English could not be brought into legal drafting without loss of certainty. This has now been overwhelmingly rejected. The drafting style, established in earlier centuries, has now been adapted to present usage. This trend has received judicial support.

The author does not deny that a flourish of the old precedents have their attractions. They offer, he says, 'harmonious cadences which ravish the ear and the intellect of the conveyancer'. They, however, 'make little concession to the natural breaks and lucidities of the English tongue'.

As trusts are such individual creations, lacking any official precedent as with The Law of Property Act 1925 or The Companies Acts, there is nothing which gives the draftsmen greater scope to interpret the wishes of the settlor or testator. Inevitably the draftsmen will turn toward precedents and, therefore, a tendency to continue a traditional form of drafting. The excuse for this is that it leads to certainty. Well-used expressions have been adopted and interpreted over the years. To some extent in trust drafting this is a false doctrine. On the other hand, as in marine insurance policies, litigation has interpreted many of the archaic expressions and each phrase has legal significance. Trust deeds on the other hand, should express the wishes of the settlor and the settlor only. Tradition is not a reasonable excuse for obscure drafting.

Although the book appears to condemn some archaic and prolix expressions, the author does not see that there is a compulsory ban of these. Sometimes they may serve a purpose but in normal circumstances they add nothing. A list which is not comprehensive suggests replacing words like "accretion" by "add to", "issue" by "descendants" and "moiety" by "half". No-one can disagree with that.

Of more substance is the avoidance of using artificial rules of construction such as the class closing rule, also known as the rule in Andrews v Partington. Under this a gift made to "such of my children as shall attain 21 absolutely" means that once the first child has attained 21 the class closes, so a child born later will not take a share of the gift. A document which does not spell out what this means is confusing, and the usage should be resisted on principle.

It would be a mistake, however, to conclude that this valuable book is merely on form and not substance. Take, for example, Trustee Exoneration Clauses which are discussed in conjunction with typical clauses. The book gives the theoretical explanation and links it with the practical position. The book is not about tax law but some outline tax points orientate the reader to relevant fundamental principles. No-one clearly concerned with drafting a trust under English law can be ignorant of the taxation provisions. The differences between interest in possession settlements and accumulation and maintenance settlements are surveyed as well as the need to create a trust which is clearly one type or the other.

A particularly useful chapter deals with situations where the settlement draftsman might insert provisions which are inconsistent with the relevant conditions and such settlements. Tax considerations precede a discussion on discretionary settlements.

Then, there are will trusts which are different from a lifetime settlement. Tax considerations are more significant and the chapter points out some of the characteristics of will trusts.

In any precedent the administrative provisions take up a considerable amount of space. This is because the administrative powers of trustees conferred by the general law are in some respects inadequate: the law has failed to keep up to date with the changing economic and business conditions, as well as with the need to frame trustees' powers in order to reduce the risk of mismanagement. The particular clauses suggested here will cut down the bulk of an agreement considerably without affecting its meaning.

This edition gives credit to the standard provisions on administration powers promulgated by the Society of Trusts and Estate Practitioners and allows a lengthy schedule to be replaced by making the standard provisions of STEP apply.

We must not forget Stamp Duty. This is "frivolous and vexatious". The amount of duty usually involved is 50p but is, nevertheless, important and the details are explained in a short chapter.

The final chapter sets out the procedures to be carried out once a draft has reached its final form. The counsel of perfection is that each document should be reviewed twice after it has reached this stage. A gap of 24 hours should separate a review by the draftsman after he had last examined the document. And, don't forget to use acid-free paper, otherwise after 50 years the letters might drop off!

It is not only a matter of drafting a trust deed but it is the procedure after execution, such as the transfer of trust property to trustees, memorandum of wishes and miscellaneous tax matters. They are often neglected in some offshore trusts. These necessary stages are summarised.

Part II of the book consists of precedents. These include lifetime settlements, accumulation and maintenance settlements, will trusts and questions of administrative provisions. One of the joys of this book is the accompanying disc which reproduces the precedent material contained in the book: this allows the principles expounded to be rapidly put into practice.

Although the book does not purport to be a dissertation on the law of trusts the practical approach offers a key to understanding much of the theory. This book is essential for all lawyers concerned with trust drafting and will offer a greater insight into interpretation of trust deeds and wills.

John Goldsworth

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