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Pitt V. Holt Notes

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PITT V. HOLT FACTS Mrs Pitt is the widow and personal representative of Mr Derek Pitt, and was at the material time his receiver appointed by the Court of Protection. He was very badly injured in a road accident in 1990. His personal injury claim was compromised in May 1994 on the basis of a structured settlement under which a lump sum was payable as well as monthly payments. With the benefit of professional advice it was decided to put both the lump sum and the annuity into a trust for Mr Pitt's benefit. As his receiver Mrs. Pitt entered into a Deed of Settlement, under which the lump sum was to be held on trust, and she then assigned the annuity to the trustees to be held on the same trusts. The settlement created discretionary trusts of income and capital for the benefit of Mr Pitt, his wife, children and remoter issue during his lifetime. It was to be known as the Derek Pitt Special Needs Trust. Mr Pitt died in September 2007. Probate of his will was granted to Mrs Pitt and Mr Shores. Mrs Pitt is, in the events which happened, the sole beneficiary of the estate. In the meantime it had been realised in 2003 that the terms of the Special Needs Trust were such that inheritance tax (iht) applies to it as to any ordinary discretionary trust. It would have been easy to create the settlement in a way which did not have these tax consequences. Section 89 of the Inheritance Tax Act 1984 excludes from this treatment some discretionary trusts for disabled persons. One additional provision would have been needed, namely a clause under which at least half of the trust fund applied during Mr Pitt's lifetime was to be applied for his benefit. By the present proceedings Mrs Pitt and Mr Shores, as personal representatives of Mr Pitt and in Mrs Pitt's case also personally, claimed a declaration that the settlement by which the Special Needs Trust was created, and the assignment of the annuity, were void or alternatively voidable and ought to be set aside. ISSUES

1. Trustees of a settlement exercise a discretionary power intending to change the beneficial ownership of trust property, but the effect of what they do turns out to be different from that which they intended. Can their act be set aside by the court? If so, what is the correct legal test to determine in what circumstances and on what basis the court can intervene?

2. The second question concerns the correct legal test to be applied if a donor seeks to have a voluntary disposition set aside as having been made under a mistake. HOLDING THE

TRUST POINT

The question of whether a declaration that the trust was void must be granted or not depended on the correct interpretation of the hasting-bass rule and whether that rule applied in this case.

The best formulation of the Hastings-Bass rule: "Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account." Correct interpretation of the Hastings-bass rule: Trustees considering an advancement by way of sub-settlement must apply their minds to the question whether the sub-settlement as a whole will operate for the benefit of the person to be advanced. If one or more aspects of the provisions intended to be created cannot take effect, it does not follow that those which can take effect should not be regarded as having been brought into being by an exercise of the discretion. That fact, and the misapprehension on the part of the trustees as to the effect that it would have, is not by itself fatal to the effectiveness of the advancement. (That involves the rejection of the Revenue's fourth submission.) If the provisions that can and would take effect cannot reasonably be regarded as being for the benefit of the person to be advanced, then the exercise fails as not being within the scope of the power of advancement. Otherwise it takes effect to the extent that it can. If the problem to be resolved is what is the effect on an operation such as an advancement of the failure of some of the intended provisions, because of external factors such as perpetuity, it is not useful to ask what the trustees would have thought and done if they had known about the problem. The answer to that question is almost certainly that they would have done something different, which would not have run into the perpetuity or other difficulty. It

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